Premier Energies, Waaree shares may fall another 24% on 'rich' valuations, Bernstein says

Global brokerage firm Bernstein has initiated coverage on two renewable energy-focused stocks — Waaree Energies Ltd. and Premier Energies Ltd.— with an 'Underweight' recommendation.

Bernstein has a price target of ₹1,902 for Waaree Energies, which implies a potential downside of 20% from Tuesday's closing levels. For Premier Energies, the brokerage has a price target of ₹693, implying a potential downside of 24% from current levels.

The brokerage believes that both Waaree Energies and Premier Energies have done an excellent job investing in the right place at the right time. They have been pioneers in India's renewable energy sector. Bernstein does not question their earnings potential in the coming quarters.

The brokerage also appreciates that some of them are cognizant that these supernormal returns will not sustain perpetually and are trying to diversify along the value chain or into new areas related to energy transition (e.g., batteries).

However, Bernstein maintains an 'Underweight' rating, citing the stage of the current market cycle, expectations of declining returns, and the stocks' rich valuations.

The brokerage mentioned that a business built on regulatory arbitrage cannot be assigned the same valuation multiple as a structurally sound business.

Regarding diversification into new business segments, Bernstein cautioned that it is too early to assign credible value, especially given the presence of large conglomerates eyeing this space.

This is the first 'Underweight' rating on Premier Energies, along with a 'Sell' rating from Kotak and a 'Neutral' rating from JPMorgan. For Waaree, this is the second analyst coverage after listing.

Within a few months of listing, shares of Premier Energies have already gained 100% from its IPO price of ₹450 per share. Shares of Waaree too, have risen nearly 60% from their issue price of ₹1,503 per share.

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