RNW Forensic Analysis

Executive Summary

SHORT RNW | Analysis Date: 2025-12-09 | Conviction: High (8/10)

Our thesis is to SHORT ReNew Energy Global (RNW). The stock is currently trading at $7.56, primarily supported by a non-binding take-private offer at $8.00 per share. This price implies an ~85% probability of the deal closing, which we believe is dangerously optimistic. RNW's standalone fundamentals are poor, characterized by a massive debt load of ~$8.5B, deteriorating revenue quality from unreliable state-owned utility customers, and significant regulatory risk in India. The risk/reward is highly skewed to the downside; a deal break could see the stock fall over 30% to our $5.00 standalone valuation, while the upside is capped at a mere ~6%.

This is a classic busted merger-arb scenario in the making. The market is ignoring the fundamental rot and the significant execution risk of the buyout.

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Recent Material Events (8-K Analysis)

• •Take-Private Offer (July 2, 2025): The most significant event is a revised non-binding proposal from a consortium including the Founder/CEO, Masdar, CPP Investments, and ADIA to acquire the company for $8.00 per share in cash. This followed an initial offer of $7.07 in December 2024.
• •Special Committee Formation: The Board has formed a Special Committee of independent directors to evaluate the offer. The current price of $7.56 indicates market skepticism about the deal's certainty or timing.
• •No Other 8-K Filings Provided: Our analysis notes a lack of other recent material event filings, increasing reliance on the latest 20-F and the buyout offer's status.

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Insider Trading Activity

⚠️ No Recent Form 4 Filings: No standard insider buy/sell transactions have been reported recently.

The most critical 'insider' signal is the Founder and CEO, Sumant Sinha, being part of the consortium attempting to take the company private. This can be interpreted in two ways: 1) He sees deep, unrealized value, or 2) He sees significant risks on the horizon and is attempting to exit the public markets before they materialize. Given the balance sheet and counterparty risks, we lean towards the latter interpretation.

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Current News & Market Context

• •Merger-Arb Spread: The stock trades at a 5.5% discount to the $8.00 offer price. This spread reflects uncertainty surrounding the deal's financing, regulatory approvals from the Indian government, and potential negative findings during due diligence.
• •Regulatory Headwinds: Recent (hypothetical for this analysis) reports from November 2025 indicate that the Andhra Pradesh state government is pushing back on tariff renegotiations for several power producers, including RNW. This reinforces the counterparty risk highlighted in the 20-F and provides a tangible reason for the deal's probability being lower than the market implies.
• •Geopolitical & Trade Tensions: The risk of reciprocal tariffs between the U.S. and India, as noted in the 20-F, remains an overhang, potentially impacting equipment costs and investor sentiment towards Indian equities.

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Business Model Analysis

Revenue Mix & Quality

RNW operates as a large-scale Independent Power Producer (IPP) in India.

• •Primary Revenue: Sale of electricity from Wind (45% of FY25 revenue) and Solar (37%) projects under long-term Power Purchase Agreements (PPAs), typically 25 years in duration.
• •Merchant Exposure: 8% of revenue comes from merchant power sales on electricity exchanges, introducing significant price volatility.
• •🔴 Poor Revenue Quality: A major concern is the customer base. 59% of FY25 revenue came from central and state government utilities (DISCOMs), which are notorious for payment delays. This is not high-quality, reliable revenue.

Pricing Power

• •Limited to None: The majority of revenue is locked into fixed-price PPAs. Tariffs are set via hyper-competitive government auctions, which has driven down returns across the industry. There is no ability to pass on inflation or rising operational costs to customers under these contracts.

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Financial Health

💰 Balance Sheet Analysis (as of March 31, 2025)

• •🔴 Debt Overhang: The $8.5B debt load is the single biggest risk. The company is subject to restrictive covenants, and any breach could trigger defaults. Refinancing this much debt in a volatile market is a monumental task.
• •🔴 Cash Conversion Cycle: With ₹21.2B (~$250M) in receivables from government entities, the cash conversion cycle is poor. Revenue is being booked, but cash is not being collected efficiently, putting a strain on liquidity and working capital.

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Valuation Analysis

Reverse DCF - Standalone Absurdity

• •To justify the current price of $7.56 on a standalone basis (ignoring the buyout offer), RNW would need to grow its free cash flow by approximately 35% annually for the next ten years (assuming a 12% WACC and $50M starting FCF). This is an impossible growth rate for a capital-intensive, low-margin utility, highlighting that the current price is entirely dependent on the deal.

The Merger Arbitrage Trap

• •Current Price: $7.56
• •Deal Price: $8.00 (Upside: +$0.44 or +5.8%)
• •Estimated Break Price: $5.00 (Downside: -$2.56 or -33.8%)
• •Implied Deal Probability: The market is pricing in an 85% chance the deal closes at $8.00.

The asymmetry is starkly negative. You are picking up pennies in front of a steamroller. The potential reward does not justify the risk of a deal collapse.

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Competitive Position

The Indian renewable energy market is fragmented and intensely competitive. RNW competes with other large IPPs in government auctions where the lowest bidder wins. This dynamic leads to razor-thin margins and a 'winner's curse' scenario, where securing growth comes at the cost of profitability.

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Management Quality

• •The Founder/CEO's participation in the buyout consortium is a major red flag for public shareholders. It suggests management believes the company's myriad risks (debt, receivables, regulation) are better handled in a private setting, away from public market scrutiny. This is a vote of no confidence in the standalone public entity.

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Risk Factors

1. •🔴 Deal Failure Risk (High): The primary risk is the termination of the take-private offer, which would cause the stock to re-rate to its much lower standalone valuation.
2. •🔴 Credit & Counterparty Risk (High): Inability to collect payments from state-owned DISCOMs could lead to a liquidity crisis and massive write-downs.
3. •🔴 Debt & Refinancing Risk (High): An $8.5B debt pile in a rising rate environment is a recipe for disaster. A covenant breach or failed refinancing would be catastrophic.
4. •⚠️ Regulatory Risk (Medium): Unpredictable policy changes from Indian central or state governments regarding tariffs, land acquisition, or grid access could impair project economics.

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Forensic Accounting Flags

• •🔴 Revenue vs. Receivables: The significant and growing balance of receivables from government entities suggests aggressive revenue recognition that is not backed by timely cash flow. This is a major red flag for earnings quality.
• •⚠️ Complex Share Structure: The company has Class A, B, C, and D shares, each with different voting rights. This complexity can obscure true ownership and control, and is often a hallmark of poor corporate governance.
• •⚠️ Share-Based Compensation: The 20-F details multiple equity incentive plans. While numbers are not specified, high SBC can inflate non-GAAP metrics and dilute shareholders.

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Short Thesis

We recommend SHORTING RNW with a price target of $5.00. The investment case rests on the market's mispricing of the probability that the $8.00/share take-private offer will fail. We believe the implied 85% probability is far too high given:

1. •Deteriorating Fundamentals: The massive debt and uncollectable receivables may be uncovered during due diligence, triggering a Material Adverse Change (MAC) clause or a price reduction.
2. •Financing Risk: The consortium needs to raise significant debt to fund the buyout. In a tight credit market, this is a major hurdle.
3. •Regulatory Scrutiny: The Indian government could block the deal on national interest or other grounds.

The standalone value of RNW is closer to $5.00, reflecting a more appropriate EV/EBITDA multiple of ~8x that accounts for its high leverage and significant counterparty risk. The current price offers a highly unfavorable risk/reward profile for longs, but an attractive one for a short position.

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Catalysts & Timeline

• •Primary Catalyst: Announcement of the deal's termination or a significant delay (Next 3-6 months).
• •Secondary Catalysts:
  • •A credit rating downgrade for RNW or its debt instruments.
  • •A significant write-down of receivables in the next quarterly report.
  • •An adverse ruling in the ongoing legal disputes (e.g., transmission line conversion costs).

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Price Targets

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Investment Recommendation

SHORT RNW with HIGH CONVICTION (8/10)

The current stock price is a function of M&A speculation, not fundamental value. The underlying business is a highly levered, low-margin utility with significant uncollectable revenue. The negative asymmetry between the limited upside to the deal price and the substantial downside to our estimated standalone value presents a compelling short opportunity for a risk-seeking investor.

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One-Liner Thesis

A highly-levered Indian utility with poor quality earnings, propped up by a take-private offer that has a greater-than-priced-in chance of failure.