As investors it pays to be able to see long runway( structural themes) before majority of folks do, coupled with patience and conviction, compounding may happen and delivers holy grail of outcome. Of course numbers + narrative and rerating has to happen underneath to make it happen.
@RajeevJ has a golden touch in identifying winners and @Vivek_6954 was kind enough to point me in this direction, bonus was to see @Worldlywiseinvestors on board. What more can one ask for to dig deeper
Bear with me for a top down view in this bottom up stock specific thread -
Energy landscape evolution
- We all know that world is moving in green energy direction, given humanity survival depends on it - renewables is THE theme for multi decade. Fossil fuel need to be done away to make it happen.
- lot of buzz around EV and batteries - equal challanges about storage infra( how scalable battery infra can be when China controls major tech and rare earth material)
- How about Ethanol, CNG as alternative for a sustainable middle ground that India has better control on - we all know current policy push supporting these. But they still generate little CO2 though significantly lower(1/6th to 1/10th) than current Fossil fuels, but hey we have these in our backyard. Hence govt push on CNG and ethanol.
- So what is THE solution for ultimate green fuel - consensus seems to be Hydrogen based generated by renewables ( solar and wind) - why ? Read Hydrogen thread by @1957 Green Hydrogen- The ultimate Green Fuel- Indian companies that are leading the Green revolution in India!
What stands out is energy source and energy consumption( both should be CO2 free)
- Source of energy - solar and wind is our long term and scalable solution with ample repleshinable resources. This is sorted for India and globally, agreed and is a world mission ( Renewable theme)
- Hydrogen when generated from above is fully green and again scalable ( all we need is electrolysis, water &ability to store/transport , and yes making it commercial viable is still in works ) - do read about national Hydrogen mission, Reliance 1:1:1 mission( 1 Lt Hydrogen in 1$ in 1 decade), 10% compulsory Hydrogen usage in Industries by 2024 and so on…
Believe we all get a point on possibilities, but action currently lies in EV space, look at multibeggars after all, here is my submission
- We can generate all the energy we need using natural sources( eventually), where are we going to store it for night/time elapsed usage?
- Is battery based infra scalable ? Consider dependency on China, rare earth material and so on - India can’t be Atmanirbhar ever right?
- How about Hydrogen ( water + electrolysis) storage which is generated by green source, in a tank as alternative solution - well don’t need to agree but give it a thought keeping India context of Atmanirbhar. BTW Hydrogen based mobility, industrial use are all live and not too far behind from Battery landscape.
Where does Kanto comes in picture
- Near to med term- 25% CNG from current single digit in country in near future - that’s a 2-3X opportunity on OEM+CNG station+ Replacement market- don’t trust me but see what’s Maruti bet on CNG, see Kento Capex and commentary on CNG, see pace of recent CNG station approved and India coverage.
- Longer term- When Hydrogen solution scales - who will be providing cylinders? Far fetched but feel free to assign probability for this humongous Optionality.
Valuation
- Capacities to near double from 7L to 13L including brownfield (4) and greenfield(2).
- Q2 is 420 cr revenue, 25% opm at 112 cr, 2800 cr mkt cap I.e annualized 1.6X sales, 6X EBDITA
- FY 23 will be with brownfield capacities online(7 to 11)- at similar realization can expect annualized 2600 cr revenue 600 cr + EBDITA( can be higher with op leverage), with likely rerating( high growth and tailwinds)at 10X EBDITA we are looking at 6000 cr mkt cap possibilities - ofcourse subject to FY24 + growth momentum being visible.
- Return ratios and EBDITA to cashflow has been decent in recent past.
Risks
- Mgmt ability to maintain domestic mkt share in CNG( Believe 50%), beauty here is that space is being seen as temp vs structural hence not attractive for new players ( similar story played out in Borosilrenwable in solar glass)
- Margins - can continue to be high unless supply exceeds demand, all iz well as it ties back to only current players expanding capacities - for now atleast. Commentary is strong.
- Optionality driven by Hydrogen commercial viability, so is battery based large scale storage.
- Mgmt quality - unsure but this qualifies for strong tailwinds sector and an average mgmt should suffice.
Invested with small allocation, studying, plan to ramp up as execution builds