Gensol Engineering - A play on Energy Transition (Solar Energy & EV)

[Akash07]

Hello Dear Forum members,

Over the last couple of years, I have derived immense value from the contributors of ValuePickr forum and today I am taking my first step from being a reader to a contributor.

I’ve been investing for the good part of last 7-8 years (only) and therefore this article is to invite the VP community to collaborate and fill my blind-spots and make it worthwhile for all reading this piece.

The company I am referring to is in the Solar EPC (Engineering, Procurement and Construction), Car Leasing and EV manufacturing space and is listed on the main board of NSE and BSE as Gensol Engineering (NSE: GENSOL and BSE: 542851)

About the Promoters:

The company is Promoted by Anmol Singh Jaggi (21.73%) and Puneet Singh Jaggi (19.07%) and Gensol Ventures Pvt. Ltd. (23.87%). Anmol and Puneeth (brothers) founded the Gensol Group in 2007 and have led it to today being a large service-oriented company with a team of 600 engineers & technicians. Together the Promoters family holds ~64.67% of the company. (This is after a recent QIP and equity dilution of ~6.6% in Q3, FY23)

Profile of Promoters:
Anmol - Anmol Jaggi | LinkedIn
Puneet - Puneet Jaggi | LinkedIn

Incidentally, Anmol is also a founder of Electric Cab hailing company, BluSmart Mobility, which is rapidly gaining market share in Tier 1 cities like Delhi and Bangalore. (To my best knowledge Gensol Engineering does not have any equity in BluSmart, however it stands to benefit from its EV leasing business to BluSmart, which I will talk about little later).

Apart From BluSmart, Anmol is also the promoter of Matrix Gas and Renewables Ltd., which is a gas aggregator in India with a portfolio of rLNG and domestic gas. (The promoters plan to list Matrix Gas soon and DRHP has already been filed earlier this year).

Talking about Puneet, he is also the founder of Prescinto Technologies Private Limited which is a AI-powered monitoring, analytics platform (which augments the automation of maintenance of their Solar EPC projects).

About the Business: (Snippets from AY 2023)

Geographical Presence:

Strong YoY Growth in Business Performance:

Decent Order Book and Assets:

Business Segments:

The company has been building upon its ambitions in EV manufacturing and has set up a comprehensive EV manufacturing plant in plant in Chakan, Pune.

Here is a recently released video of their EV plant - Breaking Ground: Gensol Electric Vehicles’ Futuristic Manufacturing Facility - YouTube

Alongside, it has been consistently winning Solar EPC Orders in India and Abroad

Link - Gensol secures Solar EPC Projects in Dubai, shares rise - The Hindu BusinessLine

Earlier this year the promoters acquired a Solar EPC tracking company, Scorpius Trackers for price of 135 Cr.

Gensol Engineering acquires solar tracker player Scorpius Trackers for ₹135 crore - The Hindu BusinessLine

Below are the details of how this acquisition was funded:

As per company disclosures made on acquisition, Scorpius trackers had a topline of 154 Cr. in FY 21-22.

On the EV Leasing side, the company is growing its leasing contracts at a decent pace and has also hired a CEO to support this business vertical:

EV Business CEO Profile: Amit Kumarr | LinkedIn

Recently they had a big win in EV leasing business:

The company has been pulling all levers to keep them lush with liquidity

Some more details of their EV brand positioning, which they want to target in the affordable segment:

Also, they have plans for manufactoring Cargo and fleet EVs

Market opportunity for their EV brand positioning: (We’ve all seen a lot of these charts and projections before, but bear with me)

Some more insights into their EV products:

Some more end-use case of their EV products:

Competitive landscape for their EV products:

Coming back to the overall Business, the metrics look decent:

21% ROE and 12.4% ROCE
2.5 times Debt to Equity with 3.22 times Interest coverage
285 cr cash and 194 cr reserves
Sales growing at a 3Y CAGR of 69% and PAT growing at a 3Y CAGR of 132%

Operating margin is expanding - 14.8% one year back > 19.8% one quarter back > 25% in latest quarter (which shows the company has some operating leverage playing out).

Company has recently taken a lot of debt on balance sheet to fuel its ambitious plans. (This is a key risk)

Company has decent and positive cash flows compared to reported PAT.

Promoter holding is decent and the dilution is because of QIP last year:

Coming to the last point in the analysis. Price and Valuation:

The stock has taken a liking for stratosphere and has been going up parabolically which makes it look expensive for entry.

I have personally invested in this company when listed in SME board and managed to hold on for multi-bagger returns. However, I strongly feel this company has a long road ahead and Im not cashing out yet.

Here are the triggers which can work well for the company:

1. Acquisitions of Scorpius tracker leading to immediate topline growth as well as strategic advantage of Maintenance billing in EPC contracts (Solar Panel maintenance)
2. EV leasing business growing multi-fold guided by huge market opportunity for cab fleets which are migrating from ICE to EV, along with arm’s length requirement of BluSmart mobility.
3. EV Manufacturing striking a product market fit (both in PV and CV), leading to huge upside potential.
4. Global expansion of EPC business (Dubai EPC order was an example of EPC opportunities outside the country).

Let’s talk about risks:

1. The company competes in a crowded market, be it EPC, EV leasing or EV manufacturing where everyone wants to take a piece of the cake in India’s energy transition story.
2. The current valuations fully price the euphoria and growth potential of this sunrise industry and any disappointments, delays, regulatory or Govt led dampeners (PLI scheme withdrawal, etc.) can significantly de-rate the company’s valuations.
3. The company has leveraged (taken debt) to the point that its execution does not have much room for mistakes. Manufacturing EVs is capital-intensive and in a world where the technology and consumer demand is rapidly evolving, a product market mis-fit may quickly suck the liquidity out of the company.

Happy to hear if others are tracking this company and any feedback is welcome.

Disclosure: Invested. Will add on dips.

[naruto]

Thanks @Akash07 for wearing the hat of contributor.

Optically, I liked what Gensol is doing 1. EV manufacturing 2. EV Leasing (Arbitrage over fuel costs)

I found few concerns.

1. I checked with few folks in Industry on Solar EPC Margins. On ground folks told me that getting margins above 10% will be difficult unless they signed agreements few years back. Getting contracts is no problem. Quality of cashflow is one to look for.

2. Promoter pledge is at 41.75% (visible in stock edge app). Promoter has higher incentive to keep the stock in the positive. No knowns funds have taken positions. Usually that is a signal on someone doing homework on promoters.

3. Major public individual investors holding 15% exited while the company is ramping up. Vakrangee had a similar trend.

4. Matrix Gas (Same promoter) also had a sudden revenue spike in most recent year. Looked like a company trying to cash in on SME boom.

---

I don’t know if time in market has softened me and made me more cautious.

Discl: No holdings.

[Akash07]

Thanks @naruto for the encouragement and for your valid points.

I checked with few folks in Industry on Solar EPC Margins. On ground folks told me that getting margins above 10% will be difficult unless they signed agreements few years back. Getting contracts is no problem. Quality of cashflow is one to look for.

I agree that most Solar EPC companies operate with single digit operating margins. Some of the ways they might grow margins in EPC segments is through maintenance and annuity income (Acquisition of Scorpius trackers may help here, which enjoys higher margins). Also, there is a linkage to commodity cycles and if the raw material prices soften (Solar panels imported from China, etc.), there can be some margin expansion.

Of course, cashflows are critical and some further scuttlebutt here might help here to know the payment arrangement in such EPC contracts. Customer concentration wise, the risk of a single large block of payment getting stuck is lower in my humble understanding.

2. Promoter pledge is at 41.75% (visible in stock edge app). Promoter has higher incentive to keep the stock in the positive. No knowns funds have taken positions. Usually that is a signal on someone doing homework on providers.

Yes, pledge is high, but this industry is known for high pledging. For example, KPI Green Energy’s promoter Farukhbhai Gulambhai Patel has pledged 49% of his holdings. (Not trying to justify that pledging such high stake is fine, but just saying that promoter pledging for growth is a feature and not an anomaly in this industry). Over time, as credit ratings improve, these small players will get access to Organized lending, till then they must pledge to raise debt.)

Also, the reason for low presence of funds on cap table is due to liquidity. This company is too “chhotu” even for small cap funds to enter. Having said that, some interesting HNIs linke Ashneer Grover, Deepika Padukone are early investors in Gensol group. Just saying, FYI.

3. Major public individual investors holding 15% exited while the company is ramping up. Vakrangee had a similar trend.

Yes, these lucky folks got their exit durign SME listing. Not sure if there is something they know and we dont.

Bottomline - Further due diligence and scuttlebutt on this company and the promoters is most welcome.

[Alok1971]

The entities slowly offloaded 15% of the stock as it rose from 80 to the new highs . Why ? Mukul Agrawal has entered this quarter . Wellray Solar that offloaded 2l shares has employees of Blue Smart as Directors ( as per there Linked in profile ) .

[aceinvestor_75]

Recent entry of Mukul Agarwal ji at right about cmp is a good sign

[gvmk2000]

Solar module exports up 1000% as US keeps China out

[happiness2023]

time to sell this stock is ticking.

[Akash07]

For short term view, yes looking expensive.

Specifically after 2:1 bonus the distribution will increase and price action is showing signs of top formation.

Let’s keep tracking.

I’m more concerned about management integrity and scuttlebutt around the company. Pls share views on that front if any.

Disclosure: holding

[abhishek_sinha1]

Ticker Tape is flagging it Red - High Probability of default in next 12 Months.

But how authentic is this news about them setting EV plant in Pune.?

[madanvl010]

They have already set it up

Breaking Ground: Gensol Electric Vehicles' Futuristic Manufacturing Facility

[abhishek_sinha1]

It looks like a commercially made clip , does not look real. That’s purely my opinion , i may be 100% wrong. We need more authentic proof.

[Aman7967]

https://images.app.goo.gl/KD7ntuTeyGBLNGxH8
Other than the above image, no info has been made available by the company regarding the product and its launch. I was tracking the company earlier based on the success of its services Blusmart in NCR. They were supposed to commence EV production by Dec '22, which not only did not happen, the company did not hold any concall post Oct '22.

Personally, I’m not interested in the EPC business. The EV production made much more sense to me given they already have an established cab hailing service. Several companies like Olectra, JBM and many others as we know have tied up with Chinese counterparts and are running successful businesses. This could have been an instant hit given the price points for their EV the co provided. Growing demand from the ride hailing industry, rising pollution levels, unit economics for the operators, govt sops like the FLAME subsidy etc. were several of the tailwinds imho.

Next demand would have come from the Amazon’s and ekarts of the industry. On similar lines as the Rivian EV. This was my personal view, please correct me if there’s some value that I’m missing. Thanks

[abhishek_sinha1]

Hi Aman , actually i have the same thought not interested in the EPC business. Thats why want good insight about their EV Vertical.

[ashvin]

Same, @naruto I also want to know about their EV vehicle. Their distribution, margin, and all other stuff. I feel, their EV car not look attractive at the price. They may fail like Tata Nano.

PMV, Gensol, OSM eye sub-Rs 8.5 lakh e-car market

Gensol to make affordable personal mobility and cargo electric vehicles

Gensol Engineering dilutes 10% stake to raise Rs 140 Crore for its EV...

[abhishek_sinha1]

[Harsh04]

Any idea when the bonus shares should get credited ?
Mine havent been credited yet

[Akash07]

The bonus shares have been credited to Zerodha accounts today. Pls check with your DP once.

Some more updates :

EPC Order wins are strong for Q2 - 300 Cr. Order bagged recently shows their capabilities.

EV manufacturing - Yet to see the progress on this. This business vertical has been behind management guidance by almost a year now. Awaiting Q2 updates from management.

EV leasing - business growing steadily.

Valuations are stretched, pls exercise due diligence.

No Reco.

Disc - Holding.

[gpillai]

Hi , bonus shares credited in ICICIDirect today.
however the valuations appear to be very high especially with lack of clarity on EV manufacturing business - manufacturing was to begin at Chakan Plan April this year I believe.

Disc- Invested.

[gpillai]

Gensol Engineering's Anmol Singh Jaggi Exclusive On The Firm's Q4FY23 Results & More | Chartbuster

In this interview it was stated EV production to start mid year / July’23 I believe at the Chakan Plant any idea if this has started already.

Disc-invested.

[salgia.pratik]