All the credits Value Pickr team for which we come to know dubious company like this and could save our money, I was about to invest in this company before searching out in VP.
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People are investing bcos promoter is liking and replying to comments on twitter… this gonna end badly
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The following is with reference to some of the recent posts in this thread.
It is neither a defence of Gensol nor intended to criticise anyone.
The objective is to get to the facts using these ideas:
a. To ask if the presented thought is a verifiable fact or an opinion.
b. That one is presumed innocent until proven guilty. This is counterbalanced by the idea that the facts may not be clear at the moment. And one may need to be patient. As such the idea is to prevent the baby being thrown out with the bath water.
I am a shareholder in the company. It forms less than 1% of my portfolio.
1. CARE Edge rating
The rating says that “Cancellation of lease agreement with Blue-Smart” would be a negative factor. It does not mean that the agreement has been cancelled.
In the positive factor it says “Successful operations of EV leasing with demonstration of timely receipt of lease rentals from Blue-Smart.”
And in the Outlook it says “Stable outlook reflects … structured lease arrangement with Blue-Smart”.
Had the agreement been cancelled, it is unlikely the outlook would have been “stable”. Moreover, as a material event, the company would have announced such a cancellation.
2. The Ken article (article)
“the leasing arrangement seems to favour Blusmart at the expense of Gensol’s minority shareholders, The Ken has learnt.”
“seems to favour” is an opinion and not a fact. “The Ken has learnt” but has not shared these learnings. There is no data in the article to support this argument.
The 23-Jan-24 concall transcript has some data on the leasing business:
- Leasing book: 800 crore
- Gensol’s cost of debt - ~10%
- Leasing income - ~15%
- Net interest margin - ~4-5%
- 15 customers
- Bluesmart share: >50%
Is the 4-5% margin on the leasing business low?
As a rough benchmark:
- HDFC Bank’s yield on assets is 8.3% (Dec’23) vs 14% for Gensol.
- HDFC Bank’s cost of funds is 4.9% vs 10% for Gensol
- Net Interest Margin is 3.4% vs 4% for Gensol
If Gensol were a pure asset leasing business, I would expect a higher margin in lending to a small “NBFC”.
Without a breakup of this business by customer, one cannot say if Blusmart has more favourable terms than other clients.
EV leasing is 16% of revenue but loses money. There isn’t enough data to show if this is an issue of lack of scale or of favourable terms for Bluesmart.
Bottom line: there is no evidence of underhand activity. Whether this is poor asset-allocation is debatable.
3. The review on Mouthshut (review)
The only verifiable fact in that review is the reference to the case in The High Court of Punjab and Haryana.
See Indian Kanoon for the judgement. (M/S Alankaram vs Gensol Engineering P Ltd on 4 May, 2018)
The petition is for the “appointment of an arbitrator to settle the dispute between the parties.”
The dispute was settled in Feb-2018. There is no judgement of wrong-doing.
4. The MoneyControl article on Tibrewala (article)
The charges against Tibrewala are of illegal betting and “hawala movement of the betting funds”.
There are no pump-and-dump allegations. The ED believes that Tibrewala was investing the betting proceeds in the stock market.
There are no facts to suggest that the Gensol promoters are involved in any illegal activities of Tibrewala.
I’m keen to learn more about Gensol, especially the economics of the EV leasing business.
Cheers
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Regarding some ethical issues of employees being cheated.
Debt ridden Growth of Blusmart at cost of minority stakeholders of GENSOL.
High valuations of company
Your views Please.
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As per my understanding, you will find many good or bad article and post on any company.
I dont think this is very serious and even blu smart benefit on minority stakeholders cost is also not known and no substantial evident. This will remain challenge in any company where intercompany transaction happen.
Further, the post are 5-10 years old and after that as well share given fantastic return.
The company’s performance specially in EPC business is shown in numbers and new order win.
Other VP members please suggest your views as well.
Disclosure - holding good % of my portfolio.
I will never ouch for a company whose promoter’s integrity is questionable and it cannot be undermined.
2.
Whenever 2 companies are related with each other bcz of same promoters, 2-3 qtrs are sufficient to attract deserved funding (Blusmart )if it cannot, then surely it’s business model itself is unsustainable (Blusmart). Investors are not willing bcz company is loss making.
3.
Both companies should be treated as independent entity, not that Blusmart loss is being made up at the cost of minority stakeholders of GENSOL.
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Explained below is a deep relation between promoter of Gensol and Tibrewal Hawala kingpin
for the same reason I always insisted for the Integrity of the promoter.
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From 9:00 onwards
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There are certain things that one can’t write in a public forum. If you dig deeper (including speaking to some folks in VC/PE domain) you’ll find some interesting insights.
Disclaimer: Views biased as I’m an active investor in a startup that indirectly competes with BluSmart.
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This is an extract from CapTable’s newsletter email. Gensol is not an isolated case if Matrix Gas is involved.
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One should always be careful when a small company with barely operations starts showing extra ordinary performance with 4-5 x top line and margin improvement in a space of a few years without any fundamental change in business model.
Just 2 mins look at Gensol’s numbers should dissuade any right-minded investors from putting a single penny in the stock. There are so many red flags. Yet somehow retail investors ended up buying shares offloaded by promoters.
It’s very hard to not fall prey to addictive combination of bull market, management story telling, and social media frenzy created by operators. All that is converted into koolaid by retail lapping up feel good narrative about the sector and the company.
We saw the same with EKI energy. A dramatic and inexplicable turnaround in their fortune. A mind bending rally was followed by precipitous fall when management was caught with their hands in a cookie jar. Unfortunately but not surprisingly, since then, retail participation in the stock has gone up by 60-70%. I guess some of that will be hapless investors who are trying to get their price by continuous averaging while others entering the stock, attracted by steep “discount” in stock price. I can go on and on citing similar examples.
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Hi Hemant,
Could you please help me the red flag in Gensol’s financial? I actually invested but not found any red flag except the valuation.
Gensol Engineering Limited completes 160 MW Ground-mounted Solar project in
Gujarat.
Well, when promoters take huge debt and finance that with stocks (40% pledge) and then start giving interviews on youtube and media talking about big orders, increasing margins etc etc, it all soon starts taking the shape of house of cards. At the same time we see remarkable surge in their EPC business happening in just last two years (timing of which again is quite interesting).
It’s very hard to say if the company has suddenly hit a purple pitch when everything is coming together perfectly well or management is just keeping market excited to keep the stock prices high. We all saw what happened to Adani stocks.
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I agree hemat to some extent but all other players like KPI green and Waaree is also in same line, they are also debt ridden and having huge growth and order book is growing.
Whats your view on these stocks.
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I don’t track or invest in renewable sector much as unit economics are still not clear and I won’t know how many of these companies will be around in next few years. It’s a commodity business and as bigger players (e.g. Reliance, Tata, Adani etc) enter and expand in this space, they will hurt the smaller players who don’t have the same capital access, scale and operating leverage.
Right now there is a lot of bullishness about power section in general and renewable energy in and there is a definite operator action happening in stocks like Waaree.
I am invested in power sector but through ancillaries (transformer, cables etc) as I think growing power demand in our country will drive up consumption of ancillaries regardless of whether power comes from renewables or fossil fuels.
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Notes from Gensol Credit Rating Revision by CareEdge Ratings
Summary
Rating revised from BB to BB+.
Positives (leading to upgrade):
- Strong execution in solar EPC projects.
- Significant growth in TOI.
- Improved profitability.
- Growing orderbook with strong revenue visibility (FY25-FY26).
- Successful EV leasing business with timely payments from Blu-Smart (FY24).
- Experienced promoters.
- Healthy and geographically diversified solar EPC orderbook from reputable clients.
- Structured lease rental agreement with Blu-Smart.
- Adequate liquidity.
Negatives (constraining the upgrade):
- Profitability susceptible to solar module price volatility.
- Deteriorated capital structure due to increased debt for EV leasing.
- Execution and funding risk associated with the ongoing EV manufacturing plant.
Details
Business:
-
Strong revenue growth driven by EPC and EV leasing.
Revenue FY’23 FY’24 Total Op Inc Rs cr 393 960 YoY growth 145% 144% -
Revenue shifting towards EV leasing
Revenue share FY23 9MFY24 EPC 84% 80% EV leasing 9% 16%
Strengths:
-
Orderbook:
- Rs. 1176 crore solar EPC orderbook (3.57x FY23 TOI).
- EPC fixed price contracts to be executed in 6-10 months.
- Lowest bidder for contract of Rs.520 crore in March 2024.
- Low counterparty credit risk (government & reputable clients in 7 states).
-
Experienced promoters and management
-
Improved Profitability:
- 14.89% PBILDT* margin in FY23.
- 291 bps YoY increase.
- Expected operating margins around 20% in FY24 (higher Blu-Smart lease income).
-
Structured Lease Agreement:
- No cash outflow for EV leasing (Blu-Smart covers repayments). [Facilitation fee?]
Weaknesses:
-
High Leverage:
- Overall gearing of 2.10x (FY23, deteriorated from FY22).
- Increased debt due to debt-funded EV acquisition for leasing.
- Expected further deterioration due to continued debt-funded acquisitions for leasing.
-
Delayed EV Production:
- EV mfg plant in Pune to produce Electric Cars and Electric Urban Cargo vehicles.
- Capacity: 40 units per day per shift.
- Expected project cost ~Rs 230 cr
- Expected starts of Q2FY24 delayed by year due to ARAI approval.
- ARAI approval received in Feb24. Expected start H2FY25.
Liquidity:
- Adequate liquidity with lease payments from Blu-Smart and healthy cash flow.
- Plans to raise Rs 500 crore through share warrants in FY25. [Dilution risk?]
*Profit Before Interest, Lease rentals, Depreciation and Taxation
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Looking at the current balance sheet after FY 24 results,
- I can see that their Debt-to-equity(gearing ratio) is increasing very quickly. And the interest coverage ratio is quite low. Would they achieve such high growth without increasing debt further?
- Also, one more thing I am concerned about is the high promoter pledge percentage(~63%).
Would appreciate everyone’s thoughts about these 2 points.
Disc: Invested (<2% of portfolio)