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

Stock Opportunities
83

Debt is indeed growing at a fast pace, however this is mostly because of their EV leasing business.

You need to look at the EV leasing business like a NBFC, which takes leverage to generate interest (leasing) income.

In Gensol’s case, the EV leasing income comes with additional perks of value-added services and maintenance contracts (Over and above the leasing income). Most fleet owners are happy to pay extra for services like insurance claim management, OEM warranties, etc.

Moreover, the solar EPC business is quite working-capital intensive, so I am sure that business also requires some working capital loans, given the fast pace of growth.

Coming to the EV manufacturing business, I believe it is largely funded by Equity, as far as I know.

Due to the asset heavy nature of overall business, the reported PAT margin might come down due to depreciation cost, however, as depreciation is a non-cash expense, Gensol’s operating cash flow will remain better than reported PAT as a % of sales.

This depreciation arbitrage will help them on higher interest coverage, lesser taxes, etc.

Regarding pledging, yes, it is quite high, however, it seems to be a common feature among EPC players in solar space. KPI Green promoter has also pledged 45% of their equity.

This is my humble understanding. I am not a CA or financial expert.

Please do your own research.

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𝐆𝐞𝐧𝐬𝐨𝐥 𝐄𝐧𝐠𝐢𝐧𝐞𝐞𝐫𝐢𝐧𝐠 𝐋𝐭𝐝

Concall Highlights:
● Successfully executed over 770 MW of solar projects across India.
● Expanding product and service offerings in the solar sector.
● Acquired Scorpio Trackers for improved project efficiency.
● Entered the Middle Eastern solar market with a subsidiary.
● Won first project in battery energy storage system (BESS) under BOO (Build-Own-Operate) model.
● Increased solar order book to ₹448 crores.
● The company expects to maintain the guidance provided earlier, aiming to achieve a consolidated revenue of approximately ₹2000 crore in FY 25, representing a 100% growth from FY 24.
● The consolidated EBITDA margin is expected to remain around 25-26%.
● The company’s new EV manufacturing plant is expected to begin operations in Q2 FY 25. However, revenue contribution from this plant in FY 25 will be minimal due to the initial focus on trial production and gradual ramp-up.
● Scorpio Trackers is expected to significantly contribute to the company’s revenue in FY 25, with a projected doubling of revenue compared to FY 24.
● In FY 24, Scorpio Trackers contributed around ₹50 crore in revenue, and with an expected order book of ₹100 crore in FY 25, revenue could potentially reach ₹140 to 150 crore.
● Despite strong revenue and profit growth, the company’s cash flow from operations was negative in the last quarter. This is attributed to the high revenue generated in Q4 FY 24, leading to a significant increase in receivables due to the typical 45-50 day payment cycle in the solar energy sector. The company expects a significant improvement in operating cash flow in Q1 FY 25 as receivables from the previous quarter are converted into cash.
● The company clarified that the ₹387 crore mentioned as “other assets” in the current assets section comprises:
● Trade receivables: ₹227 crore
● Cash: ₹380 crore
● The company expects a consolidated EBITDA margin of 25-26%. The margins for individual projects can vary depending on whether they are turnkey or balance of system projects.
● The company has a strong bid pipeline in the Indian market, with an expectation of winning a good portion of Rs 3,000 cr order book. They are also seeing growth in the Middle East.
● The company expects the Scorpius tracker business to be profitable this year and to see significant profits from the US market opening up in FY 26. The EV leasing business is not cash flow negative, but depreciation makes it appear unprofitable. The current value of assets under management in EV leasing is close to 600 Cr
● The company expects its EV leasing business to be a major driver of future growth. They are taking on debt to fund this expansion. A separate subsidiary was created for the EV leasing business to improve focus and leadership.
● The leasing business is not currently profitable due to high depreciation costs. However, the company expects this to improve as the assets mature and the book value stabilizes.
● The company sees a significant opportunity for its solar tracker business in the US market due to high demand and long wait times. They are awaiting certification to start selling their trackers there.
● The company is on track to begin trial production of electric vehicles in Q2 and may have a rollout by the end of the year.
● The company’s leasing business is facing challenges due to a freeze on Zenith Multitrading shares and promoter not related in this matter.
● The company’s financials are positive, with good IRR but negative cash flow from operations due to receivables.
● The company has a high promoter pledge due to funding for warrants and loans. The pledge is expected to come down in about two to three years timeline.
● The company’s debt to equity ratio is high, but it will improve with the infusion of funds from the warrants round.
● The company’s decision to enter the three-wheeler EV market is based on market research indicating a high demand for single-seater vehicles in urban areas.
● BESS requirement and implementation of the same at national level will increase by almost 100 times over the next 2 decades. Companies working aggressively to increase their BESS capacity and will remain in sweet spot for a very very long time and will create massive growth and I think Gensol will create a massive growth in BESS Segment…

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85

Market seemed to have punished gensol today, post results.

I didn’t find anything negative with results, considering June quarter for them has always been less than their March quarter for last few years.

Results look decent YOY.

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But the results don’t seem to be in coherence with their FY25 topline guidance. To achieve the topline of 2000 Crores, which the company has been telling us is their target since last con call, they will have to grow every quarter, on both YoY and QoQ basis. Hence the hammering.

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Quarter 1 is 10-15% of revenue
Quarter 2 will be good
Quarter 3 and Quarter 4 will be blockbuster like previous years
Q4 will be 40% of FY25 Revenue.

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My notes from Q1 FY 2024-25 earnings call

  1. Gensol had a good Q1. Year over year for Q1 the topline grew from 145 crores to 297 crores, Ebitda 37 crores to 89 crores and PAT 10 crores to 15 crores. The Ebitda margin was 30% for this quarter.
  2. The leasing business is seeing good momentum – it grew from 25 crores to 50 crores yoy, and even on sequential qoq basis there was 10% plus growth. However, it reported 6 crores of loss because a lot of capital is being invested for scale. I would not be surprised if Leasing will do 250 crores plus of topline fro this financial year and by Q4 it will stop reporting any losses. However, this is purely my thinking and management did not make any such type of comment in the call.
  3. EV business is frankly getting delayed beyond comfort levels. Now they are planning to launch only in Q1-2026. In the first year roughly 7000 vehicles and then scale to 10000-12000 in the next year. 12000 is the break even for this business. Their target is B2B and so there would not be any distributors at least to start with.
  4. EPC Solar Panel business is doing great and BESS is also off to a good start. For BESS they will get 260 crores every year for the next 12 years from the existing contract.
  5. Management reassured multiple times that they will easily meet the 2000 crores topline target for the current financial year. 15% Q1, 20% Q2, 30% Q3 and 35% Q4 is norm. They also said that EBITDA would be 400 crores plus for the year.
  6. This round of fund raising is being done to retire some debt and for working capital. I was not able to gather clearly the thought process of management on releasing the pledge.
  7. For Q1 PBT/Ebitda was 27/89 or 30%. With retiring debt, leasing business scaling and reporting less losses, BESS contributing and EPC further growing, I expect that this ratio would improve 35% by end of year. And so my expected PBT for 2024-25 is 140 crores and with roughly 30% tax rate they should report PAT of 100 crores. At current market cap 3600 crores the stock is discounting my expected current FY earnings by 36 times.
  8. The main play in Gensol if things would fall in place would possibly start coming in 9-12 months from Q4 of current FY or Q1 of 2026 when the leasing would start contributing to profitability, BESS will start adding meaningful profit and Solar EPC would remain as strong as it is now. Please note that both BESS and Leasing are 90% EBITDA margin businesses. I am still not hoping much from EV; but many times, things from which you do not have much hope surprise you.

I am not an analyst and these are just simple notes from a retail shareholder from the earnings call and his interpretations. Please do not take it as buy or sell recommendation.
Krishna

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90

Shares have been pledged as collateral against long-term debts from IREDA and PFC for their EV leasing business. As the debt gets repaid, the pledge percentage should decrease accordingly.

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How is BESS order an EPC ? are they investing in CAPEX or not?

They are making the business very CAPEX heavy…
Leasing business is CAPEX heavy - Cars + EV stations
BESS order is i am assuming they are doing CAPEX
Car manufacturing is again CAPEX heavy…

How do one do valuation? SOP method? Any financial model on Gensol?

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Any idea on when will cash flow come?

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According to Company Concall:

EV Manufacturing:

Maybe launched at the end of FY25 or starting of FY26.

Breakeven for the plant will be achieved after 12,000 vehicles.

Up to 7000 vehicles will be manufactured in FY26. So, Breakeven is achievable in FY27 if the concept is successful.

EV Leasing:

Did a revenue of 50 Cr in 1QFY25. Orderbook - 330 Crs.

AUM in this business is 600 Cr at present.

Mr.Anmol Singh Jaggi said " The integrated model of having EV leasing and EV manufacturing under one roof is going to pay us very rich dividends in the times to come".

6000+ EVs on lease. They are telling the same since January-2024.

Some or most of the 7000 vehicles manufactured in FY-26 will be used in EV leasing.

BESS:

BESS Business takes 15 to 18 months for installation, so it might complete between Dec-2025 & Mar-2026. Most probably, Cash flow from BESS will start from FY27 (Even if it takes 21 months for installation).

Gensol will receive 258 Cr per annum from GUVNL

EBITDA will be 232 Cr (Considering 90% Margin)

PAT from existing BESS Orderbook will be approx 162 Cr ( Tax assumed to be 30%).

Scorpius Trackers:

For 1QFY25, Loss from this Business is 2 Cr.

Has 1000 MW+ Orderbook in India. Targeting 2000MW in US by 2028.

This may turn profitable in FY25.

Solar EPC:

EPC Orderbook is approximately 1800 Cr.

This segment may generate 200 Cr profit on standalone basis.

Future outlook on Financial front: (Purely Assumptions only)

FY25: Loses from Scorpius Trackers & EV leasing may start reducing. Profit on Consolidated basis may be 110 Cr.

FY26: Depends on EPC Orderbook.

FY27: Solar EPC + Scorpius Trackers + BESS + EV Leasing will contribute to Profits. Profit on Consolidated basis may be north of 400 Cr-500 Cr (I think 162 Cr from BESS is guaranteed).

Please correct me if my calculations are wrong.

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  1. Cost for 3200cr revenue BESS is 1300cr in 18 month
  2. funding (DtEq 80:20)
  3. revenue of 260cr
  4. Int cost 90cr
  5. 400 cr terminal value post 12 year
  6. IRR of project is 8.8% only
  7. If Bal cash use to repay debt than IRR 12% in best case

Don’t get confuse with 90% EBITDA

Credit: x.com

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They are becoming a 10-12% ROCE business where ROE can be higher due to leverage… But, I see lot of risk here. + Lot of dilution has happened.

Disc- Exited for now.

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Lots of good news but share is digesting everything. Looks weak because lot of capital require for all these things.

Disc- invested

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On the periphery it seems like company is taking the right strides for growth, expansion and execution. But market doesn’t seem to like it, valuations are relatively cheap compared to other Solar EPC players as well.
Is there a catch here because the more time it spends below 200EMA, more the suspicion.

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Because its not a EPC company. Its a power generation company

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Will suggest going through their website.

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Everything is going good except their EV production plans which have got delayed any times. Plus there is market apprehension on the designs. Overall still invested and hopeful

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Did anyone visit their plant for EV and/or any idea when their EV will be launched? Gensol has changed launch date multiple times and now it seems a hope story. I am also doubtful on their reverse trike if it will be adopted well. Personally I dont think many people will like this.

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I fazil to understand, in a 3k cr market cap , if prospects seem so bright, How hasnt no Fii or Dii build a position of more than a percent.

Unless they view it differently.
And since it’s a capex driven business with high leverage, they feel sceptical about the script.

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It’s high leverage keeps me from taking it to conviction level 3 from level 2, and also the chart pattern where it hasn’t corrected enough.
I’m not an fii dii though.

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