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

[Akash07]

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.

[Chottu]

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…