ValuePickr Forum

Genus Power - Smart Metering

I see Genus Power being mentioned in many peoples PF, but there is no dedicated thread on this company. I started looking into this company 2 months back and below is the summary of my findings… I am new to this and request seniors to provide their inputs.

Company Background

Genus Power is a leading player in the domestic electric metering market. It was incorporated in 1992 for manufacturing PCB Assemblies. Production of tamper-proof meters started in 1996 and since then, the company has installed more than 60 million meters.
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In the course of 20 years, the company has expanded it’s range of metering products to include Pre-payment meters, smart meters, Smart Street Light Management Systems, Smart Distribution Transformer Meters etc. The company has a 27% market share in the Meter Industry and 70% market share in Smart Meters specifically.

Genus Power has two business verticals

  • Smart Metering Solutions
    • Contributes 87.5% revenue
    • Diversified product mix for Residential, Commercial, Industrial consumers
    • Provides Smart Metering Solutions, Prepayment Metering Solutions, Audit Metering Solution and Calibration Equipment.
  • Engineering, Constructions and Contracts (ECC)
    • Contributes 12.5% revenue
    • Offers design-to-end-turnkey power solutions for power T&D sector
    • Ongoing/completed projects in Karnataka, UP, Rajasthan, Maharashtra, WB, TN etc.

The company gets it’s revenues only from domestic market.

Financials

Company Financials

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sales 653.84 714.18 705.48 652.33 765.53 915 858.14 642.38 835.05 1055.47
Sales Growth 9.23% -1.22% -7.53% 17.35% 19.53% -6.21% -25.14% 29.99% 26.40%
Operating Profit 90.69 100.21 98.59 71.32 98.12 119.16 123.57 86.64 94.25 128.51
Operating Profit Growth 10.50% -1.62% -27.66% 37.58% 21.44% 3.70% -29.89% 8.78% 36.35%
OPM 13.87% 14.03% 13.97% 10.93% 12.82% 13.02% 14.40% 13.49% 11.29% 12.18%
Profit before tax 31.04 75.57 45.41 46.84 61.3 70.8 100.55 70.37 75.09 92.54
Tax 4.65 14.49 -20.69 2.27 0.82 17.67 20.46 12.46 23.55 20.17
Net profit 26.39 61.08 66.1 44.57 60.47 53.12 80.08 57.91 51.54 72.37
NPM 4.04% 8.55% 9.37% 6.83% 7.90% 5.81% 9.33% 9.01% 6.17% 6.86%

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There are 3 years when the revenue growth was negative

  • 2017 - Disagreements between central and state governments on procurement of meters resulted in slower offtake of tenders. Since the issues were resolved towards the end of the year, the order book reflects higher orders.
  • 2016 - The revenue drop of -6.21% was due to discontinuation of the power backup solutions business during that year. Post adjustment, the revenue growth was actually +5.77%
  • 2012~2013 - Attributed to ow government spending on infrastructure

OPM and NPM has been steady during all this period.

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Segment Revenues and Margins

I was not able to find breakup between the two divisions in the annual reports. So revenue, margin breakup is not available

Thoughts

Market position: Genus is fairly well known and large player in a very competitive market. Competitors include companies like L&T, ITI, Keonics, JnJ.
EESL is currently handling the deployment of Smart Meters (About Smart Meters). The contracts are awarded through tendering process. Often larger infra companies like L&T participate. However, the actual supply of meters get further sub-contracted and end up with companies like Genus. Having all the necessary certifications helps Genus.
Examples

The order book has seen healthy growth over the past 4 years

2016 2017 2018 2019
386 685 1276 1498

The process is also prone to corruption and consequently bad press
Examples where Genus has been quoted

Imports, especially Chinese imports, are a constant threat as mentioned by Jitendra Agarwal of Genus Power in this interview - “Chinese imports have led to closure of many businesses”. However, in the last earnings call, he clarifies that no Chinese company has bagged a EESL tender


However, this seems to be a constant threat.
Margins and Pricing: Being fixed price contracts, pricing is important during the bidding process. Raw material availability and cost form a big portion of the costs. The OPM and NPM has been steady (as shown above) at 12% and 6% respectively. The last two quarters has seen a sudden jump in these two to 15% and 8.5%. The conference call has some pointers on this improvement

Receivables: The receivable days is high for obvious reasons. It’s consistently around 6 months. CCC too is similarly high

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
197.56 190.32 206.75 217.05 164.15 146.94 170.95 208.32 182.99 186.99
159.48 155.40 180.53 198.79 154.34 144.98 167.46 201.19 165.10 158.01

Debt Levels: Debt to Equity has been reducing consistently over the years

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
0.84 0.82 0.73 0.58 0.72 0.74 0.36 0.31 0.32 0.34

Related Party Transactions: The company had a Joint Venture in Brazil Genus SA, Brazil. This was divested in FY 2016. There was another subsidiary Genus Paper and Boards which was transferred to Genus Shareholders Trust. However there two associate companies and a few companies where Key Management Personnel are in position of influence. The concerning issue is that Genus Power has extended unsecured loans and guarantees to these unlisted companies. There are also transactions with these companies and KMP

Calling out some of the items from the AR (all values in lakhs)

2016 2017 2018 2019
MKJ Manufacturing - Loan Balance 373 44 133 96
Greentech Mega Food Park - Investments 132 215 304 174
Yajur Commodities - Balance Receivables 2284 2490 2753 0
Yajur Commodities - Guarantee Given 16388 12205 7868 6855
Genus Consortium - Advances 9.85 10.4 1.7 3.4
Genus Innovation - Balance Receivables 1384 3525 3302 3591

Pledge
Another concern is that the promoters have pledged shares starting Dec 2017. The pledge is creeping up steadily

Dec 17 Mar 18 Jun 18 Sep 18 Dec 18 Mar 19 Jun 19 Sep 19
3.08% 3.31% 4.43% 4.43% 5.27% 5.27% 5.27% 6.51%

Valuations

Historical valuation

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Price 15.3 16.93 9.91 10.41 11 24.35 52.8 40.5 51 28.8
EPS 1.78 4.02 4.16 2.80 2.36 2.07 3.12 2.25 2.00 2.81
Price to earning 8.58 4.21 2.38 3.71 4.67 11.77 16.93 17.99 25.45 10.24
Book Value 19.86 24.15 28.04 30.71 16.90 18.98 25.51 27.38 29.09 31.48

Current valuation

Price: 23
P:E: 6.59
P:BV: 0.71

Thoughts

There is no doubt that the Smart Meter market is going to grow at a decent clip in the coming years. Department of Science and Technology’s report on Smart Grids clearly details the future direction. The section on Smart Metering mentions a CAGR of 8~10% in the next 4~5 years.

There is intense competition but Genus seems to be well placed to ride the Smart Meter wave over the next three years. It has the required R&D infra to handle the technological shifts. The management is confident of maintaining margins going forward. Looking at history, Genus seems to have managed the Receivables and CCC well.

The related party transactions and pledged shares is one of the major concerns. The market seems to have factored this into the 5-year low PE of 6.59. With two good quarters and improving margins, if the company can build on the momentum, we should see some improvement in market valuation.

Refer:

Disc: Started tracking a couple of months back. Invested less than 5% of PF as a tracking amount.

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Nice analysis. Agreed Genus continues to grow the order book resulting in higher revenues while the margins keep improving. But the corporate governance is the main issue for Genus. In addition to RPTs, Genus was also levied a big penalty for excise violation a year back.

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Summary of the Q3 earnings call transcript.
(I have tried my best to quote the management and not restate their replies)

Management summary of the results


  • The Ministry of Power have given an outlay of Rs. 1.75 lakh Crore for installation of 25 Crore smart meters by March 2023. Therefore, for next three four years, we foresee a lot of traction in our business. A lot of thrust is coming from the central government for deployment of smart meters across India.
  • We are witnessing demand shift from conventional meters to smart meters. We are confident of sustaining our margins going ahead as product mix changes in favor of smart meters.
  • The current order book stands at Rs. 1,118 Crore. We are witnessing healthy order enquiries.
  • However, our order flow has remained subdued in nine-month FY2020 as we have been very conservative on selecting our clientele with security of payment becoming a key focal point.
  • Despite this, we do not expect a tapering down of our growth expectation - We expect 20% to 25% kind of growth in the business and the order book

Product mix

  • Primarily it is conventional meters and smart meters - 40% is smart meters and 60% is conventional meters.
  • ECC is very low now because we are not focusing much on the ECC business. That is only about Rs. 32 Crore.
  • Gas meters
    • We are working on two or three proof of concepts because this product has a huge stringent requirement from the customer. From next quarter onwards, you will start seeing some numbers from the gas meters side also
    • Market is both a tender business and a retail business. Gas distribution has been taken by companies like Adani and Torrent. So there will be lot of business opportunity with them along with IGL and GAIL which will be into tendering also
    • Last week there was an article in the newspaper where the government has asked IGL to setup a manufacturing facility for gas meters and basically it is anticipated that there will be a demand of at least 4 Crore meters for the gas meters., So do you think that with IGL setting up its own facility, we will be devoid of the opportunity to supply gas meters?
      • IGL primarily has come out with the Expression of Interest (EOI) with the condition that there can be a public private partnership also. We are already part of the EOI.
      • They primarily want to set up this plant for their own consumption and maximum manufacturing capacity they want to build currently is only for one million meters per annum

Order book details

  • By year end, we will at least end up with the order book of Rs. 1200 Crore
  • There are lot of business being done with EESL also and at the same time there is equal amount or even more businesses done with the state electricity boards. So the mix is almost the same.
  • If I talk of current situation there are large tenders going on from Himachal, Jharkhand, Chhattisgarh, Madhya Pradesh, Bihar, Karnataka, Jammu & Kashmir. So almost every state electricity board is having a very strong traction on the smart metering tenders. So, there are lot of openings right now. So as such, almost the whole country is going ahead with the smart meters when it comes to opportunities available.
  • State of tenders
    • Bids of Rs 400 Crores is already opened and Genus is L1 is very few. All business does not go to L1, it is distributed between L1, L2, L3 so it is not like that out of that 400 also we would not get
    • Bids of Rs 1100 Crores to be opened shortly
    • Will be participating in bids worth Rs 1600 Crores in next 30 to 45 days
  • EESL tender details
    • Tender 1 - 50L meters order, 14L meters received. 12L meters from Genus
    • Tender 2 - 50L meters order, 35L scrapped. Only 30K received
    • Tender 3 - 50L meters order, all scrapped.
    • Tender 4 - 50L meters order, pre-qualification tightened. They have not allowed anybody to come and just quote unless you are a proper meter manufacturer.
  • Export Orders
    • Rs. 71 Crore is export orders. Last year we did Rs. 64 Crore of export and this year already Rs. 67 Crore have been done in first nine months. And already we are sitting on an order book of Rs. 72 Crore. There is a lot of traction happening and lot of work happening on our export front as I have been telling in the last few con calls also. So we also see a very good future ahead of us

Margins

  • So margins has improved primarily on account of smart meters and conventional meters also of the high end.
  • Margins would not revert back to 13% in the coming quarters since high-end meters and smart meters which are supplied more. 16% EBITDA margin is a sustainable. Even there is a scope on improvement, but the margins would not go down
  • ECC margin is 10~11%

Competition

  • Chinese players are only bidding at the EESL. But till now the results of Chinese players has been so bad, that the customers are extremely concerned of working with the Chinese companies. In the EESL tender number 3, where the Chinese company was L1, they have already dropped the tender. The tender has been scrapped by EESL because they do not want the Chinese company.
  • Few of the Chinese companies came through EESL model and they tried to disrupt, but the customer side understood it very well that a smart metering required a lot of localization
  • We are not seeing any prominent new players coming in the market because metering industry itself in India is very matured and a very capable industry and that has been seen in last one decade.

Capacity

  • We can comfortably manufacture ten million meters annually of different product mix
  • If you take average of one meter and the different segments then it can be from Rs. 2,000 to 2,500 Crore. So basically with our current capacities we can go up to a turnover of Rs. 2000 Crore plus
  • Current utilization is about 60-65% and no Capex has been planned at least for next two years. Only the maintenance Capex, which is operational Capex, is going to be there

Financials

  • Gross debt is about Rs. 250 to 270 crore. Cash would be around Rs. 140 to 150 Crore. Net debt would be around Rs. 120 to 130 crore.
  • Long-term debt is hardly Rs. 10 to 15 Crore.
  • Trade receivables is around Rs. 500 Crore
  • Working Capital
    • Working capital days is 200
    • Even our working capital cycle has increased quite a lot. So that has been the major reason that we have been very choosy in taking the work. And we are also telling customers that unless you clear the pending, how we will move forward? So, we have to give a strong message to the customers also. that there cannot be only one-way traffic.
    • Basically these are our pressure tactics. Also because on one side, ministry from central government is pressurizing them to buy smart meters and they have to change smart meters of 25 Crores in next three to four years. Thus they do not have any choice, but to act on it. So right now, in any case they have to buy the smart meters to get aid from the central government. It is right time for us also to put a pressure on them., We need our cash flow to be improved and they will pay now, we know that.
  • Related party transactions
    • if you see the last three to four years balance sheet you will know that there is no increase in investments in any of the group companies. So we are trying to reduce it and at least not increase it which you can see from last three four years balance sheet.
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Summary of the Q4 and FY20 earnings call transcript

Industry Dynamics

  • With Ujwal DISCOM Assurance Yojana (UDAY) getting expired in March 2020, the government is considering another reform scheme which they have already announced, namely ATAL Distribution System Improvement Yojana (ADITYA) aimed at investing funds in network infrastructure like smart meters. ADITYA scheme primarily involves the implementation of compulsory prepaid smart meters of 250 million households with an aim of lowering AT&C losses of DISCOMs to 12%. In its design to date, the scheme is planned to install smart meters in the first phase, starting from electricity feeders and then reaching to the consumers. The new scheme is likely to have central funding of up to Rs. 1.1 trillion (approximately USD $16.3 billion) over three phases and remaining balance of Rs. 2.9 trillion (around USD $42.5 billion) will be funded by states. So the scheme has funding of huge amount. Thus, we foresee a lot of traction in our business going forward.
  • Government is in the process of drafting Standard Bidding Document (SBD) and outlining the terms and conditions for deployment of smart meters across India. Prequalification criteria is likely to become very stringent to facilitate the entry of only quality companies having robust execution track record. The demand is now likely to increasingly shift from conventional meters to smart meters.
  • Smart meters have proved their worth during lockdown, as it has helped curtail the losses of DISCOMs that had adopted them. For example, in Uttar Pradesh, 95% of smart meter consumers have been billed during the lockdown, as against just 29% for the rest.
  • The DISCOMs using smart meters have seen 15% to 20% average increase in monthly revenue per consumer, according to the EESL

Product Mix

  • We are very confident of sustaining our margins going ahead as product mix changes in favor of smart meters.
  • Gas Meters
    • From the gas meter product, there was no revenue in the last financial year. A lot of safety hazards are involved in that product. So, it needs a lot of certifications and unfortunately these certifications are not from the Indian labs, so they take their own time
    • We are very confident that by the end of this calendar year, we will have all the certifications done and post that we will have some better share of pie in the gas meter market.

Order Book Status

  • The current order book of the company is Rs. 943 Crore which gives us a healthy visibility for growth over next three to four quarters. Our order book, I would not say it is very good, but it is not that bad also where we need to desperately do something
  • Smart meters constitute almost 65% of our total order book. We are primarily focusing on the smart meters, Smart meters by far has taken over the conventional meters in terms of our order book
  • We have been very clear to keep two things in mind while picking orders
    • the payment capacity of the electricity board, because we are in a very bad shape when it comes to working capital cycle
    • Second was on the product mix
  • We have around Rs. 1400 Crore of tenders which will be quoted in the next couple of months. For sure in June, July and August, there will be a very low traction, when it comes to other bookings. But by the end of October or maybe by start of November, I am very confident that the things will be very healthy
  • For FY2019 export was Rs. 64 Crore and in FY2020 it was around Rs. 96 Crore. So, there is almost an increase of 50% in exports in FY2020 from last year. And we have current export orderbook of Rs. 50 crore

Margins

  • The margin expansion was on account of higher share of export orders, better product mix, benign raw material prices and improvement in operating efficiency. Coming year also, we feel the margins will be at the same level as last quarter

Competition

  • In the last financial year 80% of the smart meters in India were of Genus. That does not say that we will have 80%-85% market share in the country in the times to come, as I do not want to give any wrong understanding also.
  • Two major contributors, to the other 20% in the country is Larson & Toubro and Landis+Gyr

Capacity

  • Genus can produce 15 million meters without any problem - so that kind of investments in plant and machinery has already been done
  • The capacity utilization last year was around 70% to 75%.
  • Capacity utilization percentage in FY2020, on an overall basis - Around 65%
  • We had two years back, build up capacity at Guwahati plant that is almost free right now. So, we have sufficient capacities for the next two-three years for whatever the business that will be coming

Financials

  • Our turnover has been stagnant at around Rs. 900 to Rs. 1000 Crore range since past five years. We expected to breakout last year or this financial year. But due to Corona pandemic, I think it will take one more year
  • Our working capital cycle is likely to remain stressed, but we hope that will improve a little, as the government is working on paying their dues to their suppliers
  • we will be making a loss in the first quarter
  • Around Rs. 170 - Rs. 175 Crore is the liquid investment, that is mainly in bonds and FDs and other things. So, if we calculate, our net debt is Rs. 30 Crore- Rs. 40 Crore only
  • Related party transactions
    • corporate guarantees it has already been reduced from Rs. 230 Crore to Rs. 120 Crore. By end of this financial year, that is by March 31, 2021, there will be no corporate guarantees

COVID impact

  • I am pretty confident that we will be able to maintain the last year numbers, because in our industry ramping up is not very difficult if we have the right product mix. I am pretty confident as of today, but nobody knows the future which is absolutely uncertain right now
  • even in first quarter we will be doing around 40%. It is not totally a washed out quarter. We are pretty confident that we will not be degrowing
  • Because of the COVID-19, the state governments and central government are aggressively working to pay their vendors
  • As on today, there are only Rs. 640 Crore of tenders being quoted. These tenders would have been almost Rs. 1,500 Crore if COVID situation would not have come. So that has been delayed by two to three months
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Summary of the Q1/FY21 earnings call transcript

Industry dynamics

  • Ministry of Power is likely to make installation of smart meters as regulatory requirement as it will be part of the proposed national power tariff policy making the installation of smart meters compulsory
  • With Ujwal DISCOM Assurance Yojana (UDAY) getting expired in March 2020, the government is considering another reform scheme namely SAMARTH (formerly Aditya scheme) aimed at investing funds in network infrastructure like smart meters.
    • This scheme primarily involves the implementation of compulsory prepaid meters of 250 million households with an aim of lowering AT&C losses of DISCOMs to 12%
    • the scheme is planned to install smart meters in the first phase, starting from electricity feeders and then reaching to the consumers
    • likely to have central funding of up to Rs. 1.1 trillion (USD 16.3 billion) over three phases and remaining balance of Rs. 2.9 trillion (USD 42.5 billion) will be funded by states
    • When it will be rolled out, it is difficult to say. It may happen within few weeks or it may take some months. But government is pretty serious about it and I am already seeing lot of tenders getting initiated almost everywhere in the country
  • More than 28 Crores consumers are grid connected whose conventional meters will need to be replaced by smart meters. Thus, there is a tremendous growth prospects for us in the year ahead and we are fully geared up to capitalize on this enormous opportunity

Product Mix

  • Smart Meters

    • share of smart meters in our current order book - more than 65%
    • as a ballpark figure you can take the price of a conventional single-phase meter around Rs.700 to 800 and smart meter can be average anywhere from Rs. 3,000 to Rs. 3,500, depending on the technology being used
    • three to four different types of ways of technologies to communicate - PLC, Proprietary RF, Open RF etc. two technologies are widely used across the global - GSM and RF. Genus is a one stop shop for any kind of electricity metering and communication. And as on date, Genus has the highest installed base for both the technologies in the country by far.
  • Gas Meters

    • we have taken two more pilots.
  • Exports

    • share of export order book is around Rs. 50 Crores
    • There has been some impact on the some of the export enquiries going on. At the same time lot of new enquiries have also come up from different parts which were not expected. I am pretty hopeful that three months to six months down the line export business will see a better opportunities and better results than what we would have ever expected. But here that will be more visible in numbers in the next financial year
  • China Dependency

    • in December itself we started facing huge challenges from China. so that gave us plenty of time to plan our supply chain. We have worked on our supply chain in the last seven to eight months and have created a lot of alternate supply avenues. We are not dependent on one supplier or one country.
    • In fact there was one product which was 100% being imported from China by everybody in the world. Genus probably is the only company in the world today which has already created an alternate in the last two months getting it from a different country
  • ECC

    • in last two to three years we are becoming extremely selective and continuously reducing that particular vertical
    • Almost 90 to 95% of the projects are closed

Order Book Status

  • Our current order book stood at Rs. 1,022 Crores which gives us a healthy visibility of growth for next three to four quarters
  • Bulk of the order inflows has been deferred by three to four months on account of pandemic-led disruptions and is likely to get normalized by November 2020. We are not seeing any order cancelation at all from any utility due to the pandemic
  • live tenders which we have already bid in the last one-and-a-half months is around Rs. 380 Crores. The tenders which will be quoted in next 30 to 45 days will be of about Rs. 952 Crores. Generally, we see conversion of 15 to 20%
  • These are mostly conventional meters. Only about 25 to 30% will be smart meters

Competition

  • there are reports that due to security concerns Chinese companies may be shut out of the smart meters programme in India
  • EESL tender - There were total nine lots. four were won by the Chinese company. But everything as of now, what we understand, is on hold.
  • Out of 9 lots, Genus won one lot. - Rs. 175 Crores, for supply of 50,000 meters

Financials

  • Working Capital
    • Our working capital cycle has remained stressed, as we are facing delays in getting our dues from DISCOMs
    • Under the Atmanirbhar Bharat Abhyan economic package the Government of India had announced it would infuse Rs. 900 billion into DISCOMs which is now likely to be increased to Rs.1.25 trillion. This enhanced quantum will enable DISCOMs to clear their dues which may enable us to reduce the stress in our working capital cycle
  • Margins
    • We are very confident of sustaining our margins going ahead as product mix changes in favor of smart meters.
    • raw material cost as a percentage of sales increased by 3% - because of the product mix there is a change in raw material cost. nothing like that the raw material prices have gone up or any change in raw material prices
  • Related Party Investments
    • classified as a separate segment - strategic investment
    • These are old investments which has already been done four to five years back to different companies of the group
  • Net debt is almost 0 right now and the cost of finance is around 8%

Capacity

  • capacity utilization for the first quarter was 25 to 30%.
  • Genus has a comfortable capability of producing 10 million meters annually. It can be easily enhanced to produce 20 million meters in four to six months

Media Release - First company in ASIA PACIFIC to record supplies of 1.5M Smart Meters

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