Genus Power - Smart Metering

Stock Opportunities Untested - but worth a good look
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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

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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
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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

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  • 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

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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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As per the second report, Jio is interested in leveraging its pan-India NB-IoT network. In fact, Genus had started trials of NB-IoT with Vodafone earlier

Will be interesting to see of RIL/Jio plans to set up manufacturing, tie up with an existing manufacturer(or) invest in an existing manufacturer…

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Earnings Press Release
Summary of Q2/FY21 Earnings Call Transcript

Industry

  • Smart Meters/Conventional Meters
    • (See previous posts for industry information)
  • Gas Meters
    • We have supplied some gas meters to Torrent and GAIL. So to multiple gas companies we have supplied around 2,000 to 3,000 gas meters. Because gas meter is a very, sensitive product and it takes around 6 months to 12 months for all the approvals.
    • Genus is very much entering into gas meter market, but yes, we will see some significant numbers happening after 6 months to 12 months, because it needs lot of approvals.
  • Exports
    • This year exports have been slow in the first six months.

Technology

  • Genus is already a technology company. Generally we relate companies to the software sector when it is a program software. We do lot of embedded software also.
  • smart meter is not only a product. It is a complete solution. When we do smart meters, we are also providing Head End system software along with it. and lot of billing solutions along with it. So what the customer is expecting from us is software as a service. So what customer wants from us is that we completely manage this whole gamut and handhold the whole work for say next 5 to 7 years.
    Generally all these smart meter contracts what we have taken in Rajasthan or Tamil Nadu, or what we are doing in Indore are all this are like this - where the meter is supplied, solution is supplied, installation is done and then it is completely managed for next 5 years to 7 years. So for 5 years to 7 years we are not doing only administrative role, we are maintaining the SLA (Service Level Agreement).
  • If you see that current order mix we have 3-4 orders we have where we have to do FMS. So generally the FMS is to be done for 5 to 6 years. So it depends on contract to contract. As on date, our FMS order book is around Rs. 100 crores. So you can divide this Rs. 100 crores over next five years so that would be the recurring revenue.
  • Except EESL, no State Electricity Board till now have gone for the GSM technology. State Electricity Boards still feel RF is better. As on date, total 18 lakh meters are installed in India for GPRS and RF both put together and 16 lakhs smart meters are due. We are comfortable with every kind of technology when it comes to communications.

Competition

  • Reliance: Reliance is a telecom company and Reliance is not entering this market. Genus is working with Reliance as a telecom company not only with Reliance but also with Airtel and Vodafone from last one-and-a-half to two years. All these smart meters, have a two-way communication. And all this communication is primarily hold by these three telecom companies in the country. So Reliance is not doing something new.
    • why a company like Reliance would like to get into any kind of manufacturing business. And even if they want to, Reliance or Airtel, today we are also in the same space. So we will compete, and I am sure we will do better than these large conglomerates because for them this is too small and for us this is bread and butter.
    • We are in the metering business from last 20 years and we are into deep rooted into this technology business and we hold almost 30% market share in the country. We are completely backward and forward integrated and fully involved in metering. We are not just a blackbox manufacturer. We are a solution provider, so that is where Genus stands very strongly in the market. So from conceptualization till the final product, everything we are doing is in-house. So that is what our strength is.
  • Imports: All the tenders which were given to the Chinese companies they have been canceled by the government. In almost every tender government has stated that more than 50% value addition has to happen in India. So more or less the chapter of import looks to be closed with that kind of condition in all the tenders. So, I do not see any threat immediately or in the times to come for the import of the complete smart meter.
  • Pricing power: for smart meters or for any kind of custom-built product it depends on the specification of what customer is asking. Smart meter w is being sold at Rs. 2,500 also and at Rs. 5,000 also. And both the customers know what they are buying, what is their requirement. I personally feel smart meters has already reached a good competitive level in the country. India is a beautiful country where things before they become large, they already become competitive. I do not see much of a correction happening now. More important is that for the customer there will be true solution being provided. Today EESL has canceled almost all those orders which are at a lower price or which were from the vendors who were not able to supply them. They also realized that smart meter is the solution. It has to run 24/7 without failing at any cost. So, the quality is much more important than the price levels.

Financials

  • Margins
    • significant jump in the gross margin during the quarter - primarily the product mix. Most of the orders what we have in our hand are for smart meters. It is definitely improving the margins.
    • We have always said that our margins would be around 16% -17% and it will be in that direction only. It will be in the improvement direction. I will not say that it will be sustainable at 21% that has come in this quarter. But 16%-17is a sustainable margin.
  • we are reducing debt, we are reducing corporate guarantees and now we have solved pending tax issues. So basically there is nothing left on the list.

Order Book

  • order book of Rs. 1,000 crores
    • contribution of smart meters - Around 70%.
  • Participated tenders
    • Conventional meter
      • we have already participated in tenders worth almost Rs. 800 crores.
      • lot of decisions will happen in November, December or by January.
    • Smart meter
      • we have participated in tenders worth Rs. 1,300 crores.
  • Upcoming tenders
    • Almost Rs. 3,000 crores to Rs. 3,500 crores worth tenders are lying up
    • Rs. 1,500 crores in next two to three months. - Rs. 750 crores are the smart meters and around Rs. 600 crores are conventional meters.
    • Genus will have its own share for sure - we can expect at least 30% market share of the tenders floated going forward

Forward looking statements

  • New orders inflow has remained sluggish as the tendering process has been slightly delayed and spilled over to the second half of this financial year. We expect robust order inflows to start from the month of November
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A few updates

  • Pledged shares have been released. There are no more pledged shares - link
  • There has been a restructuring wherein the unrelated activities have been demerged into a new entity called Genus Prime Infra. Genus Power will now concentrate only on the metering business - link
  • Two new Directors on the board
    • Mr. Subhash Chandra Garg, who is an IAS officer who has served in various ministries including Power - link
    • Dr. Keith Mario Torpy, who has served at various leadership roles in Landis+Gyr (A world leader in energy management including building smart metering systems) - link

An informative discussion on this Industry in “Metering In India 2020” - Insightful discussion on Meter Manufacturers’ Outlook | Mr Ashish Tandon Sr V P Marketing, Genus

Disc: Invested (< 5% of portfolio). Above information is not an recommendation.

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Earnings call Transcript - Q3/FY21 - Feb 4, 2021

Business Updates

  • Management
    • two imminent personalities have joined us in our board. Mr. Subhash Chandra Garg as Independent Director and Dr. Keith Mario Torpy as Non Executive, Non-Independent Director
      • Mr. Subhash Chandra Garg, he is a Independent Director. He has great experience of running government businesses and basically his coming in the company as an independent director will help us more to deal with the government and to be more financially disciplined.
      • Having Dr. Keith Torpy I would say is a big achievement for us. Dr. Torpy as part of Genus now, brings in great technical knowledge and the background from smart metering market for providing complete end to end solution. See we are now moving from product company to a complete solution company. And till now we are outsourcing a lot of solutions and software. In the times to come, we will become absolutely self dependent.Complete solution will also provided by the Genus and a lot of investments will be undertaken on the software side and on the solution development. Dr Keith Torphy will play a major role in guiding us in the right direction there, with the kind of experience he comes in with. He also has the network all across the globe., He will add great value-addition.
      • I would like to add that it will give a big chance to Genus for increasing its global footprints because Dr. Keith has almost dwelled a lot in America, Australia and most of the time he was travelling to a different parts of the world. And secondly our Chief Technical Officer, Mr. Anukram Mishra has worked in Landis+Gyr with Dr. Keith, so they have very good relationship. That is why Dr. Keith has joined as a non-independent director
      • His deliverables will be to extend the global footprints of Genus and bring a a lot of new technological changes in Genus which will help us to grow globally and domestically also.
  • Demerger
    • we are undertaking business restructuring wherein company’s investment in non-listed group entities is being demerged and amalgamated into another listed company Genus Prime Infra Limited, in lieu of which Genus Prime will issue its shares to shareholders of Genus Power
    • Demerger has nothing to do with debt or cash. There is no cash outgoing from the company with demerger and there is no debt outgoing from the company with demerger. It is just the investment that is going out. So there will be no change in debt or cash position of the company after this demerger.
    • The treasury share of our own company and Genus Paper both are hold by trust which is the part of the company and that trust is not going out of the company. So no listed company shares are going out of the company with this demerger.
  • Gas Metering
    • This industry is pretty small, but lot of opportunities are coming up
    • my estimates we should become Rs. 800 Crores to Rs. 1000 Crores industry in two to three years. So we should have at least 15% market share if not more
    • we received order of 10,000 gas meters from Green Energy
    • very good opportunity of 50,000 meters. We are very close to that opportunity also
    • our focus in the gas meter is on the AMI side, where we bring an established brand in electricity metering and where we are very strong in communication models that are coming up now in gas metering industry.
  • FMS
    • we participate as a single tender, so there is no separate tender for FMS
    • right now the FMS revenue is very low, because for most of these projects the FMS will start from next financial year
    • we expect at least Rs. 20 Crores to 25 Crores from the FMS in FY22

Financials

  • Order Book
    • Rs.1005 Crores
      • smart meters constitute about Rs. 650 Crores
      • share of export is around Rs.70 Crores
    • Tenders worth almost Rs. 4,500 Crores tenders are either live or will be quoted in next couple of months
      • tenders of worth Rs. 1,800 Crores which are live, which we have already participated
        • smart meters that value is Rs. 575 Crores,
        • conventional meters is Rs. 1,200 Crores
      • there are tenders of Rs. 3,000 Crores which are to be participated in the next two months
        • will be quoted in coming 30 to 45 days
        • Rs. 1,350 Crores to Rs. 1,400 Crores constitute conventional meters and Rs. 1,650 Crores to Rs. 1,700 Crores constitute smart meters.
  • working capital cycle is almost 200 days
  • Margins
    • 16% margin guidance
      • our margins are almost around 17% to 18%
      • there could be impact on margins due to raw material from 3% to 4%, but that will be covered once volume increases. Once our production increased, our margins will increase around 2% to 2.5% and already we are giving you guidance almost 1.5% lesser than what we are currently achieving

Capacity

  • Our capacity utilization remains subdued in this quarter due to muted volume of uptake on account of postponement of dispatches of meters to forthcoming quarters. This is primarily on account of customer centric nature of our business which requires human intervention for installation of meters.
  • Rs. 2,000 Crores plus we can easily generate with the current infrastructure

Competition

  • about 18 companies in the country.
  • Chinese comapnies were trying to enter through the EESL mode. So all the SEB business are anyways with the Indian companies. It is not easy for anybody to enter and exit. So I do not see any major change in terms of competition whether Chinese companies are coming or not coming
  • we are probably one of the very few companies of India, where the content of chinese raw material we consume is by far the lowest than the competition

Forward Looking

  • Order book will further improve dramatically in next three to four months and we should achieve topline of Rs. 1,200 Crores in FY22
  • EBITDA of approximately 16%
  • we are being very conservative and as the government is giving a lot of thrust for the smart meters, so this topline number can be far higher than what we are expecting
  • the way the things are moving we can probably touch Rs, 2,000 crore revenue target in 2024
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Earnings call transcript - Q4/FY21

Business Overview

  • Opportunity
    • Electricity Meters
      • Market size
        • Historically - Rs.2500 Crores to Rs.3000 Crores
        • FY2021 - tenders of Rs.4,000 Crores which came out.
          • only Rs.1200 Crores could be decided
          • we are sitting on live tenders of Rs.2941 Crores, which are already quoted and which it will be decided in the next two to three months
        • FY2022 - tenders worth Rs.7200 Crores have been out, which would have been quoted by this month
        • currently we are sitting on opportunity, tenders which are out are more than Rs.10,000 Crores. This will be decided in the next three to six months
        • Genus has the success ratio always of 25% to 27% market share
      • Reforms-Linked, Result-Based Scheme for Distribution’ (RLRBSD)
        • If you see the amount of tenders that have come in the last 45 to 60 days, it is visible that almost every state is going to implement these schemes in a major, major way in the times to come.
      • IntelliSmart
        • IntelliSmart is going to be one of the major players
        • IntelliSmart is an execution company of EESL. So whatever the tenders are floated, are floated by EESL
        • Discoms are reacting positively to this ‘Pay as you Save Model’
      • Genus we will have three business models. We will work as a opex company ourselves also, we will take end-to-end solution projects where there will be complete capex. In all these companies like IntelliSmart or REC - we will be their solution providers. So definitely we will see a major momentum in a very short period of time
    • Gas Meters
      • industry of around 6500 to 7000 Crores in the times to come
      • total domestic market of gas meters is estimated to be around 4.2 Crores meters till 2029. This is the outlay the government has made and there is expectation that further 1 Crore gas metering connection will be added during this period. So we are expecting 5 Crores gas meters in the next 8-9 years
      • We have done a supply of 10,500 meters in the last financial year, which has given us a good impact in the market.
      • We have got all the design certifications - it takes a lot of time and it is a very big entry barrier in this industry. So last two years of hard work has given us most of the certifications and one of the key certificate is also expected in the next 2-3 months. So I am expecting our gas meter to become substantial from FY2022-FY2023
  • COVID Impact
    • Our capacity utilization remained subdued in Q4 FY2021 due to very muted volume offtake by the Discoms due to disruptions of COVID-19 pandemic. As our businesses are customer centric and it requires a lot of human intervention. That has been severely impacted because of the lockdown and has also impacted the movement of the meters.
    • The feeling of second wave started in February itself because at most of the electricity boards the inspections were getting delayed. Though among the general public the feeling is the pandemic second wave started hitting from the month of April but to the B2G business it surely started impacting many electricity boards from the month of February itself. That was the only reason of slow sales. Absolutely nothing else contributed to it.
    • We were producing in the anticipation that the inspection will happen, and we will be able to dispatch all the meters to the Discoms, but unfortunately because the inspections had not happened and we could not get the dispatch advisors from them, so our FG was also very high at the end of the quarter
    • April and May is practically washed out.
    • Only in Rajasthan we have lost more than 100 field engineers in electricity board. I am not talking about COVID positive; we have lost more than 100 people
  • Exports
    • EESL looking at Africa and Middle East. EESL entering will give also a big boost to the company
    • we have been focusing on export markets for the last five years. The business we are into i.e., smart metering has its own gestation period for any country to open up. So all the hard work that has happened in the last four to five years, which surely show results in the near future
  • Demerger
    • The proposal is with SEBI and we are waiting for their approvals

Financials

  • Margins
    • normally if you see our EBITDA margins remain at 16% to 17%
    • for sure first quarter there will be a very lesser EBITDA margins. For second quarter there will be a lesser margins. From third quarter we hope that again the margins will start coming back to the normalcy of 16-17%,
    • this is mainly because of the volumes and raw material prices, there is no decrease in prices of meters and we are able to pass on to our customer whatever the raw material prices were impacted. But because of the old orders and there is no escalation clause it will certainly affect EBITDA margins. Volumes is also decreasing, so there will be a impact of both volume and raw material prices
  • Order Book
    • current order book is Rs.931 Crores which is good for at least the next two to three quarters
      • Rs.534 Crores is from smart meter
      • Rs.345 Crores from the conventional meters
      • Rs.151 Crores is from the FMS, which will be receiving over a period of five years
    • order book of Rs. 55 Crores in the exports division

Capacity

  • We can comfortably produce 10 million meters, which will give you a revenue of Rs.2000 Crores to Rs.2500 Crores
  • 10 million capacity can be easily enhanced to 15 to 20 million within maximum six to nine months because we have our plant, machinery and everything invested in a way where Genus can go up to 20 million very comfortably

Competitors

  • primarily two to three large companies - Schneider Electric, which has taken over L&T, Secured meters, HPL, Socomec and Landis+Gyr
  • Genus domestically would have a market share in the range of 25% to 27%

Forward Looking

  • The overall hangover of COVID-19 is likely to persist at least for Q1 of FY2022 & may be more as we never know. However, we anticipate that sharp revival is possible in the metering industry in Q2 FY2022
  • we believe the share of revenue from Facility Management Services (FMS) , which is recurrent in nature to steadily grow to about 8% to 10%% of our total revenue in the foreseeable future.
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Towards the end of June, The government had approved the Rs. 3 Lakh Crore Reforms Based Result-Linked Power Distribution Sector Scheme. (Cabinet approves ₹3.03 trillion power discom reform scheme). The Earnings Call for Q1/FY22 was all about this scheme and it’s impact on Genus…

The summary below has the details provided by the Management. I found the call very informative and took away two important developments

  • Genus is expanding from Electrical Meters to FMS to AMISP
  • Genus is making progress on Gas Metering. It is additionally venturing into Water Meters

Earnings Call Transcript - Q1/FY22

Business Overview

  • Reforms Based Result-Linked Power Distribution Sector Scheme
    • The most significant development for the Smart Metering Industry was obviously the approval of the 3.03 trillion power distribution company reform scheme namely Reforms Based Result-Linked Power Distribution Sector Scheme. In this revamped distribution sector about half of the total funds of the scheme, that is, about 1.5 trillion are to be deployed for installation of smart meters
    • the beauty of this scheme is that the central government and the state utilities have worked very closely in building this scheme
    • two good things what central government has understood
      • every state can modify it according to their customization, so which is highly welcomed by the state utility
      • Second thing the incentives
        • Rs. 900 or Rs. 1400 for a smart meter
        • if you reduce our losses and use this money in installed meters by December 2023 for the 500 Amrut cities, you will further get incentive of Rs.500 and Rs.800.
    • For e.g., for a normal DISCOM - incentives are
      • Rs.900 per point will be given as a grant plus if the state utilities are able to install these meters by the end of December 2023 they will further get incentive of Rs. 450. So in total Rs. 1,350 is the straightaway grant from the central government
    • Scheme Funding
      • State governments do not have to pay anything upfront from their pocket.
      • almost 20% of the money of the smart meters is paid by the central government as grant ,so it is not a loan. And 80% of the remaining money will be financed practically by the AMISP where there is no immediate outflow of single penny from the pocket of the state government
      • Neither the consumer will pay the money nor the utilities. Utilities will pay rental per meter per month basis
      • 100 million meters to be installed by FY2023 - I estimate almost 75% of these would be on the new opex model where the AMISP is going to invest for the meters, not the state government
    • by October 31, 2021 the state utilities have to apply to the central government with the complete conditions
    • lot of action will happen by the end of this calendar year
  • Genus as a AMISP - Advanced Metering Infrastructure Service Provider
    • Genus will play that role. So Genus will play both the roles - where they will themselves do AMISP and they will supply to AMISP as a manufacturer
    • Any capex done by us will be coming back in the form of rentals and that is secured by sovereign guarantees, escrow accounts and with the LC
    • Currently we are supplying to EESL which is AMISP, we are supplying to IPCL which is AMISP. And at the same time ourselves are doing end-to-end annuity projects in Tamil Nadu and Rajasthan - where it is not a completely on opex. It is capex plus opex model. So we are already undertaking that. And in future, complete opex model will also be undertaken by Genus. So Genus will play its role all across
    • We are not going to be only a hardware player. We have already started becoming a software player also. So equal value will be created by providing end to end solutions.
  • Gas Metering
    • we have already developed the product, the testing is already more or less completed and we should get the certificate in next 30 to 45 days.
  • Water Meters
    • you will see Genus playing a good role from next financial year. We have started the journey of working on the water meters

Order Book

  • Tender Pipeline
    • nothing majorly has happened in terms of finalization of tenders
    • estimated value of these tenders is Rs. 10,200 Crores.
      • we have already participated in tenders wirth Rs. 3,000 Crores in last two to three months which we will get decided in the next three to four months
      • almost Rs. 7,000 Crores worth of tenders will be participated in the next couple of months
  • Order Book
    • around Rs. 980 Crores.
      • Rs.175 Crores is the FMS work which will happen over the next five to seven years
      • Rs.800 Crores has to be executed in the next 9 to 12 months

Financials

  • Margins
    • it will be around 16% to 17%
    • there is a pressure on margins in the current state of affairs because it has been almost one-and-a-half years where the industry has seen difficult times
    • we have been hit by almost 4% to 5% on account of rise in raw material and commodity prices and all
  • working capital cycle
    • It is almost 200 days. There will be improvement of 10% say it can go to 180 days or 175 days.

Forward Looking

  • Revenue
    • For FY2022 the ballpark figure would be anywhere around Rs. 700 Crores to Rs. 800 Crores. Rs. 800 Crores is quite achievable
    • I am very hopeful that for next financial year it can be anywhere from Rs. 1300 Crores to Rs. 1500 Crores.

Disc: Invested. ~5% of portfolio

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My only concern is the high risk associated of doing business with the central / state governments And it’s effect on the working capital days going forward .

The positive is that the government knows that this is the only solution going forward to reduce discoms losses.

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ICICI Securities has initiated coverage on Genus

Genus Power Infrastructures share price: Buy Genus Power Infrastructures, target price Rs 117: ICICI Securities - The Economic Times (indiatimes.com)

Detailed report: Genus Power Infrastructures: Metering the Smart Way (trendlyne.com)

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Earnings Call Transcript - Q2/FY22

Overview

  • Industry Status
    • I have not travelled the way I have travelled in last 45 days because the whole country is looking for the smart metering, each and every distribution company, each and every customers are seeking meters, get presentation from us and looking forward to change completely to smart metering - because the pressure from the central government. And the need of a smart meters is the best we could dream of. So worst is over for sure and we are only looking ahead in times to come
    • the worst is over for securing the orders. There will be a lot of orders in coming months and worst will be over in next three to four months for execution. So worst period for ordering for getting business is over and we are expecting a lot of business. And execution might take another three to four months to regularize because of the semiconductors, commodities and old orders and everything. So you can say the worst is over.
  • Business Model
    • There are multiple tenders in the markets. Every tender gives us opportunity being a meter manufacturer to play the dual role. So we can be a system integrator also and we can be a supplier to our customer also. So as we have decided we are going to play both the roles
    • For us the risk is much less than the normal system integrator…
      • This is the hardcore technology product, this is a hardcore technology solution which has to be provided. So basically the role has to be played by the meter manufacturer and the service provider like us. So our risk in comparison to the normal system integrators is much less because we know the domain, we know the terrain and we have been doing this kind of work in last 15 to 20 years.
      • Genus as the company has been supplying meters, installing meters and maybe reading meters in some cases
      • definitely margins will be better and the opportunity increases.
  • Competition
    • very frankly I do not see any threat from these international companies coming to India and dislodging us. As an industry we are very well placed to compete with these multinational or international companies coming in India for smart metering products
    • a lot of customization is required when it comes to metering in India

Chip Shortage

  • since June 2021 one onwards, the acute shortage of semiconductors has led to a very tough period for the Indian smart metering industry
  • our capacity utilization fell drastically to a level of almost say 35% to 40%. We expect normalcy for semiconductors availability will be restored in the next 4 to 5 months.
  • Normally, we run at a capacity of 65% to 70%, so almost you can say that we are running at a 60% capacity of what we normally run.
  • The installation of smart meters under the new scheme is anticipated to commence by April 2022 onwards by which period we also expect the supply of semiconductors to largely normalize

Financials

  • Margins
    • not only your electronic components which are giving pressure on the margins, metal, brass everything is giving pressure on margins
  • Trade Receivables
    • Payment towards smart meters is going to be completely secured money.
      • If we become a system integrator then our money is secured because there is a clear cut provision given in the SBD either they will have to open an escrow account along with the sovereign guarantee of the state
      • if we are supplying to system integrator then most of the payments will be on the LC
    • trade receivables problem will also resolve significantly for companies like us. But yes, it will take time, it won’t happen from tomorrow.

Order Book

  • Our current order books stood at Rs.882 Crores, which gives revenue visibility of over next two to three quarters.
    • around Rs.150 Crores or Rs.200 Crores, these orders are for the new prices or at better prices than the old
    • Rs.500 Crores to Rs.600 Crores – in short it will be over in the next two quarters, whatever the pressure we are facing due to our old order book
    • more than 65% is smart meters in terms of value and in future also 70% to 75% is going to be smart meters
  • The state electricity boards are likely to submit thier detailed project report (DPR) as per the guidelines of the ’Reform based Result linked Power Distribution Sector Scheme’ by the end of December 2021.
  • Thus we anticipate robust order inflows starting from January 2022 onwards. We expect sizable order book by the end of March 2022.
  • Tender Status
    • in total about Rs.10,800 Crores worth of enquires are floating in the market
    • we have already participated is around Rs.4,500 Crores, which we expect them to be decided in next four to five months.
    • we are going to participate in the next two to three months … is around Rs.6,200 Crores

Forward-Looking

  • In FY2023, we expect we should be back to our normal days at 70% to 80% capacity utilization we used to have
  • we should be doing at least Rs.1,300 crore as a top line for next financial year. That is too conservative for me in the current scheme of things
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Investor Release
Jaipur – 15th December 2021
Genus Power Infrastructures Ltd, today announced that it has received ~Rs. 325cr worth of orders. These orders are across Exports geography and Domestic geography. Within Domestic Geography, orders have been received for Smart Meters across multiple State Electricity boards and Gas Meters. These orders will be executed over next 12 months. With these orders, the company has crossed Rs. 1,000cr orderbook

More order wins expected from January onwards

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Thanks @lsubs for regular updates on the thread and excellent notes, and @Tar for superb article on structural reforms being carried out in sector.

Opportunity -

  • Smart meter India -25 Cr meters across India, 10Cr in phase1 by FY23.
  • Smart meter global( export) - better margins profile
  • Gas meters

India wants to do 10 Cr meter by 2023 out of planned 25 cr, 1.5Lac cr has been budgeted for metering out of 3Lac cr overall budget overlay( more details in AR 21 and reform article above), opportunity size is clearly huge and so is sense of urgency/policy push from Govt.

Being invested in sector via Borosilrenwable( alongside IEX and Tata power), which has given very good returns driven by multiple QoQ improvement in performance over last many quarters as well as multfold upcoming capacities. Wanted to check possibilities in smart meter push.

IDEA is not direct comparison but wanted to see if something meaningful can play out here for Genus, some stark differences stand out in business model

  • Borosilrenwable contracts are short term in nature and price revisions( though linked with global prices of glass), near Monopoly and no direct govt contracts - Genus is mainly dependent on Govt tender biz( minor export share), has some competition and and high working capital and longer term contracts thus higher risks - we can see FY21 Divergence in both biz.

Path forward for Genus
Now that Corona situations had adverse impact in FY21 and H1 22, Genus is guiding for a better H2 22 and solid FY23 on back of -

  • Tender revivals - got 300 cr+ last week, taking order backlog to 1000 cr , https://www.bseindia.com/xml-data/corpfiling/AttachLive/75a7e584-f0da-4071-a11f-cc3f3a6780d1.pdf
    , have participated in 4000 cr+ tenders till date and 6000 cr+ to be out in Q3 and Q4 - historical win ratio has been 30%

  • Commodity price cool down to revive margins ( recent qtrs have seen single digit, prior to Corona company did 15 to 18% margins) - what worked against them will work for them going forward as new contracts to be on recent past commodity prices

  • Payments given Govt tenders - escrow accounts and LC to be used for payments per mgmt commentary ( escrow as model is also being used in Govt hospitals laboratory tenders per Krsnaa diagnostic calls) - Intellismart to co-sponsor sizable part of Initial Capex for smart meters. This model success to be seen but is assuring.

  • Optionalities - company is Venturing into Gas meters which is a good growth area as well, recently won order has Gas meters as well)

  • Optionalities- EPC biz

  • Biz model - Bidding as System Integrator - Genus is planning 30% of revenues in med term from this model where they own end to end solution ( hardware + software + FMS( facility mgmt)) - this will require higher WC but is a long term annuity contract and relatively better margins - will reduce overall performance volatility

  • Their core focus to continue to be a metering solution provider

Valuations- company has guided for 1300 cr revenue and 16-17% margins in FY 23( per them conservative), at current valuations available at 1.1X sales and 6X EBDITA for FY 23. FY20 they have done 1100 cr revenue and 100+ cr EBDITA so numbers look doable. A visible growth and sunrise sector can good valuations, as soon as one good qtrly performance is delivered- rerating likely to happen One learning though is to scale position only based on performance, not based on hopes given history of company

Genus has a installed capacities of 1cr meters, can double in 6 months with brownfield approach, as of day has 1000 cr order book from 4000 cr+ tenders participated, out of another visible 6000 cr tender in Q4 , they can win another 2000 cr given past history).

FY23 entry orders in base case could be around 3000 cr( 18-24 months type execution timeline) - further substantiates mgmt guidance.

Q2 con call has good details.

Some additional triggers

Risks

  • Working capital detoriation
  • Omnicorn impact on tenders and execution
  • Too many biz lines diluting mgmt focus - though all are adjecncies
  • Tax litigations in AR
  • Corporate governance perception ( narrative may change with performance)

Minor Tracking position

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Do we have any information if Genus power has interests in entering the EV charging meter business ?

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Recently started studying the power sector and related areas - renewables, EV charging landscape, CNG, discom reforms and Electricity Amendment Bill - as @Tar mentions in his blog, this sector is definitely ripe for policy driven disruption. Secular trends which I can spot are :

Power generation : Increase of renewables primarily solar
Power transmission and distribution : Increase in smart meter adoption, increase in share of private players in discom business
Energy consumption - Increase in CNG/LPG in transport/industrials/home fuel and adoption of EVs in auto industry (Led by 2W/3W and followed by PVs, CVs are laggards)

It appears from feedback from multiple publicly available sources that the new discom reform scheme - Reforms Based Results Linked Power Distribution Sector Scheme (RBRLPDSS :sweat_smile: :sweat_smile: :sweat_smile:) - is a soundly thought one scheme which is a win-win for discoms, end consumers and power generators. Resistance from State Govts is low as the scheme has been worked out with two things in mind - 1. Incentives which are linked to discom performance and 2. Opex component where discoms can pay for new infra (smart meters) in a rental model rather than all upfront. The financing mechanism seems to be be in place (Supplier receivables are sovereign guaranteed, therefore bank appetite for loans to private players will increase).

In the context of RBRLPDSS taking off from FY23 (After delays due to Covid), I have tried to project the opportunity that Genus Power presents to investors in the next 3-5 year horizon.

RBRLPDSS Scheme details :

Scheme Details
Scheme Details778×350 19.6 KB

Note 1: Genus’s present tender win rate is 30%, I have assumed 20% and 15% respectively for Phase I and Phase II as a conservative estimate and also because going beyond that scale may put tremendous pressure on company’s balance sheet.

Note 2: AMISP stands for Advanced Metering Infrastructure Service provider - Essentially a company responsible for investing in buying/manufacturing smart meters and deploying them and associated software stack for discoms and thereafter providing maintenance services for the meters and the software stack.

Genus Power topline & bottomline projections from FY23-FY29 :

Genus Power Projections FY23-29
Genus Power Projections FY23-291220×960 67.6 KB

Key assumptions:

  1. Management has guided strongly multiple times that 16-17% EBITDA is a stable EBITDA which they will look to maintain FY23 onwards (Led by greater proportion of smart meters and commodity prices cooling off and semiconductor shortages easing off from Q1 FY23). I have considered 15% EBITDA throughout as a conservative estimate
  2. Management has guided for 1300 Cr revenue as a conservative case in FY23. My calculations suggest this number should be easily overtaken if scheme rolls out smoothly
  3. Unit realizations considered :
    Non-smart meter - INR 800
    Smart meter - INR 2500
    Smart meter with full service Stack (AMISP) - INR 6000 : This is the model where Genus not only supplies the smart meter but also manages the solution (Meter + software stack) end-to-end. As per management, incremental INR 3500/meter flows to the P&L as revenue in 5 years i.e. INR 700 per year
  4. Company will restrict itself to only 30% of AMISP contracts among the total smart-meter contracts it wins under the scheme. This is a management threshold set to ensure capex costs don’t become unmanageable (Under the AMISP model, service provider has to finance all the meters upfront and discoms will only pay rentals over a period of 6-8 years. This upfront financing will need debt and if the proportion is not kept in check then the debt can overwhelm company’s balance sheet)
  5. Additional debt - The assumption is, 30% scheme revenues will be under capex model financed by the company whereas remaining 70% will be normal sales to other AMISP providers where capex is not needed. Therefore financing will be needed only for the AMISP upfront revenues being generated in FY23 i.e. INR 375 Cr (0.15Cr meters * INR 2500 per meter). Interest rates have been assumed to be same as now - 10% p.a.
  6. Company has present manufacturing capacity of 1 Cr meters (Fungible between smart and non-smart) for which optimal utilization can be 90%, therefore effective capacity is 0.9 Cr. As per my projections, company will not need to expand capacity before FY27 and that too by a mere 25%. Capex for this should be around ~INR 7-10Cr (Company has previously said it can double its capacity in 6-12 mos. at a cost of 25-30Cr INR ) which can be funded through internal accruals.
  7. Non scheme revenues - I have assumed that company will operate at near 100% capacity from FY23 onwards. Whatever volumes aren’t absorbed through the scheme will go towards making non-smart meters from FY23-FY25 and smart and non-smart meters in equal proportion from FY27 onwards (In FY26 there is no free capacity left).

Given these assumptions, company EPS is projected to grow to INR 11.5/share by the end of FY26. I think growth in this company will be lumpy due to the scheme phases with one leg of growth coming in FY23 and the 2nd leg coming in FY26. Projected stock price CAGRs as per the model are 17% for FY22-25 and 25% for FY22-27.

Key downside risks to valuation:

  1. Another bout of Covid which brings all tenders to a standstill as seen in FY21 and FY22 where revenues got impacted 50%
  2. Any issues with rolling out the RBRLPDSS scheme - Unexpected resistance from state Govts or lack of funding from banks for AMISPs
  3. Semiconductor shortages and commodity inflation are sticky and continue well into FY23 thus eating into margins
  4. Company not being able to meet topline targets without increasing share of AMISP business from 30% to higher numbers such as 40-50%. This will stress the balance sheet via higher debt and will lead to lower PAT and may even lead to PE de-derating on account of high leverage. Its key for the company that it is able to take its share of scheme revenues without overcommitting on AMISP (QIP may be an option for fund-raising if needed but this also will impact shareholders negatively)

Key upside risks to valuation

  1. Company is able to retain its tender win rate of 30% and therefore grab a much larger share of the scheme pie than modelled here
  2. By virtue of winning sovereign secured revenues via the scheme, company is able to raise debt at favourable terms which enables it to expand capacity more than projected and also earlier than projected
  3. Electricity Amendment Bill gets passed into Law in FY23, thus changing the discom landscape in India by increasing the participation of private discoms who have much stronger balance sheets than state discoms and a much higher appetite for adopting new technology across the value chain. This will hasten the adoption of smart metering in India
  4. Company achieves breakthroughs in gas metering solutions which it has entered just now and that brings in additional revenues

Phew! That was a long first post. Feedback and corrections welcome :slight_smile:

PS: Took a starter position today, intend to keep adding as thesis unfolds Q-o-Q.

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19

In addition to all the excellent points that you mention, there is an added optionality of Gas Metering too…

Disc: Invested. Views may be biased

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20

Excellent analysis.

Since you are trying to include analysis for long term, always look into board of company. Last year, they added two folks :

  1. Retired IAS from Power dept (It will help in aligning with Power tendering)
  2. One scientist from Australia (Earlier VP of global leader in metering world)

This gives you confidence that company is improving its management .

Note : Std disclaimer apply.

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