Genus Power - Smart Metering

Stock Opportunities Untested - but worth a good look
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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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