Management is guiding for 1500Cr revenues in FY24 with 15% EBITDA margins. Given their track record of guidance over the last 2-3 years I’d take this with a pinch of salt.
Even assuming they will fulfill their guidance, the nos. translate to around 225Cr EBITDA. Given the company’s dismal track record of generating returns - median ROCE of 12% over 11 years - the most charitable valuation multiple one could assign would be in the range of 10-12x EVEBITDA I suppose. The company is right now trading at 25x EVEBITDA but that’s purely because of the market discounting future growth from AMISP revenues. Net debt of the company is around 200Cr.
Assigning a 12x multiple to 225Cr EBITDA and adjusting the net debt gives an MCap of 2500Cr for the metering business. In addition they have about 300Cr of investments assets mostly invested into corporate bonds and public and private equities. Let’s value them at 1x BV. Put together, the projected MCap would be 2800Cr, about 25% up from today’s MCap.
Since Sep 2022, the company has won about 3700Cr of AMISP orders - Bihar and Assam. To the best of my knowledge, 60% of the order value involves the meter cost and 40% is service which is to be provided over 8 years. Now the tricky thing is, the meter cost (~60% of project cost) needs to be funded by Genus because the State Electricity Boards will make EMI payments each month during and after installation. Assuming Genus makes a 20% margin on these meter supplies, that means Genus needs to fund about 1800Cr (60% of 3600Cr is meter value, 80% of that figure is Genus’s funding need considering 20% sales margin). This funding can be spread out over 30 months, so average annual funding needed would be 720Cr. The average CFO generated by Genus over the last 5 years has been 80Cr at a ghastly CFO/EBITDA ratio of < 20%. Even if cash flows double under RDSS, the company is still probably looking at 550-600Cr debt per year or 1400Cr debt over 30 months.
That’s going to stress the balance sheet a lot. So, while the order visibility is clear and attractive for Genus, I am not so sure about their ability to execute these orders without stressing the balance sheet significantly.
Disclaimer: Was invested, exited recently. May re-enter again if execution and funding visibility improves.