As per my understanding, role of AMISP requires financial back up as installing millions of meters and infrastructure around it is no joke and hence instead of borrowing capital, they went for this JV.
It appears that Genus will act as a supplier of smart meters and as a system integrator to this JV, while the monthly installments will be collected by this JV and this revenue might not show up in the Genus financial results, since it being an associate company.
In such scenario, Genus will not be having greater margin since you are supplying to your associate company only, which might result into the single digit ROE. And this is my main concern regarding making any serious investment decision in this company.
Disclaimer : Not invested but trying to study the opportunity
So GIC will be giving 500 crores in lieu of options/warrants to have 15% equity of Genus. Genus will use most of this money to fund back this JV.
Which implies, GIC will be owning 15% of 26% stake of Genus in this JV.
Genius, isn’t it.
Genus is investing USD 260,000 for a 26% stake in Gemstar
Chiswick will be paying 25% upfront (approx. Rs. 130 Cr) and the balance 75% (approx. Rs. 390 Cr) will be payable on exercise of warrant which is 18m from allotment. This will give then 15% stake in Genus.
The media release yesterday says that the initial capital outlay for Gemstar is USD 2,000,000,000. Genus would have to contribute USD 500,000,000.
Genus already has a 9-y loan of USD 49,500,000 at 9% (including hedging) from United States International Development Finance Corporation.
In the Feb 2023 investor call, there was a question about the IRR expectation from AMISP deals. Unfortunately, the management replied that the projections are business confidential.
We should wait for the investor call to get further details
First of All we have to understand the need of This Deal as Genus is already capable of bidding smart meter projects and they in this business of meter solution provider from more than two decades.
The Model under which most of the tenders are floating: Design-Build-Finance-Operate-Transfer (DBFOT) is a project delivery method which involves Designing and Building the infrastructure, Operating them for a specific time period and Transferring the ownership of the project to the Government after specific time frame.
In UP Gov Has awarded contracts of smart meters worth Rs 25000 Cr in four to five clusters of Rs 5000 TO 6000 to Adani Transmission(Best) and GMR Infra and later on cancelled as they are not into the manufacturing of meters. They are sourcing the meters from some vendor and installing. So the bidding was was high and it was difficult to provide after installation O & M Services.
Now Genus power has formed JV Because:
1:They want to focus only on manufacturing(design) and O & M part of the business not bidding because there debtors days are more than 200 days and in will start bidding such large orders there debtors days will become more worse and it will effect there balance sheet.
2:They formed a JV and only Kept 26% not 50% or 51% stake because they only want to provide technical expertise of bidding and GIC Singapore entity has only money to invest in such high opportunity but they lac knowledge about the industry like at what price to bid and how to bid, which are the projects to bid and which are not.
3:For this reason they kept there option open to provide meters and O & M Services to other successful bidders as there is no exclusivity contract with this jv(as per there concall on 6th july).
4; They will bill the jv and receive money in 30 to 45 or say 50 days and there debtors days will be significantly down with less working capital required.
5.The projects require large Capital as one of the group companies of Lakshmi Group already stated in there Annual Report FY 2023.
“The evaluation of DBFOT model in the smart meter business tends big players only to have the access due to the need of large financials.”
6.Chances of getting orders to this jv are high as they The JV Has the Expertise in Design-Build-Operate-Transfer in the form of Genus Power(26% stake) and Finance in the form of GIC Singapore (74% Stake).
The valuation of the company is on higher side and there any many risks are also evolved like Some years back Shakti Pumps and other companies promises big order Inflow from state gov under Project Kusum of Installing Solar Pumps but nothing happened Much.
In my opinion it will take lot much of time for the orders to get materialised on ground and the current rally seems to have factored in most of the growth.
Now tracking Shakti Pumps for similar story…
Disclosure : Exited all my positions in last 1 week.
Results look good YoY and QoQ, but can anyone comment on what’s going on with ‘other income’? QoQ its a 40crore favourable swing. This mostly seems to be interest income and gains/ loss related to financial instruments. Why is this part of revenue? Assuming this flows through the P&L at 100% margin it seems sequentially 1Q24 core margins are a bit weaker vs. 4Q23.
Current order book ~19,500 Cr; Out of that ~70% is available to Genus. Execution period - 27 months; The order book can be further broken into - Production, Installation and Maintenance (6-7 yrs.)
Revenue Guidance
1,200 Cr. confident guidance for FY24, Aasam and Bihar orders to contribute for FY24 revenue;
For H1, it has been Rs. 520 Cr. Remaining revenue 680 Cr. is expected in H2’24. That will be more than 50% growth in revenue against H2’23.
Revenue for FY25 & FY26 will be multi-fold
Margins
Current subdued margins are due to increased expenses for preparation of delivering the huge order book e.g. employee cost, finance cost etc.
Once the revenue from newer order comes in the management expect to 15-16% margins
Future Outlook
Ability to take orderbook to about 30,000 Cr. That was a target for 3 yrs. orderbook. 2/3rd of that already achieved.
Current capacity 10 Million orders. Can increase capacity if the orderbook continue to scale up
I have initiated a position during last week considering the tailwinds for the smart meter adoption. The thing that I am particularly cautious about is - these orders largely being from state electricity utilities, shall we be aware of some challenges about the receivables. Has company management ever clarified about their strategy about saving themselves from receivable related challenges from state electricity boards.
The servicing of these orders will happen via The Platform. So Genus Power will not be dependent on SEBs for their receivables. Because of the Platform, the receivables cycle will infact reduce significantly, thus releasing the pressure on overall working capital cycle going forward.
Till now the share price increase was dependent on orders being received. Now the trigger would be based on the execution of those orders. If the company is not able to execute then it will result in sharp correction.
Was invested from 74 to 250. Sold around 250 mark. Hence Biased
