SmallCap Hunter : Trying to find the dark horses with triggers

Free cash flow still negative and debt is increasing.
It’s best to stay away from such companies at least until they start generating consistent fcfs.

It is actually one of my main filters before taking analysis of any company any further. If the business cannot generate free cash, then there’s something intrinsically wrong with the business model itself.

Dmart has negative FCF, because it puts back the cash generated into the business, taking no debt. So we have to know the reason why there is no free cash.

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I am studying Websol Energy System Ltd. The company makes solar cells and is increasing its capacity by 7 times (from the current 250 MW to 1.8 GW) while upgrading its solar cell tech from multi-crystalline technology to Mono PERC and TOPCon. As per the annual report, 1200 MW capacity would come live by end of this year.

The company decided to take voluntary losses in Q1 by scraping the existing technology and replacing the legacy equipment with cutting-edge alternatives. The losses would continue for another quarter or so. Expected sharp rebound in 2023-24.

Not sure if it is part of the above capacity expansion plan but early this month, Websol announced JV with AMP Energy India, part of Amp Energy Group for 1.2GW capacity of solar cell manufacturing.

Disclaimer: Studying it and would appreciate any further thoughts. The company thread isn’t very active.


@pranavpallod12, as per my analysis they are investing.

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Solar module manufacturing industry in India has never been and is still not attractive from an investor’s perspective.

  1. Most the technology required for manufacturing is always imported because there is no tech development which happens in India. Mono PERC as a technology is not very old, and now we have TopCon, additionally there will be many other in the development stage which will render the TonCon obsolete pretty soon.
  2. Most raw materials required for module manufacturing are imported. The value chain is solar grade silicon ingots >>>wafers>>>cells>>>modules. At most we make cells in India from imported wafers and then module manufacturing is essentially an assembly work (with some automation/mechanization involved). There are many other materials required like glass, aluminum frames, junction box, connectors, soldering materials, EVA (front and back), backsheets, etc and host of chemicals, most of which (not all, but significant portion) is again imported, mostly from China.
  3. The tech development in solar is rapid, meaning technology obsolescence is fast. This leads to significant CAPEX on a regular basis (leading to writing off of earlier investments).
  4. The global price of solar module is driven mostly based on China’s price. Government may try to protect domestic manufacturers but its never going to be sufficient because India does not manufacture modules at scale. Moreover, many regard solar modules as commodity (for price negotiations) even though its not. And because of rapid tech development the fall in price of modules historically has been pretty high.
  5. There is no technology advantage, no competitive advantage, no pricing power, for Indian manufacturers.
  6. Just think about this, in the past decade and more, there is huge installation of solar projects in India, more than 80% of which used imported modules. Why, because the manufacturing scale was never there. Even currently, we dont have enough module capacity to meet the demand.
    I personally think that it could only be a speculative bet and pure luck to make money, because fundamentally the economics are against module manufacturers. A company like Reliance Industries also bought a foreign module manufacturer and did not invest in building the business from scratch. Tatas also have had module manufacturing business for many years, but that has never scaled to meaningful capacities.
    Look at historical performance of WebSol, Indosolar, Swelect, Surana from perspective of sales growth, profit growth, RoE/RoCE, networth improvement, etc.
    Closing comment…chances of losing money in such stocks are much higher than making money.
    Not invested, only sharing my personal opinion, not an investment advice.

Thanks, @Ketan_Chheda. This is exactly the kind of anti-thesis I was looking for.

I may go with a small allocation purely betting on the fact that India currently has a manufacturing capacity of 3GW of solar cells. The target is to increase it to 25 GW by April 2023. There is a union budget allocation of 19500 Cr PLI for this year. [source].

Some players will benefit just by the scale ambition. Hoping WebSolar to be one of those. What I am not sure about is how are they funding this.


Nature of the business is commodity, the OPM is pretty much reflection of that , where commodity play we need bigger volume, as supply side crisis will be over in a 6 months period so the commodity pricing will be over,

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They too take debt. check their balance sheet

Your observation is 100% correct as our module manufactures do not have technological advantage unless there is technical tie up.