Solex Energy - Undervalued Solar PV Manufacturer or Microcap Value Trap?

Stock Opportunities Untested - but worth a good look
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Found this bizarre company which is trading at a Market Cap of ~16 cr and boasts metrics for a company that should be valued at least ~100 to 200 cr. Its a microcap and as such very little information is available. I will try to do justice by giving as much information about the company as possible.

About Solex Energy

History of the company

Solex Energy was established in 1995 as Sun Energy Systems and has been in the business of solar since. They started with manufacturing solar lighting systems and solar powered boilers for very niche and small customers.

The company transitioned to manufacturing of solar panels in 2007 and has mostly conducted business in the states of Gujarat and Maharashtra.

In 2014, the company changed its named to Solex Energy Limited (transitioned from a proprietorship to a pvt limited company) and then subsequently listed itself in 2018 on NSE via NSE Emerge platform (which enables micro cap and small businesses to tap into public markets).

Products of the company
The company’s main products are PV (photo voltaic) cell modules that are main constituents of solar plants. The company also produces solar water pumps and solar powered submersible pumps.
Apart from these main products the company also manufactures

  1. solar water heaters
  2. solar rooftop systems
  3. installation of solar power plants (they claim to have tie ups with European and Indian EPC players in this area and have installed 110 MW worth of solar power plants globally)

Promoter of the company

Mr. Kalpesh Patel is the promoter for the company and has been with the company since its inception. He currently holds over 70% of the company.

He seems to be exiting the company and become a minority shareholder. By virtue of open offer acquisition he has tendered a majority of his shares to the following people (who are in effect the new promoters of the company). This is likely done as the company is getting bigger and needs a more experienced team to manage it and take it forwards.

The new promoters are Nemji Solar group based out of Surat Gujrat. The group is on a solar consolidation spree and has deep pockets. The aim to invest half a billion dollars into solar PV manufacturing by 2025.

The new promoters have bought the share of the company at Rs 35 each which is more than the current market price of Rs 33 (as of 25th March 2021).

New Promoters for the company
(source: disclosures on NSE website)

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Source: Leading Solar Panel manufacturing company, Anand | Solex Energy Ltd

By the Numbers

Sales: 138cr
ROIC: 16.3%
ROE: 22.2%
ROCE: 28.6%
Book Value per share: 44.8
Debt: 5.08cr
FCF: 1.95cr
PAT: 4.46cr
EPS: 9.01
Promoter Holding: 75%

Key Triggers for the company

  1. The company has recently commenced building a solar PV plant in Surat with a capacity of 1.5 GW.
  2. Increasing sales (Sales have increased from 34cr in March 2017 to 138 cr in March 2020). They claim to have exceeded 200cr in sales for this year.
  3. Transition of PV manufacturing from import to domestic (import substitution)
  4. Change to a more competent management team

What I don’t like about the company

  1. Current Corporate Governance. Their annual general meeting was pretty much a joke (https://www.youtube.com/watch?v=5zxUNfzTBqo).
  2. Very little information is available about the company (I am unable to find how they are funding the capex for 1.5 GW solar PV plant). They do however share some good tidbits about the company on their website and social media (News | Latest Updates on Solar News | Solex Energy Limited)
  3. They are issuing a good number of preferential shares that, that need to be voted on by minority shareholders as well.

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What I like about the company

  1. Extremely undervalued (The promoters were acquiring more shares with cash)
  2. Good portfolio of solar products
  3. New CAPEX into manufacturing of solar PV cells (1.5 GW plant)

I will keep posting more about the company as I research more.
Disc: Researching, do not hold a position in the company

Extract from their credit report issued by India Ratings

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Useful Links:

(Edit: Updated the management section of the company to reflect changes in new promoters)

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If The promoter Kalpesh Patel there is a big worry.

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Its not this Kalpesh Patel, please check and search before posting.

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How do u know that promoter is increasing his stake?

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Thank you Tar for starting a thread on Solex Energy.

My thoughts were exactly as like yours. I too tried to dig a lot about this company. Below is one conversation with the content writer of the company:

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Also, there is some change in the share holding structure. New investors are going to own the 26% of the company by giving open offer @ 35/-. Also there is a preferential issue of shares.

Something is cooking @ the positive side.

Disclosure: Holding 1 Lot @ 26.5 /-

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Thank you for sharing. I have updated the post to reflect changes in promoters. Based on my research they are being taken over by Nemji Solar which is a larger more established group also out of Surat. This group also seems to be the one with deep pockets and is investing heavily into solar/solar acquisitions.

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I got this clue by reading the acquisition offer and mention of Mr. Chetan Sureshchandra Shah. His email was mentioned as chetan@nemji.com. A quick search also revealed that he does belong to the same Nemji group.

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Article also mentions him

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This is a highly illiquid stock, the risks of investing outweigh the potential returns (even if they are multibagger). I will keep researching the company and post more details about it here as the story evolves but for the time being this is not a investable security.
It may however become one in future (years/months) but as of today it is not.

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Any idea why promoter holding pledge is 42.59% ?

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Goldi-Solar-22Sep2020 (1).pdf (316.2 KB)

This is a credit rating report of a 500 MW capacity company.
My calculations : 500 mw capacity , 400 cr turnover, 60-70 cr effective debt so 7-8 cr could be int cost, 10-11 cr depreciation so 80-100 cr gross block might be, asset turnover 4, ebitda 5-6%, npm 1-2%.

This seems quite different from another listed player “Websol”- which is asset heavy , high EBITDA business.
Can any expert help here to understand what are differentiating factors?

PLI scheme announced is for >1 GW players, solex aims to be 1.2 GW player.
But looking at thin margins, task is not easy.

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It’s a Good undervalued stock which has good increase in sales upto march 2020 (due to covid -19 sales somewhat declined ) and it has made good net profit also .
But promoters had pledged total shares which is risky .

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1.2GW Module Manufacturing will be ready by Jan 21 and 3.7GW Module manufacturing by 2023!!!

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In Oct-20, Solex was in news saying they have undertaken the ground-breaking ceremoney for for first phase (600 MW) of 1.2GW project. Since then, there has been no talk on when the plant commences operation. Anyone here has an idea as to when they are commencing? Ideally should not take more than 1.5 years per my understanding, right?

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Great find , now at 270 cr Mcap. 17 X.

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Does anyone know about the current capacity of the company for solar modules?

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Anybody still tracking this company?

Promoter pledge is 0%
Stock is in a clear uptrend both in weekly, daily timeframe
There was a bulk buy on 12 Apr for 0.6%

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Disclosure: I am not a financial advisor. This is for informational purposes only. Please do your own research before making any investment decisions.
I am invested in the stock with 200 shares at ~1517 each.

Solex Energy (SOLEX) is an Indian company engaged in manufacturing solar photovoltaic modules and turnkey solar solutions. They currently have a manufacturing capacity of 700MW in Gujarat and are planning a significant expansion.

Growth Drivers:

  • Massive Capacity Expansion: Solex is set to add a whopping 800MW capacity by September 2024(Solex Energy buys 800 MW module production line from Wuxi, GMEE Solar – pv magazine India), more than doubling their current production. They further plan to reach 4.5GW by FY26, indicating an aggressive growth strategy.
  • Government Push for Renewables: The Indian government plans to add around 40GW solar every year for the next 5 years, and in addition to this there is the PM-SURYA yojna as well.
  • Increasing Adoption of Solar Power: Solar energy costs continue to decline, making it an increasingly attractive option corporates as well

Positives:

  • Attractive Valuation: With a market cap of only 1200 crore despite significant expansion plans, Solex could be undervalued (assuming they execute their plans effectively).
  • Import Curbs: Recent import curbs by the Indian government (After modules, govt now considering non-tariff barrier for solar cell imports | Today News ) and the US government on solar panels from China could benefit domestic manufacturers like Solex by reducing competition, and opens US market for export.

Negatives:

  • Execution Risk: Successfully implementing such a large capacity increase is crucial for their growth plans.
  • Competition: The solar panel market is competitive in India itself, with established players and new entrants vying for market share.

Immediate Triggers:

  • Strong FY Sales: By the end of this fiscal year, strong sales figures could lead to a re-rating of the stock price.

Risks:

  • Commodity Price Fluctuations: Solar panel production relies on materials like silicon, whose price fluctuations can impact profitability.
  • Trade Policies: Government trade policies can affect import costs of raw materials or finished panels.
  • Chinese Threat: The dominance of Chinese manufacturers in the solar panel market can never be ignored.
  • Increased Competition: A strong ramp up in capacity by many other players can also intensify competition in the market.

Summary:
The stock seems like a buying oppurtunity given it’s low valuation of just 1200cr, which seems undervalued given it’s plans to reach 4.5GW of capacity, provided Chinese import curbs stay in place in India and in US till FY27 at least.

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Nice Summary; if you look at Adani Enterprises annual report, they too are entering the SPV solutions in a big way; right from ingots to finished panels. This does affect Solex in terms of market share