Fundamental Analysis by Genus Power

Genus Power’s fundamental analysis: India’s electricity consumption grew by about 8% in the first half of 2024 to reach 847 billion units (BU). Our country is facing increasing energy demands. With this growing demand, India faces another important challenge.

The current infrastructure built to track the generation and supply of power to various distribution companies and consumers has been highly inefficient. This results in a power loss of at least 10%-15% and adds costs to everyone involved.

Nonetheless, the company we’ll be covering today is here to solve that very problem. The company manufactures state-of-the-art smart metering systems that efficiently track power supply and usage. It also helps authorities understand electricity demand at different times of the day.

Fundamental Analysis by Genus Power

Now let’s understand more about what this company does and see what kind of demand we can expect for its business. We’ll then fundamentally analyze the company to see if strong growth leads to strong financials. Watch until the end to find out what we think of the company.

Company Overview

Genus Power has been a pioneer in the power metering industry, manufacturing smart meters for over 25 years. The company has successfully installed over 7.5Cr electricity meters, all manufactured at its integrated 65,000 sqm facility.

The company provides metering solutions for residential and commercial buildings, industrial parks, and open access/grid. We also provide bespoke ‘Engineering, Construction and Contracting (ECC)’ solutions on a turnkey basis to transmission and distribution companies.

In connection with the ECC project, the company was responsible for renovating transmission lines and towers, substations, switchyards and utility networks. All of this has built a tremendous amount of expertise as the company embarks on a large-scale Advanced Metering Infrastructure (AMI) project.

Along with manufacturing meters, the company also offers domain-specific software such as Facility Management Services (FMS) and Software as a Service (SaaS) to its customers.

Primarily a manufacturer of electrical smart meters, the company has also branched out into manufacturing smart gas meters that can measure the volume of LPG and natural gas.

As on March 31, 2023, the company and its subsidiaries have an order amount of Rs. 4115 Cr. The company expects to receive more orders as several state utility boards (SEBs) invite bids to install smart meters in their states.

GIC and Genus Power Infrastructure Initiative

GIC, the global fund manager of Singapore’s foreign exchange reserves and Genus Power Infrastructure, has entered into a joint venture agreement to establish a platform to finance smart metering projects.

The venture will launch with an initial pipeline of $2 billion, with GIC investing a 74% stake in the platform and Genus the remaining 26%. Under the agreement, Genus Power will issue share warrants to Chiswick Investment Pte, an affiliate of GIC. These warrants will constitute 15% of the company’s paid-up capital upon dilution.

This platform is intended to fulfill orders received from Revamped Distribution Sector Scheme (RDSS). Under this plan, the Government of India plans to install 25Cr smart meters by 2050 to reduce technical and commercial losses of utility companies to the range of 15%.

Industry Overview

India’s power distribution sector is currently undergoing major changes due to new policies aimed at improving the quality, reliability and affordability of power supplies. Keeping this in mind, the government introduced the RDSS scheme. This is a reform-based and results-linked scheme costing approximately Rs. 3 Lakhs Cr over 5 years from FY22 to FY26.

Implementation of RDSS will lead to consumer empowerment through prepaid smart metering implemented in Public-Private Partnership (PPP) mode. It leverages artificial intelligence (AI) to analyze data generated by IT/OT devices, including system meters.

This will enable DISCOMs to make informed decisions, charge Time of Day (ToD) tariffs and allow integration of renewable energy. The ToD system will transition from the current fixed-based tariff to a variable tariff. This allows you to lower your electricity bills during solar times and increase your electricity bills during peak hours.

Globally, the pace of COVID-19 recovery has been better than expected. There has been increased demand from markets in Nepal, Malaysia, Sharjah, Central African Republic, Zanzibar and Nigeria. Australia, Oman and the Gulf Cooperation Council have set up a pipeline to move towards a complete smart metering infrastructure, which will create more demand for Genus in international markets.

Fundamental Analysis by Genus Power: Finance

Sales and Net Profit

Genus Power Infrastructure reported revenue of Rs. 822 Cr in FY23, up 10.43% from Rs. 744Cr in FY22. The company’s earnings trends are inconsistent with the highest earnings reported in FY20 and falling to a five-year low in FY21.

Sales increased by 10.4%, but net profit decreased by 50%. 57.45 Cr in FY22 which is only Rs. 29 Cr in FY23. The decline in net profit may be due to the fact that the company received other income worth Rs. 59 Cr in FY22 compared to Rs. 13.72 Cr in FY23.

The company’s reported other income ranges from 52% of its average net income over the past five years. Having such high exposure indicates that the company is generating more revenue from other sources (other investments such as FDs, mutual funds, etc.) than from its core business activities.

profit

The company’s operating margin was 11.24% in FY23, down 474 bps from FY22. These margins are in the 11% to 15% category and reached a high of 22.5% in FY21 due to the aforementioned other revenues.

Mirroring the operating margins, the company’s net profit margin also decreased by 423 Bps from 7.84% in FY22 to 3.61% in FY23. These single-digit margins were impacted by other income, peaking at 10.66% in FY21.

rate of return

Genus Power Infrastructure reported an ROE of 3.06% in FY23, halving its FY22 ROE from 6.27% in FY22. The decline in return on equity is due to lower profitability. The company’s five-year average is 6.58%.

Return on capital employed was in the 6% range, down 8% from FY22. Non-current liabilities have doubled since FY22, reducing ROCE. The company’s ROCE numbers are poor, with a five-year average ROCE of less than 10%.

debt analysis

The company’s debt ratio fell to 0.32 times in 2023, down to the average of 0.3 times over the past five years. The company’s long-term debt continued to decline through FY22, leading to a decline in the ratio. Nonetheless, long-term borrowings increased in FY23, with long-term debt doubling in just one year.

The company’s interest coverage ratio was 2.55x in FY23, the lowest in five years. The coverage ratio has been lowered due to declining profitability and increased debt. However, it still remains above the safe level of 1.5 times.

key indicators

key indicators Genus Power Infrastructure They are listed below.

Fundamental Analysis by Genus Power: Future Plans

1. Management will expand the business to a higher level by following the 4R strategy of Research, Results, Recognition, and Relationship.
2. Genus Power is expecting more orders with the smart metering platform built in cooperation with GIC.
3. With the Australian Energy Market Commission’s goal of achieving 100% smart meter installation by 2030, the company is considering entering the ANZ country in the long term.
4. As of Q3 2024, the group’s order value has increased to over Rs. 20,163Cr. Many state electricity boards are launching bids to deploy smart meters. Accordingly, the company is expecting even stronger demand next year.
5. In May 2023, the company signed a letter of commitment with the U.S. International Development Finance Corporation to obtain a loan of up to $49.5 million to expand smart meter deployment.

conclusion

This advanced metering infrastructure company will see significant demand due to the RDSS regime and other countries’ metering infrastructure transformation plans. The company will also benefit from the investment made by GIC to award contracts under the RDSS scheme. However, the company’s current financials do not look very attractive.

Inconsistent profits along with recurring special income are signs of a fundamentally weak company. With ROE and ROCE of just 3% and 6% respectively, the company now sports a PE of 77.8x. Do you think this level of optimism is justified for a company with such a high valuation? Let us know in the comments below.

Written by Nasir Hussein

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