Fundamental Analysis of Genus Power: India’s electricity consumption grew by nearly 8% to reach 847 billion units (BU) in H1FY24. The country faces an ever-increasing demand for energy. Along with this increasing demand, India also faced another significant challenge.

 The current infrastructure that was built to track the generation & supply of electricity to different Distribution Companies and consumers was extremely inefficient. This would lead to at least 10%-15% loss of power, adding up costs for everyone involved.

Nevertheless, the Company that we will cover today is here to solve just that problem. The Company manufactures modern smart metering systems that efficiently track the supply & usage of power. They also help the authorities understand power demand based on different times of the day. 

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Fundamental Analysis of Genus Power

Genus Power Infrastructures ltd Logo

Now, Let us understand what this Company does in greater detail, and what demand we can expect to see for the business. We will then fundamentally analyze the Company to see if the strong growth translates to strong financials. Stick around till the end to find out what we think about 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 7.5 Cr electricity meters, all manufactured from an integrated facility spanning 65,000 Sq Meters.

The company provides metering solutions for residential & commercial buildings, industrial complexes, and Open Access/Grids. It also provides customized ‘Engineering, Construction, and Contracts (ECC) solutions to power transmission & distribution Companies on a turnkey basis.

Concerning the ECC projects, the Company has covered transmission lines & towers, substations, switchyard, and also network refurbishment for the utilities. All of this has built a great amount of expertise for the Company as it moves to embark on the large Advanced Metering Infrastructure (AMI) project.

Along with manufacturing meters, the Company also provides domain-related software & SaaS (Software as a service) such as facility management Services (FMS) to their customers.

Predominantly a manufacturer of electric smart meters, the Company has also ventured into manufacturing smart gas meters capable of measuring volumes of LPG and Natural Gas.

As of March 31st, 2023, the order book of the Company along with its subsidiaries stood at Rs. 4115 Cr. The Company expects to receive more orders soon as several State Electricity Boards (SEBs) have invited bids for installation of smart meters in their states.

GIC & Genus Power Infrastructure Initiative

GIC, the Global Fund manager of Singapore’s foreign reserves & Genus Power Infrastructure entered into a Joint Venture Agreement to set up a platform to fund smart metering projects. 

The venture will begin with an initial pipeline of USD 2Bn, with GIC investing a 74% stake in the platform & Genus investing the remaining 26%. As per the Agreement, Genus Power will issue a share warrant to Chiswick Investment Pte, an Affiliate of GIC. These warrants will constitute 15% of the paid-up share capital of the Company upon dilution.

This platform is meant to undertake orders received from the Revamped Distribution Sector Scheme (RDSS). Under this scheme, the Government of India plans to install 25 Cr smart meters by 2050 which can reduce technical and commercial losses for utility Companies in the range of 15%.  

Industry Overview

The Indian power distribution sector is currently undergoing a significant change with new policies to improve the quality, reliability, and affordability of power supply.  With this in mind, the Government has introduced the RDSS scheme. It is a Reform-based and Results-linked Scheme with an outlay of Approx Rs. 3 Lakhs Cr over five years from FY22 to FY26. 

The implementation of RDSS would lead to consumer empowerment by way of prepaid Smart metering to be implemented in Public-Private Partnership (PPP) mode. This would leverage Artificial Intelligence (AI) to analyze data generated through IT/OT devices including System Meters. 

This would allow DISCOMs to make informed decisions, charge time of Day (ToD) tariffs, and allow renewable energy integration. The ToD system is a shift from current fixed-based tariffs towards variable tariffs. This allows for electricity rates to be lower during solar hours and higher during peak hours.

On a global scale, the pace of recovery from Covid-19 has been better than expected. There has been increased demand from the markets of Nepal, Malaysia, Sharjah, the Central African Republic, Zanzibar, and Nigeria.  Australia, Oman, and the Gulf Co-operation Council have set a pipeline to move towards complete smart metered infrastructure, which is set to create more demand for Genus in the international market.

Fundamental Analysis of Genus Power: Financials

Revenue & Net Profits

Genus Power Infrastructure reported a revenue of Rs. 822 Cr in FY23, which grew by 10.43% from Rs. 744 Cr in FY22. The revenue trend of the Company has not been consistent with the highest revenue being reported in FY20 and tanking to a 5-year low in FY21.

Despite 10.4% revenue growth, the Net Profits of the Company dwindled by 50% from Rs. 57.45 Cr in FY22 to just Rs. 29 Cr in FY23. The fall in Net Profits would be because the Company received Other Income worth Rs. 59 Cr in FY22 as compared to Rs. 13.72 Cr in FY23.

Other Income reported by the Company is in the range of 52% of Net Profits on average in the past 5 years. Having such a high exposure shows that the Company is generating greater revenue from other sources (Other Investments like FDs, Mutual Funds, etc…) than from its core business activities.

Fiscal YearNet SalesNet Profit
2023 ₹822.10 ₹28.97
2022 ₹744.42 ₹57.45
2021 ₹653.87 ₹68.59
2020 ₹1,076.51 ₹72.61
2019 ₹1,066.34 ₹47.98
4-Year CAGR-6.30%-11.85%

Profit Margins

Operating Margins of the Company were at 11.24% in FY23, falling by 474 bps since FY22. These Margins have ranged in the 11%-15% category, only hitting a high of 22.5% in FY21 due to other income as mentioned previously.

Mirroring Operating Margins, Net Profit Margins of the Company have also dropped by 423 Bps from 7.84% in FY22 To 3.61% in FY23. These single-digit margins have a high of 10.66% in FY21, influenced by other income. 

Fiscal YearOperating Profit Margin (%)Net Profit Margin (%)
202311.24%3.61%
202215.98%7.84%
202122.51%10.66%
202015.94%6.82%
201911.56%4.67%
5 Year Average15.45%6.72%

Return Ratios

Genus Power Infrastructure reported an ROE of 3.06% in FY23, halving its FY22 ROE from 6.27% in FY22. The fall in Return on Equity was a result of lower profitability. The Company’s 5-year average is at 6.58%.

Return on Capital Employed was in the 6% zone, which fell by 8% from FY22. ROCE dropped due to the doubling of Non-Current liabilities since FY22. ROCE figures of the Company are inferior, with the 5-year average of ROCE being under 10%. 

Fiscal YearRoERoCE
20233.06%6.00%
20226.27%8.00%
20218.00%11.00%
20209.06%14.00%
20196.51%10.00%
5 Year Average6.58%9.80%

Debt Analysis

The debt-to-equity ratio of the Company was at 0.32x in FY23, with the average trailing around 0.3x in the past 5 years. The Company’s long-term debt had consistently reduced until FY22, leading to a fall in the ratio. Nevertheless, the long-term borrowing increased in FY23, due to its Long term debt doubling in a year.

Interest Coverage ratio of the Company was at a 5-year low in FY23 at 2.55x. A fall in profitability and increased debt have lowered the coverage ratio. However, it remains above the safe level of 1.5x.

Fiscal YearDebt / EquityInterest Coverage
20230.322.55
20220.263.84
20210.275.12
20200.334.57
20190.343.06
5 Year Average0.303.83

Key Metrics

The Key Metrics of Genus Power Infrastructure are given below.

ParticularsAmountParticularsAmount
CMP ₹248.80 Market Cap (Cr.) ₹6,437.94
EPS ₹1.26 Stock P/E (TTM)77.8
RoE2.55%RoCE6.00%
Promoter Holding50.30%FII Holding2.49%
Debt to Equity0.32Price to Book Value5.5
Operating Profit Margin11.24%Net Profit Margin3.61%

Fundamental Analysis of Genus Power: Future Plans

  1. The Management will follow a strategy of 4Rs – Research, Result, Recognition, and relationship to scale their business to greater heights.
  2. Genus Power is looking to receive more orders under the smart metering platform set up in partnership with GIC.
  3. The Company is considering entering ANZ countries in the long term, as the Australian Energy Market Commission wants to achieve 100% smart meter installation by 2030.
  4. As of Q3FY24, the group’s order book has climbed to over Rs. 20,163 Cr. Many State Electricity Boards are initiating bids for the deployment of smart meters. Due to this, the Company expects a much more robust demand in the coming year.
  5. In May 2023, the Company signed a commitment letter with the US International Development Finance Corporation to obtain a loan of up to $49.5 Million to scale up the deployment of smart meters.

Conclusion

This Advanced Metering Infrastructure Company is bound to receive significant demand, due to the RDSS scheme and initiatives by other countries to transform their metering infrastructure. The Company is also set to benefit from investments made by GIC to undertake contracts under the RDSS scheme. However, the current state of finances of the Company does not look so appealing. 

The inconsistent revenues along with recurring extraordinary income are signs of a fundamentally weak Company. With an ROE & ROCE of just 3% and 6% respectively, that Company now commands a PE of 77.8x.  Do you think this amount of optimism is justified for a Company with such high valuations? Let us know in the comments below. 

Written by Nasir Hussain

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