Fundamental Analysis Of Servotech Power Systems: When it comes to investing, many investors tend to focus on well-known companies from the large-cap category. However,  small-cap stocks have long been the hidden gems that, if properly selected can offer significant growth potential.

One such stock in the small-cap category is Servotech Power Systems. Since November 2021, the stock has given a multi-bagger of over 4000% to its investors. In this article, we will conduct a Fundamental Analysis of Servotech Power Systems and see if the stock has future potential to increase in the future.

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Fundamental Analysis of Servotech Power Systems

We’ll begin our Fundamental Analysis of Servotech Power Systems by becoming acquainted with the company’s operations and products. Following that, we’ll go into the stock’s financials. The article concludes with a highlight of future plans and a summary.

Company Overview

Incorporated in 2004, Servotech Power Systems Ltd is a comprehensive manufacturer, procurer, and distributor of advanced solar products, medical devices, and energy-efficient lighting solutions. 

The company has also ventured into the electric vehicle (EV) market, introducing cutting-edge EV charging equipment. Its strategic goal is to swiftly establish a nationwide EV charging infrastructure, contributing to India’s transition towards the electric revolution.

Currently, with the help of its subsidiaries, the company has diversified itself into Solar Solutions, EV Chargers, Power and backup, LED and Servo Stabilizers. The following image depicts the complete product offering of the company

Servotech Power Systems - Products
Source: Investor Presentation

The following image depicts the important clients of the company:

Servotech Power Systems Clients Data
Source: Investor Presentation

Company Subsidiaries 

Let us get a brief overview of the subsidiaries of the company through which the company conducts its business

Rebreathe Medical Devices Pvt. Ltd

Rebreathe Medical Devices Pvt. Ltd. is a private company founded in July 2021. It specializes in manufacturing, buying, selling, and trading environmentally friendly products, machinery, medical equipment, and related services. Furthermore, the company also conducts healthcare R&D and contract manufacturing in India and abroad.

Techbec Industries Limited

Techbec Industries Limited, established in 2022, is a private company involved in the manufacturing, sale, and trade of various types of batteries, including lithium, lead-acid, and solar power batteries. They also produce emergency lights for domestic and international markets.

Techbec Global Solutions Pvt. Ltd

Techbec Global Solutions Pvt. Ltd. was established on Nov 23, 2022. It deals in the production, purchase, sale, import, export, and trade of various types of batteries, including lithium, lead-acid, stationary, starting, storage, traction, alkaline, dry, button batteries, and solar power batteries.  Additionally, it manufactures mini batteries and emergency lights for domestic and international markets.

Techbec Green Energy Private Limited

Techbec Green Energy Private Limited is a company that specializes in manufacturing and supplying essential components for Electric Vehicle (EV) Chargers, as well as Lithium-ion Batteries and other relevant components. Their subsidiary is actively engaged in the supply and distribution of primary and rechargeable batteries, as well as cells containing materials like manganese oxide, mercuric oxide, silver oxide, or other relevant components.

Industry Overview

Following are the overviews of different businesses under which the company operates:

Electric vehicle market

India’s EV market is expected to grow from $3.21 billion in 2022 to $113.99 billion in 2029, with a CAGR of 66.52% during the forecast period. The growth of the EV market is attributed to government support, environmental awareness, and technological advancements.cal advancements.

Solar Industry

The solar power industry in India is rapidly expanding, with an expected market value of around $238 billion by 2030, driven by a remarkable 40% CAGR between 2023 and 2032. India is set to generate 79.07 GW of solar power by the end of the current year, with a projection of reaching 195.11 GW within the next five years, at a 19.8% CAGR during this period.

Key growth drivers include decreasing solar power technology costs, improved flexibility of solar systems, and the eco-friendly nature of solar power generation. Government policies, particularly those from the Ministry of New and Renewable Energy (MNRE), are pivotal in promoting renewable-based power generation in India.

Lighting Industry

Between 2023 and 2029, the LED lighting market is expected to grow at a CAGR of 17.6%. However, the global outbreak of COVID-19 has resulted in lower demand for light-emitting diode lighting in all regions compared to the levels before the pandemic.

UV Disinfection Equipment Market 

The market for ultraviolet disinfection equipment has been estimated to be worth $3,629.3 million in 2022 and is projected to grow at a CAGR of 6.9% from 2023 to 2030. The growth of the market has been positively impacted by the pandemic.

Healthcare Industry

India’s healthcare industry is a significant contributor to the economy, projected to grow at 11.07% CAGR from 2023-27. It’s expected to create over 7.4 million jobs in 2022. India has a competitive advantage in well-trained medical professionals and cost competitiveness compared to other countries in Asia and the West.

Servotech Power Systems – Financials

We will now conduct a Fundamental Analysis of Servotech Power by using the reports given by the company.

Note:  Before FY22, Servotech Power had only one business segment. Therefore the data given below until FY21 is on a standalone basis. However, the data for FY22 and FY23 are on a consolidated basis as the company expanded its business segment during these years.

Revenue and Net Profit Growth

Through the financial statements, we can see that the revenue earned by the company remained constant from FY19 to FY21. However, it has seen a significant increase in FY22 and FY23 due to the expansion in the product segment.

In the last 5 financial years, the revenues of the company have increased from ₹ 88.5 crores in FY19 to ₹ 278.48 crores in FY23. This gives the company a 5-year CAGR of 33.19% on its total revenue.

Similarly, the net profits of the company increased after FY21. The company has reported an increase in net profit from ₹3 Crores in FY19 to ₹11.07 Crores in FY23. This gives the company a 5-year CAGR of 38.60% on its net profits.

YearRevenue (in Crores)Profit after tax (in Crores)
2019₹ 88.5₹ 3
2020₹ 87.44₹ 0.81
2021₹ 86.99₹ 0.92
2022₹ 143.67₹ 4.06
2023₹ 278.48₹ 11.07
5 Year CAGR Growth33.19%38.60%

Let us now analyze the margins of the company and find out where the company is incurring huge expenses that have resulted in the decline of its profits.

Margin Analysis

Though the company has increased its revenues and profits, we can see that there have been no significant changes in the margins of the company. During FY23, the company reported an operating profit margin and net profit margin of 6.74% and 3.98%, respectively.

YearOperating Profit MarginNet Profit Margin
20197.86%3.39 %
20204.98%0.93 %
20215.56%1.06 %
20226.32%2.83 %
20236.74%3.98 %

Return Ratios: RoCE and RoE

Both the ROE and RoCE of the company were below average until FY22. However, the company reported an ROE and RoCE of 13% and 13.1%, respectively in FY23.

This indicates that the company has given below-average returns on the capital invested by the shareholders and also has not utilised its resources efficiently.

YearROE (%)RoCE (%)
20198.70%12.95%
20202.23%7.31%
20212.4%6.64%
20228.6%11.6%
202313%13.1%

Debt & Interest Coverage Ratio

Looking at the company’s leverage status, we can see that it maintained comparatively low debt despite the company’s expansion in its business segments. Over the last 5-years, the highest recorded debt-to-equity ratio was 0.64 in FY21.

This indicates that the company is less financially burdened because it relies less on borrowed capital to fund its operations and expansion.

This also means that the company is able to retain more of its revenue because it does not have a large commitment to repay debt and interest.

In terms of interest, the company’s interest coverage ratio improved in FY23 which was reported at 7.06. This means the company has generated enough gross profits to cover its interest expenses 7 times over.

YearDebt to Equity (x)Interest Coverage Ratios (X)
20190.432.75
20200.511.41
20210.641.4
20220.423.28
20230.527.06

Future Plans of Servotech Power

So far we looked at previous fiscals’ data for our Fundamental Analysis of Servotech Power Systems. Let us now explore what plans the company has for the future.

  1. The company has set up a new EV plant with a manufacturing capacity of 6 lakh EV Chargers per year.
  2. The company aims to increase the revenue of the EV charging segment from ₹240 Crs to ₹1,200 Crs by 2025.
  3. The company is focusing on increasing the capacity of the lithium battery plant from 50 MWh to 500 MWh.
  4. The company aims to increase the revenue of the lithium battery segment from ₹85 Crs to ₹850 Crs by 2027.
  5. The company intends to enhance and prioritize in-house production of solar microinverters.

Key Metrics

We are almost at the end of our Fundamental Analysis Of Servotech Power Systems. Let’s take a quick glance at the stock’s important metrics.

ParticularsFiguresParticularsFigures
CMP₹ 78.75Market Cap₹ 1,668.27 Cr
EPS0.81Stock P/E97.41
RoCE (%)13.1%RoE(%)13%
Promoters Holding60%Current Ratio1.71
Debt to Equity0.52Price to Book Value18.88
Net Profit Margin3.98 %Operating Profit Margin6.74%

In Closing

We have reached the end of the fundamental analysis of Servotech Power Systems. Through this article, we can conclude that, if the company’s earnings continue to increase along with its implementation of plans it has laid ahead, its stock has a good potential to increase in the future.

However, if investing in a small-cap stock, it is advised for investors to closely monitor the earnings and events related to it, as these stocks are highly volatile in nature.

Written By Aaron Vas

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