Multiple triggers in place over the next few quarters for Genus Power Infrastructure ltd
Genus Power Infrastructure, a Kailash group company is one of the largest player in the domestic electric metering market. Company has great brand image in designing, manufacturing, and execution of Static energy meters and Metering installation projects for transmission & distribution (T&D) network. The company manufactures various ranges of Single phase & Three phase electronic meters with in build advanced security and anti-tamper features. Company also provides customized and complete solution of Engineering, Construction and contracts (ECC) for power T&D.
Company enjoys 27% market share in the domestic electric metering segment and has installation base of 38mn units. Post the FY17 blip, the domestic metering market is expected to bounce back stronger over the next 2 to 3 years. Further, the demand for smart meters is expected to grow multi fold as AMI would be integral to the creation of smart grids. Genus has 70% market share in smart meter which gives significant edge to the company. ECC business also expected to turn around as execution picks up in main projects. We believe all these factors enable the company to post strong growth in earnings (Expect 21% earnings CAGR over FY17-FY20E) over the next two years.
Genus Power – One of the market leader in the metering industry
Genus power is one of the market leader in the metering solutions business with installed base of 38 mn units in Indian and abroad. The company’s manufacturing infrastructure and R&D facility enables it to come out with efficient and robust products. The business is largely B2B in nature with utilities being the prime customers. Genus has over the years established strong credentials and relationships with various power utilities.
The domestic metering market following the disagreement between central and state governments on the procurement policy of metering instruments, has seen sharp fall of 40% during FY17. However, the demand is expected to be robust given 25mn unmetered connections and new connections of 25-30 mn over the next few years. The domestic metering market which was around Rs.3000cr in FY16 is expected to grow at 12% CAGR over the next five years. The organized players (80% market) such as Genus Power are going to be the key beneficiaries.
Smart Metering – Significant Opportunity for the company
Smart meters have significant potential in the medium to long term as government rolls out smart city program across India. India has 200 million legacy meters and there are plans to install up to 130 million smart meters by 2021.
Company has setup new manufacturing facility at Guwahati, Assam with total cost of Rs.18cr. It started commercial production in Mar 2017. The plant will have tax holiday for 10 years. As the realizations are far higher in smart meters (Rs.3000 – 3500 per unit) than electronic meters (Rs.700 – Rs.800), this will have huge positive impact on margins front. Recently in Nov 17, company won order of 13.5 lakh smart meters worth Rs.453cr from EESL for Haryana and Uttar Pradesh. Supply for this order will start from Q1FY19. Post this the total order book now stands at Rs.1226cr (Metering – Rs.933cr and ECC – Rs.233cr) which provides 18 months revenue visibility.
Expected turn around in ECC business:
Genus Power provides customized and complete solution of Engineering, Construction and Contracts (ECC) for Power T&D sector. Under the turnkey ECC solutions company offers Metering solution, AT&C losses, Engineering & Construction with distinctive specialization in smart metering solution & advance metering infrastructure. In this division company provides solutions for, Switchyard / Sub-stations up to 400kV, Transmission Lines up to 400kV, Rural Electrification, Distribution Lines & HVDS and Process Industry Plant Electrification.
Contribution from this segment has been weak over the last two years on account of cost escalation and increase in execution cycle. Weak execution coupled with high fixed costs led to operating loss in FY17. Management has mentioned that this division is expected to turnaround in FY18 on the back of strong order book and faster execution. Genus focuses on selective ECC projects which gives better profitability. Company believes, with utilities moving towards smart grid and government’s focus on rural electrification and feeder separation, it is exploring better business opportunities going forward. ECC order book of Rs.233cr is expected to be executed over the next two years.
Strong balance sheet and attractive valuations:
Company is maintaining strong balance sheet despite being in a working capital intensive business. The company has gross debt of Rs.180cr as on Q2FY18 down from Rs.220cr from Q4FY17. Company has sizable cash and treasury investments on its balance sheet. After considering Cash and Cash Equivalents, the net debt becomes zero.
With strong execution in both the segments, Company is expected to post 20% CAGR revenue over FY17-20E. With decline in debt and lower interest cost, the finance costs is expected to reduce over the next two years. The PAT is expected to grow at 21% CAGR over the next few years. Currently the stock is trading at 20x FY20E earnings. With the strong revenue visibility coupled with high earnings growth we expect re-rating in the stock price over the next few quarters.