The power sector has been a ‘no fly’ zone for investors for the past several years. The mismanagement of the State Electricity Boards coupled with the bankruptcy of the State Governments means that power companies are reeling under heavy losses, making the entire sector a nightmare for investors.
Fortunately, Piyush Goyal, the Power Minister in NAMO’s government, is determined to change the sorry state of affairs in the sector. He has formulated UDAY (Ujwal DISCOM Assurance Yojana) which will reform the sector and bring it back into reckoning as an investment opportunity.
“Lets not wait for some knight in shining armor to come and rescue us and bring solutions to our problems. Let’s start looking for solutions for those problems ourselves” Piyush Goyal said in a TED talk.
Visionary investors have positioned themselves in the sector in anticipation that the reforms will be implemented as promised.
Vijay Kedia is one of the earliest wizards to have recognized the potential of the sector. He has parked himself firmly in Apar Industries, a small cap engaged in the manufacture of aluminum conductors, transformer oil, specialty oil and cables etc, used in the power sector.
We also saw that Manish Bhandari of Vallum Capital has invested in an undisclosed transformer company which he described as a “damsel in distress”.
“The seriousness of the government to turnaround the ailing power sector has the potential to change the fortune of this industry” Manish Bhandari said as an explanation of his investment rationale.
Vallabh Bhanshali and Ashish Kacholia have homed in on Genus Power Infrastructure, a small-cap with a market capitalisation of Rs. 1,417 crore.
While Ashish Kacholia holds 45,66,252 shares, Vallabh Bhanshali holds 29,85,700 shares as of 31st March 2016.
There are a number of resources available to understand the potential of Genus Power.
G. Chokkalingam of Equinomics had recommended the stock as a “long-term multibagger” in February 2015 when it was available at Rs. 27. Chokkalingam emphasized that Genus has the distinction of paying dividends for 13 consecutive years and that it has a very impressive business model and quality management. His research report makes for interesting reading:
“In our view, Genus Power is well positioned to capitalize the emerging opportunities in the power sector with strong balance sheet and quality management. We expect the company to post an EPS of Rs.4 for FY2017 and hence, arrive at a revised target price of Rs.40 (assuming 10xFY2017E EPS, with an investment horizon of another one-year). We also believe that this stock has the potential to emerge as a multi-bagger in about 3 years considering substantial opportunities for the expansion of power sector and housing projects. Every new building needs power metering equipment. Genus Power has the technology and credible past performance. Therefore, we consider this stock as a long-term multi-bagger.”
However, because the stock shot up too soon and too fast, Chokkalingam appears to have got jittery and closed the call, at least for the present.
Rajat Sharma of Sana Securities has also conducted a systematic analysis of Genus Power. He points out that Genus scores well on most parameters because (i) it has a healthy operating profit margin ratio of 14.24%, (ii) it has high ROCE of 23.86% and ROE of 13.94%, (iii) it offers an average dividend yield of 1.49% over the past five years, (iv) its long-term debt to equity ratio is 0.24x, (v) it has high interest coverage ratio of 2.95x and (vi) the promoters’ holding is high at 50.58%.
Yet another resource to understand Genus Power is the report by Dynamic Levels. Dynamic Levels has recommended a buy on the basis that “The outlook of the company is promising as organized industry to grow at 20 per cent CAGR over next four to five years” and foreseen a target price of Rs. 90 for the stock.
Way2Wealth has recommended a buy on the logic that “With ‘UDAY’ in place and utmost likelihood of all SEB’s/Discoms undertaking structured reforms towards permanent solution in improving operational & financial efficiency, we believe installation of smart meters is MUST at all levels, wherein Genus power is rightly placed, having products to meet every Discoms requirement and with sufficient manufacturing capacity in place”.
SKP Research has also expressed confidence in Genus on the basis that “With Governments’ thrust on revamping financial health of Discoms, coupled with rapid urbanization & industrialization, replacement of conventional meters with electronic meters, leadership position and extensive experience of Genus in Indian meter space, avant-garde manufacturing facilities with state-of-the-art indigenous technology and focus on next generation ‘smart metering solutions’ augurs well for the company”.
So, it does appear that the stalwarts have got themselves yet another winning stock which will add more digits to their already bulging bank balance!