Gensol Engineering – A play on Energy Transition (Solar Energy & EV)

Thanks @naruto for the encouragement and for your valid points.

I checked with few folks in Industry on Solar EPC Margins. On ground folks told me that getting margins above 10% will be difficult unless they signed agreements few years back. Getting contracts is no problem. Quality of cashflow is one to look for.

I agree that most Solar EPC companies operate with single digit operating margins. Some of the ways they might grow margins in EPC segments is through maintenance and annuity income (Acquisition of Scorpius trackers may help here, which enjoys higher margins). Also, there is a linkage to commodity cycles and if the raw material prices soften (Solar panels imported from China, etc.), there can be some margin expansion.

Of course, cashflows are critical and some further scuttlebutt here might help here to know the payment arrangement in such EPC contracts. Customer concentration wise, the risk of a single large block of payment getting stuck is lower in my humble understanding.

2. Promoter pledge is at 41.75% (visible in stock edge app). Promoter has higher incentive to keep the stock in the positive. No knowns funds have taken positions. Usually that is a signal on someone doing homework on providers.

Yes, pledge is high, but this industry is known for high pledging. For example, KPI Green Energy’s promoter Farukhbhai Gulambhai Patel has pledged 49% of his holdings. (Not trying to justify that pledging such high stake is fine, but just saying that promoter pledging for growth is a feature and not an anomaly in this industry). Over time, as credit ratings improve, these small players will get access to Organized lending, till then they must pledge to raise debt.)

Also, the reason for low presence of funds on cap table is due to liquidity. This company is too “chhotu” even for small cap funds to enter. Having said that, some interesting HNIs linke Ashneer Grover, Deepika Padukone are early investors in Gensol group. Just saying, FYI.

3. Major public individual investors holding 15% exited while the company is ramping up. Vakrangee had a similar trend.

Yes, these lucky folks got their exit durign SME listing. Not sure if there is something they know and we dont.

Bottomline – Further due diligence and scuttlebutt on this company and the promoters is most welcome.