Notes from Gensol Credit Rating Revision by CareEdge Ratings
Summary
Rating revised from BB to BB+.
Positives (leading to upgrade):
- Strong execution in solar EPC projects.
- Significant growth in TOI.
- Improved profitability.
- Growing orderbook with strong revenue visibility (FY25-FY26).
- Successful EV leasing business with timely payments from Blu-Smart (FY24).
- Experienced promoters.
- Healthy and geographically diversified solar EPC orderbook from reputable clients.
- Structured lease rental agreement with Blu-Smart.
- Adequate liquidity.
Negatives (constraining the upgrade):
- Profitability susceptible to solar module price volatility.
- Deteriorated capital structure due to increased debt for EV leasing.
- Execution and funding risk associated with the ongoing EV manufacturing plant.
Details
Business:
-
Strong revenue growth driven by EPC and EV leasing.
Revenue FY’23 FY’24 Total Op Inc Rs cr 393 960 YoY growth 145% 144% -
Revenue shifting towards EV leasing
Revenue share FY23 9MFY24 EPC 84% 80% EV leasing 9% 16%
Strengths:
-
Orderbook:
- Rs. 1176 crore solar EPC orderbook (3.57x FY23 TOI).
- EPC fixed price contracts to be executed in 6-10 months.
- Lowest bidder for contract of Rs.520 crore in March 2024.
- Low counterparty credit risk (government & reputable clients in 7 states).
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Experienced promoters and management
-
Improved Profitability:
- 14.89% PBILDT* margin in FY23.
- 291 bps YoY increase.
- Expected operating margins around 20% in FY24 (higher Blu-Smart lease income).
-
Structured Lease Agreement:
- No cash outflow for EV leasing (Blu-Smart covers repayments). [Facilitation fee?]
Weaknesses:
-
High Leverage:
- Overall gearing of 2.10x (FY23, deteriorated from FY22).
- Increased debt due to debt-funded EV acquisition for leasing.
- Expected further deterioration due to continued debt-funded acquisitions for leasing.
-
Delayed EV Production:
- EV mfg plant in Pune to produce Electric Cars and Electric Urban Cargo vehicles.
- Capacity: 40 units per day per shift.
- Expected project cost ~Rs 230 cr
- Expected starts of Q2FY24 delayed by year due to ARAI approval.
- ARAI approval received in Feb24. Expected start H2FY25.
Liquidity:
- Adequate liquidity with lease payments from Blu-Smart and healthy cash flow.
- Plans to raise Rs 500 crore through share warrants in FY25. [Dilution risk?]
*Profit Before Interest, Lease rentals, Depreciation and Taxation
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