Genus Power Infrastructure Ltd Research Report By IIFL

Set to ride the metering market boom

Genus is the largest player in the domestic electric metering market with a 27% market share and installation base of 42mn units across the globe. Post the FY17 blip, domestic metering market is expected to bounce back stronger over the next three years even as DISCOMS work towards reducing AT&C losses to meet UDAY targets. Further, demand for smart meters is expected to jump multifold as AMI would be integral to the creation of smart grids. The technology tie‐ups with Silver Spring Network (SSN) and Global Utilities Management Co (GUMCO), Nigeria have thrown open a plethora of export market opportunities. ECC business is also expected to turnaround as execution picks up in two large projects. The above factors would collectively lead to revenue CAGR of 23.5% over FY17‐19. Margins are expected to expand 110bps over the said span with strong growth in metering volumes, higher share of smart meters and turnaround in ECC business. We believe valuations are attractive at 11.2x FY19E P/E with an earnings CAGR of 27.9% over FY17‐ 19. The stock would witness re‐rating on the back of strong growth in the domestic metering market. We initiate coverage on the stock with a BUY rating and target price of Rs.74 (16x FY19 P/E).

Metering market to surge from H2 FY18

Metering market has been steadily growing at 10‐15% yoy over FY10‐16. However, in FY17 it witnessed a sharp fall of 40% yoy following the disagreement between the State and Central government on the procurement policy of metering instruments. With the issue getting resolved in Q4 FY17, we expect demand to be robust, considering 25mn unmetered connections, 54mn households are yet deprived of electricity and 25‐30mn new connections are expected to happen by 2020. Currently, ~27mn units of meters are under tender evaluation by various utilities, and expected to be awarded over the next six months. Metering market is likely to jump to Rs.28‐30bn in FY18 from Rs.20bn in FY17, and would further grow by +20% in FY19.

Smart meters- the way forward

Advanced Metering Infrastructure (AMI) would be integral to the creation of smart grids as it is an efficient tool in monitoring and reducing power theft/pilferage in the distribution system. The Government is also promoting installation of smart meters through various policy initiatives. Under the UDAY scheme, only 1% of the overall target of 22.5mn smart meters has been installed so far, given that smart meters are 4‐5 times costlier than normal meters. To reduce the burden on the dwindling balance sheets of DISCOMs, the Centre is now planning to source smart meters through EESL for leasing them to state DISCOMs. The government has recently launched a global tender for procurement of 5mn units. Genus has a 70% market share in domestic smart meters market and is set to benefit from the huge increase in demand for smart meter over the next three years.