Gensol Engineering : The EV expansion house

Gensol Engineering: An Overview Established in 2012, Gensol Engineering is a significant part of the Gensol group, primarily operating from Gujarat. Its core business areas include solar infrastructure services and Electric Vehicle (EV) production.

Business Segments and Operations Gensol Engineering's operations are categorized into three main segments. In the Solar EPC segment, the company undertakes engineering, procurement, and construction projects for solar infrastructure. Gensol has established a strong track record in installing both rooftop and ground-mounted solar panels, achieving a total installation capacity of 590 MW.

Additionally, Gensol offers leasing services for EVs, particularly targeting the ride-hailing market. This includes an option for clients to buy and lease EV cars for periods of 4 to 5 years. So far, over 3,000 vehicles have been leased by the company, including cargo vehicles for delivery services.

Expansion into Electric Vehicle Manufacturing Expanding its business scope, Gensol has ventured into EV manufacturing with a new facility in Chakan, Pune. This site employs over 150 professionals, focusing on developing an EV within the price range of Rs. 5-6 lakh. For technical expertise in EV manufacturing, Gensol is in collaboration with an American EV firm. The production at this facility is set to start in FY24, initially targeting the production of 12,000 cars and planning to scale up to 30,000.

Industry Context and Growth According to projections by the Central Electricity Authority (CEA), India's electricity demand is expected to rise to 817 GW by 2030, with a goal to achieve 500 GW from renewable sources. Currently, India's energy generation capacity stands at 416 GW, with about 30% coming from renewable sources.

The Indian government is actively promoting solar energy through policies like Renewable Portfolio Standards (RPS), Feed-in Tariffs (FITs), and Power Purchase Agreements (PPAs). The global solar EPC market is experiencing significant growth, valued at over USD 215 billion in 2022 and expected to grow at a CAGR of over 6.9% from 2023 to 2032. The Union Budget 2022-23 introduced measures like sovereign green bonds and a Rs. 19,500 crore PLI scheme to support solar module production.

From FY 2016 to FY 2022, India's installed solar capacity saw a jump from 6.76 GW to 54.00 GW, marking a CAGR of 41.39%.

Gensol Engineering's Financial Performance The company's financial performance has been robust, with revenues climbing to Rs. 397 Cr in FY23 from Rs. 162 Cr in FY22. Similarly, net profits rose from Rs. 11 Cr in FY22 to Rs. 25 Cr in FY23. Despite a 23% revenue fall in FY21, Gensol has shown aggressive growth since its listing in FY20
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The increase in net profits is largely due to the expansion in operating margins, which improved from 5.04% in FY20 to 15.45% in FY23. The company's net profit margins have been moderate, averaging around Rs. 5 for every Rs. 100 of business.

Return Ratios and Debt Analysis Gensol's Return on Equity decreased from 24% in FY22 to 12% in FY23, impacted by a significant rise in reserves. The Return on Capital Employed also fell from 13% in FY22 to 7% in FY23, primarily due to an increase in long-term borrowings. The company's debt-to-equity ratio has escalated to 2.5x in FY23, indicating high levels of borrowing. However, Gensol's operating profits are sufficient to cover its interest obligations more than threefold.

Valuations - Considering its high growth, the valuations are expensive in terms of PE ratio of 132 and PB Ratio of 9.7


Future Outlook and Conclusion Gensol aims to target Commercial & Industrial (C&I) consumers to optimize energy costs and manage vendor relations effectively. In the EV segment, the company plans to lease an additional 5,000 EV cars and 1,000 EV cargo vehicles in the next 12 months.

Analysis & View - Gensol Engineering, as a small-cap company, is well-positioned to capitalize on India's energy sector transformation. The company has demonstrated consistent growth and margin improvement. However, its high valuation, reflected in a PE ratio of 136x, necessitates sustained growth to maintain these levels.

With a growing demand in solar and EV secgment, the growth of companies into EPC segment is quite high. The Government is also supporting the solar segment to become energy independent. This leads to increase in demand for players like Gensol engineering. In last one year, Sales increased by 146%, operating profit increased by 200%, giving strength to the existing P&L and Balance sheet.