0:10 Hello and welcome to the show. Today we're going to be talking about uh one of those uh companies in the power ecosystem, Genus Power. And uh plenty of moving parts here. We'll try and understand better as to what's playing out with regard to the company. You'll see how the stock price has moved. It's been extremely volatile in that sense. flat returns over the 12-month period, but nonetheless, are things stabilizing? Uh, is FI27 looking materially better? And most importantly, uh, is the working capital situation likely to improve as a result of which you could see better cash flows come through. We'll try and get a sense on how the operating cash flows evolve on a genus power. First off, let's uh try and understand what the company does. This was incorporated back in 1992. market
0:55 cap currently at 10,000 cr promoted by the Agarwal family but most importantly it operates in the power infra smart electricity gas and water metering business all of these fast growing all of these levers in terms of growth going forward and a very large order book that this one sits on let me uh talk about uh the businesses first and we'll split it into two articles one is the meter manufacturing business that is one part of it. The other one is the AMSIP business which is basically a concession business, a concessioner business where uh Genus power behaves or leases out its smart meters for a fixed annuity plus an O andM uh and and that business too is
1:43 uh is completely separate from the manufacturing business. We'll try and explain that to you very quickly. First one with regard to smart electricity meters. One, it replaces the old manual read meters with uh with communication uh devices. Uh they measure consumption of course minute by minute and uh they send data wirelessly. No, no meter reading technically required. It can be switched on or off remotely from a control center and it supports prepaid billing as well. Even though I have kept prepayment metering as a separate uh vertical of or separate product line and that does a very similar kind of a role where the customer prepays or or ensures that there is already a balance uh
2:29 within the device like a mobile recharge for example uh the meter deducts consumption in real time and uh the supply cuts automatically when credit turns off. So that's on the on the prepayment business. Then there's distribution transformer meters. These are nothing they are not customer meters or consumer meters per se, but they are meters which are uh uh which are actually in the central or the area wise meters which kind of do a reconciliation of all of the consumption that's happened in the area versus what the meter reading in the area is. Any difference means that there's been theft and this kind of basically ensures that there is low theft or wherever there is theft theft can be identified with
3:15 regard to electricity. Now that's one of the decent solutions out there in the market given the fact that there are plenty of gaps and technical losses within the electricity infrastructure in India. The fourth piece is smart gas and watering water meters business. Now this is basically household pipe gas consumption and and it measures the household pipe uh consumption as well as water consumption in households as well. It's one of the faster growing businesses globally as well because there is a need for uh measurement especially on the water side of things. Then there's the concession business and concessionaire is nothing but uh it's an advanced meter infrastructure services provider that it's AMSP
4:01 which is the full form of it. Uh now this is nothing but basically the lease on the meters that it manufactures. It it houses those meters in one company leases it out on long-term leases to the government or to uh various entities. and GIC platform uh is or rather GIC which is uh the Singapore uh uh company or the sovereign fund has a stake in this particular business 70 plus% stake in this particular business uh and uh this is basically a recurring business which happens over long periods of time there there's going to be a scale up here as well as meters start getting dispatched and installed over the coming years uh own capital is is uh invested
4:47 up front in meters network software EPC revenue of course during the installation which is phase one then there's a fixed monthly fee per year which comes through for 8 to 9 years uh once operations go live that that is the really the critical point in the business that's the turning point that's when the revenue starts to acrue 74% of the platform is held by GIC uh genus power holds 26% right now uh the initial committed pipeline of course is $2 billion at this point and the platform order book is at around 24,000 cr rupees. So that's one of the larger chunks of order book of genus power as a whole. GIC pays the genus EPC capeex up front once uh the operations go live and
5:34 it reduces Genus's working capital burden uh quite sharply. So this is something this is a platform which genus has built to ensure that they optimize their working capital and ensure that they focus on the meter manufacturing business without it impacting the concessionire business. So uh that's the way to kind of think of this uh but but the other more important piece is only 26% of the platform both in terms of uh uh profitability acrru to genus power. The rest 74% goes to GIC. That's the critical element that you want to keep your eye out on. Now uh then you've got various other technologies and softwares within the power ecosystem which genus power deals with. There's meter uh meter
6:19 data management systems which is MDMS which is nothing but they basically dissect the data validate store analyze the data which comes through from the meters. loss analytics are looked at. Clean data is manufactured, engineered into billing systems uh and the like. Then there is uh headend systems which are nothing but central servers communicating with millions of meters simultaneously. That is also uh one of the important tech products which uh genus power does and it's part of the entire ecosystem right. So so once you have a customer you can sell various products to it. Then there's workforce management apps. Assigns installation tasks to thousands of field technicians. Tracks locations and verifies each
7:06 installation uh with a GPS tag as well. Then there's meter manufacturing for third parties. Now this is a critical element. They they do it for for example the Adani group as well. Uh and this meter manufacturing is is basically the supply of meters. Genus is the largest meter manufacturer in the country at this point. They manufacture or they have a capacity to manufacture nearly 2 cr meters every year. So you've got a very large capacity there that genus power has and they supply these meters to third parties wherever their concessionire agreements don't require them to supply meters to the platform which is the GIC platform which is there. Now in terms of the financials and you'll see some very very strong growth numbers now come through. You look at the three-year revenue kagger
7:53 it's been extremely strong. You're currently sitting at 4,750 cr in terms of revenue. This will go to 6,000 cr very quickly. FY27, that's really the estimate. When you're looking at IBITA, it's grown at a faster clip. You've seen margins get better as uh efficiency gains start to uh claw in and you've seen that in the IBITa number and profitability is at 600 cr rupees currently. You've seen very sharp growth in profitability as well. Why then is the business choppy? We'll come to that in just a minute. So stay with us. margins they've grown consistently better from 10% to 19%. 20% in fact come off from those highs. Uh when you're looking at operational metrics in terms of order book as well you have a very strong five times bookto again begs the
8:38 question why then is there choppiness in the stock price and we'll come to that and that that is hidden in the balance sheet. What you're seeing is a book value of around 2,200 cr and obviously the market cap is 10,000 cr. So around five times book is what this trades at. This is book to bill of course but uh you look at the balance sheet now and you'll see the book to bill there. You'll look at the borrowing number it's at around 2300 critically. That's where one of the problems lies. You've seen how the borrowing has gone up from 600 to 2,300 cr. The revenue that's coming in is not translating unfortunately to cash profitability. That's where the problem lies. It's actually a thumbs down. If we can change that that'll be great. But essentially the borrowing number is a concern. Your debt to equity
9:23 is uh is more than 1 is to1. But of course you've got cash sitting in the balance sheet around 720 cr rupees of cash which is sitting in the balance sheet. Before I come to cash flow, let's look at the balance sheet first. And uh within the balance sheet cash bank balance around 720 cr rupees. So you are sitting on a net debt of roughly 1,500 cr rupees. that is still large uh in in in uh relative terms. When you're looking at the cash flow, the cash flow is actually negative. This is the cash flow which is in front of you. Negative -203 cr is the cash flow from operations. 913 cr is the iita and therefore what you're seeing is cash flow from operations to iittita being severely negative and as a result of that you're seeing also a negative net
10:10 cash flow from operations which is at 465 cr negative. So on all of those counts uh uh it's uh it's looking weak from a balance sheet and a cash flow perspective which is why this doesn't get the multiple that it ought to when you're looking at return ratios. Return ratios are uh north of 20% currently. So very strong in terms of the return ratios. No concerns there. Uh in fact it's gone above 19% in FI25 and thereafter at 24% FI26. So no concerns on the return ratios. But if cash doesn't come in then it's a problem and that's what they really need to repair. Let's look at shareholding pattern. In fact the shareholding pattern uh the promoters have continuously divested FI23 the promoter shareholding was at 50
10:55 and a half% currently at 39%. And then on top of this there is a promoter pledge of around 5% on the current holding as well. So out of 39 5% is pledge. So effectively net of pledge around 34% is the promoter holding. You've got FISDI is holding around 19 and 3% respectively and then you've got the public holding 38% in genus power. When you're looking at valuations that that that's the other concern with regard to shareholding because promoters have reduced shareholding. When you're looking at the current valuations they're currently trading at around 14 times earnings. The 5-year average is at 29 times and the range is massive right around four times to 66 times given cash flows and everything that's played out with regard to the company. Also, there
11:40 is there are a couple of risks with regard to uh uh you know allegations of uh possible malpractices within bidding process which is also underway. There is some contingent liabilities as well sitting in the balance sheet which is a concern which is why you're seeing the kind of fluctuation in the valuations that you are on your screen. In terms of analyst recommendations, there are two buy calls, one hold call with a 36% upside. Only reason why we have given this a neutral is uh because there are very very few analysts covering this one. Okay, so that's something to kind of contextualize. Let me bring on board Mr. Jatendra Kumar Agarwal who's joint managing director at Genus Power joining us to give us a perspective on what lies ahead sir for the company. Let me first start off with raw material prices. Uh
12:27 Mr. Agarwal. So uh you know one of the concerns is that your contracts are fixed cost and uh raw material prices have have gone up significantly. I mean from power costs of course which is not technically raw material but even your other raw material prices have gone up. How are you insulating yourself? A and if not what's the impact on margins for you FI27. >> Yeah. Hi good afternoon. So I have given the guidance already that this year we are giving a guidance of 18%. And the reason has been the raw material cost. In general if you see our raw material is not a very high percentage. There's a lot of value addition in terms of technology. So this is not a business which is very high on boom. Our bums
13:15 ranges from 55 to 65%. So that is why we are giving still there is a these are fixed term contracts. So we are giving a 2% reduction in the AITA for this year of guidance is 18%. And we are we are more than confident that we will be able to achieve this 18%. >> H okay. Uh so so confident of that 18%. Talk to us about execution sir. You've you're sitting on a very large order book. Um how does execution start to play out? Do you do 6 6,500 cr of top line and is it linearly spaced across the year or will Q1 be slightly uh difficult in terms of execution and will Q4 be stronger? How does it how how does it progress? >> If you see the electricity business
14:00 overall always the Q1 and Q2 will be lesser than Q3 and Q4. We are you have to understand we are dealing with the consumers directly distribution business especially the summer season April May June then the then the rainy season July August September will always less installation it has been the history from last two decades so I don't see that history is going to get changed what three and four are definitely going to be better than one and two but yes it won't be a major difference it will be quite linear but three and four will be Understood. And with regard to uh concerns on the cash flow front, so I think that is the crucial concern which the street has. Does that reverse in H1?
14:46 Does it reverse in H2? >> So you will see you have to understand the business model. We we are not stopping the installation. It takes its own time initially to start the project. It takes minimum 9 to 12 months. And for first 12 months practically the genus Bab is investing in the manufacturing of meters installation of meters doing the OGL everything is done by genus power. So that is why you will see a lot of cash being invested. But once the OGL is done and the meters comes into the regular set process and once the regular process starts take 12 to 14 months then you will see a significant reduction in the cash flow and you will see the number of meters being installed in last 6 months has gone up significantly. That
15:32 is why a lot of cash has been pumped in. we have dealing with electricity boards and we have we have never faced any problem in in the sense that there's a problem of getting money from the electricity boards and these are very insulated projects where the electricity board is very very well opening the DDF accounts the whole money is flowing automatically there's no much role from the utilities in terms of giving payments to the to the AMISPs so it is just a matter of time and since we are growing the number of installations you will see cash flow getting positive from next financial year and it will reduce significantly to a right side in this financial year. So all your cash flow confirm you will start seeing getting
16:17 them better every day. >> You're saying that in the current financial year as well you'll likely do a negative operating cash flow. It's FI28 when cash flow starts to turn positive. Understood. And with regard understood and with regard to the quantum uh you there was a sharp negative I thinkative 200 cr in terms of operating cash flow in FI26 where do you stand where FI27 is concerned how do you see that journey that's point number one point number two the platform business which is your AMISP business which you do with GIC you just have a 26% stake in that how much of the cash flow or how much of the impact actually translates to your business I'm trying to understand that. >> So you have to understand this model with the GIC. The platform is created to
17:05 do the AMISP business. The AMISP business is that initially all the investment is done by Genus Baba in terms of manufacturing meters in doing the installations and once the OGL is done the electricity board pays to the platform in 93 equal months but platform pays to genus as a capex. So it's a beautiful model in which is the whole EPC business is done by the not the EPC the whole operational business everything is done by genus from middle manufacturing to installation. So what you have to understand this platform which is owned 74% by GIC and 26% by genus. GIC is primarily a financial partner and Genus is an operational partner with 26% stake in the platform. So everything is done by genus from
17:52 manufacturing of meters to maintaining meters for 93 months. GIC pays genus as a capex where GIC platform is paid as a opex. So it's a beautiful model being created in once you will see more and more meters being installed and coming into OGL just to give you a ballpark number as on that genus has installed more than 1.3 cr meters but as when you see the SAT and OGL it is only 80 lakh m that has come into OGL SAT that is why you see a lot of cash being invested by the company once this 40 50 lakhs gap between the installation and the OGL is going to get closer closer every day. It will only get improved every day. You will see the cash flow situation improving significantly because we get
18:38 paid exclusively from the platform with immediate effect. So that is where the whole model is. >> I understand how how quickly do these get installed. Talk to us about the number of meters that get installed in FI27 expected. >> So we we expect to install at least 1 meters this actually. >> Okay. and and your production capacity is at what 1.8 cr me mters. So uh >> just to give you a number last year we produced around 1.75 cr me mters. So all kind of meters put together we can easily produce from 1.8 to 2 m you have to understand when business model of genus genus is not only supplying meters to its own concessions genus is the largest manufacturer for the overall
19:25 market also. So whether all the utilities who are buying directly smart meters or normal meters or all the AMIS like Aani if they are all our customers so we supply meters to them. >> Okay. What would one think of with regard to debt because that's the other concern on uh on for for investors in Genus power. How should one see debt profile evolve over the next couple of years. So you have always if you see the last five years of genus or last 10 years of genus as a promoter we are very conservative and always been a net debt-free company because of this growth this debt has been taken but very systematically this debt has been taken and currently we are standing at around 1,500 crores. Maximum it will go up to
20:12 23 2400 crores on net debt but year from next financial year onwards you will see this reducing significantly. Once you will see these projects going live and we start getting paid systematically from the platform all this debt is a matter of time 12 to 14 months you will see debts going down significantly. >> So you're saying the debt will first go up to 23 2400 cr then come >> that is the maximum limit I believe. Yes. >> Understood. Okay. Last question. Can you do 6,500 cr of topline this year and how much of that will be on and m how much of that will be meter sale revenue? >> So right now the on andm revenue is very limited. You will see significant or
20:59 realistic the real what I call it the right numbers or good numbers of O andM coming from after two financial years primarily it is going to be meter supply and the meter supply to the concessions and 6,000 the we have given a guidance of 6,000 to 6,500 I'm 100% confident that we'll >> okay Aar Mr. Aaral can you quantify the number in terms of O andM 2 years down FI28? >> So 2 years down the line I see O andM revenue comfortably coming to 600 to 700 cr in >> understood. So maybe 8 to 9% of your top line at that point of time >> at that point of time and you have to understand is from the current order
21:45 book. So currently Genus is doing around 3.5 cr meters as a smart meters and there is a almost 50% meter market is still available for us to address. So definitely if you see four five years down the line Gina's own business reaching 1100 1200 crores is definitely a possible possibility. >> Okay. >> Okay. Gives us a good perspective. Thank you so much uh Mr. Garal for coming in and speaking to us. A pleasure speaking. >> Thank you. Take care. >> Viewers completely timed out on this edition of All About Your Company. Thanks so much for tuning in. More action to follow. Stay with us here on ET now.
