Gensol Engineering: Sun shining through clouds

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Solar Engineering and Operations & Management (O&M) player Gensol Engineering is all set to launch its maiden public offering on 30 September 2019. The company is looking to raise INR17.8 crore (INR178 million) by offering shares at INR81 – 83 apiece. Check out this page for more details about this upcoming IPO.

IPO Central got in touch with Puneet Jaggi, one of the promoters of the Ahmedabad-based company (other promoter is brother Anmol Jaggi). Puneet talks about the company’s growth in recent years, growing role of technology in the business and Gensol’s prospects.

IPO Central: How has been the business so far?
Puneet Jaggi
Puneet Jaggi, Director

Puneet Jaggi: The solar industry has seen a strong jump in recent years and we have benefited quite significantly from the same. Ever since the incorporation of the company in 2012, we have offered technical expertise to projects amounting to 19,000 MW. This has been primarily on the Engineering & Advisory side (19,373 MW) while O&M (2,200 MW) and EPC (190 MW) are other major business lines for us.

Our O&M business has been growing at a compounded rate of 300% and we have projects across 8 states in India in addition to 3 projects in overseas locations. We operate this business line through a joint venture with Spain’s Solarig Ngage (Gensol owns 49% equity stake in the JV).

Our revenues have grown from just INR12 crore in FY2016 to more than INR83 crore in FY2019. Thanks to the growth in high-margin O&M and Advisory businesses, our profits have also expanded from INR36 lakh (INR3.6 million) to INR6.5 crore (INR65 million) in these years.

What do you think about the role of government in promoting solar?

We started from a point when the cost of going solar was probably 5 times the cost of regular power. If it was not for the government’s policy of promoting the solar power through preferential treatment and tariff subsidies, solar would not have grown to the current levels. To that extent, government has been very supportive.

The government also played an instrumental role in creating a framework for payment security through line of credit (LC). At the same time, rules and regulations were made to promote investments in solar energy.

Were there any surprises on the regulatory front?

There were, with the process of rollout and uncertainty with regards to GST and safeguard duty. Costs increased on account of GST and safeguard duty (20% on solar modules imported from China) and these were not factored into the bids submitted by the industry. As a result, there was a period of pain when we were caught in the transition. However, the industry has started factoring in the GST and safeguard duty now and prices have gone up following these changes on the expected lines.

What are some of your marquee engineering projects?

India’s largest single location project is in Kadri by Greenko that it acquired from SunEdison. We were the due diligence consultant for the acquisition. We were also the design consultants and had an 18 member team operating out of Greenko office for 8 months. We were also the construction manager where about 20-30 people were at Greenko, getting the entire project executed.

Similarly, Gensol has done multiple projects for Greenko and several other players including Essel, Adani, Softbank, ReNew Power and Sunfan Energy.

Gensol's Ground Mount EPC Project for Sunfan Energy
Gensol’s Ground Mount EPC Project for Sunfan Energy
Where is the next phase of growth coming from?

We have been delivering 200% CAGR in the last four years (in engineering) and to continue this high-growth trajectory, we have embarked on expansion. One of these pushes has been international expansion. We have designed solar projects in four different airports in Oman. We have done solar projects in Kenya. In fact, the largest rooftop solar project in Kenya is 2MW which we got constructed as well. We have done projects in Philippines and currently have a team stationed in Egypt.

Two Rivers Mall Rooftop Solar
Two Rivers Mall Rooftop Solar in Kenya

In every new location we go, we need to be compliant with the local grid codes and regulations and every time our team has proven they are capable of meeting and exceeding the requirements.

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Are you also looking beyond solar?

Now we are thinking why only solar. There is 70% overlap between India’s wind and solar markets. Since we have won the fundamental trust of our solar clients, we are winning new projects one after the other. 90% of our business is repeat or referral. We are now following a foot in the door strategy for wind projects as the clients are confident of our capabilities. ReNew and Greenko are the two largest wind players in the Indian ecosystem. For ReNew, we are already project management consultants for wind projects.

Another focus area is energy storage where the market is likely to open up in a big way in the coming days. We have a team of experts which in the last 12 months has done a lot of work on energy storage. With its varied applications, energy storage can greatly help in complementing the existing transmission infrastructure. Similarly, there are applications at sub-station level which help in moderating the grid better and keep frequency in control.

Could you talk about the role of technology in solar industry?

Our future is linked with manpower in a major way and with such high growth, it is imperative to leverage technology. Three years down the line, we will have 3,000 people team if we continue to operate the current way. So, we have decided that we will double down on technology so that our revenue per employee is higher than last year. Growth will start getting measured in those terms, especially on the O&M side.

A relatable use case is the application of drones and automated inspection. On a large solar park,   manual inspections can take days if not months for complete inspection. With technology, this can be significantly reduced. There should be an alert which tells that a panel is about to fail. This can be achieved through thermographic inspection of a panel by a drone so no need to manually check hundreds of panels.

Why should investors go for Gensol Engineering IPO, especially after poor debut of Sterling and Wilson Power and scrapping of IPO plans by ReNew Power?

A couple of things are different in the case of Gensol. ReNew is an asset-focused company whereas we follow services model. Our Return on Equity has been consistently above 60% for the last 3 years. Within services, our bottomline is boosted by O&M and engineering. As a result, we are able to do relatively better than pure EPC players. In fact, we are choosy about EPC projects.

O&M is a relatively small part for other listed EPC players but it is a major business for Gensol. As a result of this, we are able to give a long term view on our numbers without exposing us to high risks. Highlights of our business are annuity model, heavy focus on services in comparison to EPC and as mentioned earlier, expansion in new markets and new verticals will help us. We want our investors to succeed with us and that’s why, we have deliberately kept our IPO valuations attractive (the offer’s PE ratio is in the range of 7.53 – 7.72) despite a history of high growth in revenue and profits.

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