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  • Stock Recommendation | GENUS POWER INFRASTRUCTURE LTD – BUY – Target Price : 40

    Publish date: OCTOBER 19, 2018

    Genus has reported good order intake in the first half of the current fiscal. However, outlook on margins remains a key concern due to rise in commodity prices and INR depreciation.

    Demand scenario for smart and prepaid meters remains strong.

    The company had an order book of Rs 9.7 bn at end of Q1FY19, which would have increased substantially on account of two major order wins, 1) Supply of 5 mn single phase Prepaid meters, valued at Rs 6.5 bn and 2) Supply of Advanced Metering Infrastructure (AMI) including 4.31 Iakhs smart meters. The value of the order is pegged at Rs. 3.1 bn (net of tax).

    However, pricing pressure likely to continue as the government aims to reduce cost of smart meters procurement


    The stock is trading at 13.1x and 11.2x FY19E and FY20E earnings respectively. Deteriorating macroeconomic parameters, sell off in mid and small caps and cost pressures from commodity prices and forex fluctuation has weighed on the stock price, in our view. We now value the stock at 15x FY20E and arrive at a price target of Rs 40 (Rs 58 earlier, at 16x FY20E). Reiterate BUY due to reasonable valuations, healthy profit growth and adequate upside.


    Demand scenario for smart meter/(AMI) and prepaid meters remains strong.

    Average level of consumer metering in India is around 89%, with 28 out of 50 Govt. owned Utilities showing more than 90% consumer metering. However, large number of consumers are still unmetered, with Electronic Meters or with defective meters, which does not enable proper accounting of energy.

    Government of India has requested states to go for smart/prepaid meters only in place of normal meters and exercise aggregation of quantities to achieve the benefits from economy of scale.

    The demand for smart metering market is set to witness robust growth on account of adoption of automated technologies across energy utilities to ensure load management, loss reduction and better customer service.

    The global market for smart meters is valued at USD 12.8 bn in 2017, and is expected to grow at a CAGR of 9.34% from 2017-2022.

    Automated Meter Reading (AMI)/Smart Meters – Major benefits

    AMI systems are used for metering as well as monitoring the energy uses by consumer and its control near real-time meter readings, power outage notification, load disconnection/re-connection and power quality monitoring.

    For allowing different prices for consumption based on the time of day and season, which can be used to reduce peaks in demand.

    AMI/Smart meters can offer benefits to Utilities/consumers including AT&C loss reduction

    Prepaid meters – Major benefits

    Prepaid meters require customer to make advance payment before use of electricity. If available credit is exhausted then supply of electricity is disconnected by the relay, which is reconnected only when consumer recharges credit again.

    Prepaid metering of electricity enhances utility revenue and reduces costs in multiple ways: accelerated cash-flow; theft avoidance; bad debt reduction; no cost towards meter reading & billing; lower administrative costs; advance demand planning; and no disconnect/re-connect costs


    The National Tariff Policy 2016 had mandated that consumers with monthly consumption of over 500 units (or kilowatt hour) had to be switched to smart meters by December 2017; for consumers whose monthly usage is between 200 and more, the deadline is December 2019. However, progress with implementation has been weak, though the intent is there. For instance, only 180,000 out of 18.3 million units consuming 200-5000 units (or 1%) have made the switch. Having said that several private distribution utilities and franchisees are interested in migrating their existing conventional meters infrastructure to smart meter and advanced metering infrastructure.


    After a lackluster growth in orders in FY17, Genus announced major order wins in FY18, which has continued well into FY19 as well.

    With several smart meters and prepaid tenders in the pipeline, we believe that order intake will remain strong in the medium term.

    The company had an order book of Rs 9.7 bn at end of Q1FY19, which would have increased substantially on account of

    The company recently announced two major order wins

    Supply of 5 mn single phase Prepaid meters, valued at Rs 6.5 bn.

    Supply of Advanced Metering Infrastructure (AMI) including 4.31 Iakhs smart meters. The value of the order is pegged at Rs. 3.1 bn (net of tax).


    With a view to reduce the cost of smart meter deployment, the EESL has been encouraging competition in its bulk smart meter tenders. In a recent tender, Inhe Meters, a Chinese meter manufacturer, along with its Indian partner Jay Motors quoted a price of Rs 2,000 per meter against the market price of about Rs 3,500 for such interactive devices. Given the increased commodity cost pressures exacerbated by INR depreciation, domestic manufacturers like Genus are concerned with the competitive pricing, quality of the meters supplied and execution capability of the suppliers. Some smart meters makers like Landys&Gyr, Secure Meters and Aspen Electric have not participated in the tender.


    We have revised our earnings which is mainly due to lower forecast margins in FY19E in view of the higher commodity prices and INR depreciation.



    On the basis of the strong order book, we project healthy revenue growth of 17% CAGR over FY18-20E.

    Forecast EPS to grow from Rs 2.0 per share in FY18E to Rs 2.7 per share in FY20E.


    The Genus power stock has corrected sharply by 64% from its high of Rs86. The stock is trading at 13.1x and 11.2x FY19E and FY20E earnings respectively.

    Deteriorating macroeconomic parameters, sell off in mid and small caps and cost pressures from commodity prices and forex fluctuation has weighed on the stock price, in our view. We have built in these concerns/risks in our earnings projections and target price. Other risks include irrational competition from rivals/foreign players in bidding for the smart meter tenders. Slippage in actual delivery versus the management guidance also remains a concern area for the company and the management should take cognizance of the same for future. We now value the stock at 15x FY20E and arrive at a price target of Rs 40 (Rs 58 earlier, at 16x FY20E). Reiterate BUY due to reasonable valuations, healthy profit growth and adequate upside.


    Genus is the flagship company of the USD 400 million Kailash group. The company primarily manufactures and distributes Electric meters (EMs)and hybrid microcircuits as well as executes power distribution management projects in India and across the world. It manufactures the entire range of EMs, ie from transformer meters to household and industrial meters. The company also has a rich clientele that includes the state electricity boards (SEBs) as well as private utility firms like Reliance Energy, the Torrent Group, Tata Power and JSW Energy.


    BUY - We expect the stock to deliver more than 12% returns over the next 12 months
    ACCUMULATE - We expect the stock to deliver 5% - 12% returns over the next 12 months
    REDUCE - We expect the stock to deliver 0% - 5% returns over the next 12 months
    SELL - We expect the stock to deliver negative returns over the next 12 months
    NR - Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only.
    SUBSCRIBE - We advise investor to subscribe to the IPO.
    RS - Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a Sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.
    NA - Not Available or Not Applicable. The information is not available for display or is not applicable
    NM - Not Meaningful. The information is not meaningful and is therefore excluded.
    NOTE - Our target prices are with a 12-month perspective. Returns stated in the rating scale are our internal benchmark.


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