Genus Power

Genus Power Systems is a small-cap company that specializes in one main product- Power Meters.

In this post, we will study Genus Power systems as a case study, along with four powerful concepts

1. Tailwinds
2. Specialization
3. Size Matters
4. Turnaround story

Let us start with Tailwind: A tailwind is a wind that blows in the direction of travel of an object, while a headwind blows against the direction of travel. A tailwind increases the speed of an object and reduces the time required to reach its destination, while a headwind has the opposite effect. Experienced sailors use tailwinds to attain a higher speed and reach the end goal faster. Similarly, there are times when a favorable environment helps the business grow much quicker.

Question: What is Tailwind that Genus Power System is experiencing?

At present, in India, around 30% of the power generated is lost due to transmission, distribution, billing generation, and collection inefficiencies. Meters play a vital role in the reduction of transmission losses. India can save Rs. 9.5 lakh crore by investing Rs 1.25 lakh crore for replacing 25 crore conventional meters with smart meters. As a part of power reforms, the Govt has decided to replace conventional meters with smart meters.

Question: How will Genus Benefit from this Tailwind?

Genus is the largest player in the electricity meter industry in India and has 27% of the market share. Specifically, in smart meters, it has a 70% market share.

Question: Is there no competition? Will others also not benefit from this tailwind?

Of course, Tailwinds will benefit all the boats (businesses) sailing with the tailwind. And there are many competitors in both the listed and unlisted space.

In the listed space:

1. https://www.hplindia.com/ (https://www.screener.in/company/HPL/consolidated/)
2. https://infra.schneider-electric.co.in/ (https://www.screener.in/company/SCHNEIDER/)
3. https://genuspower.com/ (https://www.screener.in/company/GENUSPOWER/consolidated/)

In the unlisted space:

1. https://www.avonmeters.com/
2. https://www.zenmeter.in/
3. https://aewinfra.com/smart-meters/
4. http://www.visiontek.co.in/products.html

Question: It seems like this is a very competitive market, so why would Genus benefit? Can they not lose bids?

Yes, they can. However, this is where the second concept comes into play- Specialisation.

Genus has one and only one product, electric meters. They have fought competition successfully and have a 70% market share in smart meters. If they want to survive, they will have to work extra hard, as they have no other option but to focus. Genus had recently won a 325 crore bid as well.

Now HPL and Schneider have other products as well, and hence success in securing the bid is much more crucial for Genus. This strategy is high risk as well. It is all or nothing approach.

Question: When are we going to talk about size matters?

Oh, I forgot. This thought is practical as well as supported by physics. Tailwinds will have a far more impact on smaller boats. A large ship has an immense mass so, the tailwinds do not have a big impact on them. Small sailboats go much faster in tailwinds and have much more difficulty in headwinds. The same applies to businesses. For a large company like Tata, the revenue earned from smart meters would only be like a drop in the ocean of income they are already making. For Genus, this is almost 90% of revenue. Each order win will have much more impact.

Question: Why are numbers so poor for Genus? And what about the 4th point of the turnaround story?

As you can see in the image below, numbers have been unsatisfactory for the past several quarters. You can also see an improvement in recent quarters.

Question: But why did the numbers go bad in Q1 FY21?

Pandemic and Shortage of semiconductors. Genus has been running at a capacity utilization of 40% to 50%.

Question: What gives you confidence that the situation will improve?

1. Order book: Their order book is improving and went up from 900 CR to 1160+ Cr in Dec 2021.
2. In their earnings conference call, they had mentioned that they secured semiconductors supplies, and this situation will improve in another two quarters.

Question: Should I invest in Genus?

As they say in Hindi "Faisala hai aap ka, aakir paisa hain aap ka"

Conclusion:

If you were patient enough to read to this point, Congrats. You can become a successful investor. Patience is the most vital factor that determines your success.

“The stock market is a device to transfer money from the impatient to the patient.” Warren Buffett

Disclaimer 1: This is not investment advice. Anyone reading this should do market research. I am not an advisor.

Disclaimer 2: I have invested in Genus from Jan 13th, 2022, so I may be biased. You should have your own biases.

Disclaimer 3: I have been proven wrong multiple times, but there is no guarantee that I would be wrong this time.

Disclaimer 4: I have been proven correct multiple times, but there is no guarantee that I would be right this time.