Detailed Rationale

CRISIL Ratings has assigned its ‘CRISIL AA-/Stable/CRISIL A1+’ ratings to the bank loan facilities, and commercial paper programme of Genus Power Infrastructures Ltd (Genus).

 

The ratings assigned reflect the established presence of the group in the smart metering industry with strong executional capabilities, significant outstanding orders providing revenue visibility, financial flexibility with presence of GIC and changing customer profile leading to expectation of improvement in working capital profile. These strengths are partially offset by the investment requirement in under implementation portfolio and susceptibility to volatility in the prices of input materials.

Analytical Approach

CRISIL Ratings has taken a standalone view of Genus. Cash flows factor investment requirements of 26% in the form of equity in the project special purpose vehicles (SPVs) that have been formed for executing advanced metering infrastructure service provider (AMISP) orders. Additionally, GPIL has extended loans and advances of ~Rs 112 crore to group companies as of March 2024. A significantly higher-than-envisaged increase in this exposure going forward will be a rating sensitivity factor.

Key Rating Drivers & Detailed Description

Strengths:

• Growing presence of the group in smart metering industry with strong executional capabilities: Genus was established in 1992 and provides a full range of smart metering products, solutions and services. Along with meter related services, the group also provides domain related software and SaaS (software as a service) to utilities with robust avenues of recurring revenue through facility management services (FMS).

 

Genus has manufacturing facilities in Jaipur, Haridwar and Guwahati with a total capacity of 1.2 crore meters per annum. Genus also has a NABL accredited research and development (R&D) lab, which is recognized by the Ministry of Science and Technology in which comprehensive testing and series of reliability tests are carried out at various stages of product manufacturing starting from incoming raw material/components to in process staffed and to the final and finished product.  Over the years, Genus has become one of the leading players in the domestic market and has supplied 88 lakh smart meters to various state electricity boards and distribution companies in India.

 

• Financial flexibility with presence of GIC: Gem View and Genus have entered into an arrangement to set up Gemstar, a platform for setting up the smart metering projects in various states of India. Gem View will hold 74% stake while Genus will hold 26% stake in the platform. Gemstar has been set up to implement plans of smart metering business in India. In addition to this, GIC through its affiliate-Chiswick Investment Pte Ltd has invested Rs 519 crore by way of a preferential allotment of warrants of 15%. The presence of GIC will ensure easier availability of capital for Genus.

 

• Significant orderbook providing long term revenue visibility: As per the joint venture (JV) co agreement, Genus will be the exclusive meter supplier, engineering, procurement and construction (EPC) and operations and maintenance (O&M) provider for all the project SPVs under the platform. Genus has a current orderbook of Rs. 31,776 crore (net of taxes), which is to be realised in the next 8-10 years. The orderbook is fairly diversified with concession agreements signed with multiple states such as Assam, Chhattisgarh, Bihar, Maharashtra, Rajasthan, Uttar Pradesh, Jharkhand, Uttarakhand and Jammu etc. These orders are backed by long-term contract signed (concession agreements) with various distribution companies (discoms) based on TOTEX mode (total expenditure including capital and operational expenditure both) for installation of smart meters and associated infrastructure under the revamped distribution sector scheme (RDSS). The current orderbook of smart meters must be installed in the next 3-4 years as Genus is the EPC provider for the project SPVs under the platform. Further, Genus would also be the O&M provider for the remaining span of the concession contract.

 

• Changing customer profile to improve working capital working requirement: Operations are working capital intensive on account of the inherent nature of the business and long project execution cycle of 2-3 years. In the past, receivables were high due to delayed payments from the State Electricity Boards (SEBs). Receivables remained high at ~220 days as on March 31, 2024. However, the receivables position is expected to improve in the next 12-18 months on account of changing customer profile from SEBs to project SPVs under the platform with implementation under the platform. Delay in reduction of working capital requirements will be a rating sensitivity factor.

 

Weaknesses:

• Investment requirement in under implementation portfolio: Genus has a current order of Rs 3.39 crore smart meters to be installed in multiple states all over India under the platform. The installation of smart meters must be completed within 27 months from the signing of concession agreements. As per the JV agreement, Genus will contribute 26% of the total equity requirements under the platform in various SPVs. CRISIL Ratings understands that capital commitment would occur in a staggered manner over the medium term. Further, higher-than-anticipated investment requirement supported by fund raising will be a key monitorable.

 

• Susceptibility to volatility in the prices of input materials: For manufacturing smart meters, there is dependence on raw materials such as semi-conductors and other electronic components, which is mainly imported, exposing the company to variation in margins. Owing to these price fluctuations in semiconductors and other electronics components, margins in fiscals 2022 and 2023 moderated to 9.8%. Since 40-45% of the meter component is imported, it exposes the company to foreign exchange (forex) risk. Given that Genus has signed fixed price contracts with project SPVs, any higher than envisaged increase in raw material prices will remain a key monitorable.

Liquidity: Strong

Genus is expected to have strong liquidity driven by cash flow for debt servicing of close to Rs 150 crore in fiscal 2025. The SPVs are expected to have debt servicing requirements of Rs 40-50 crore in fiscal 2025. The group also has access to a fund working capital limit of Rs 391 crore, which has been utilised 93% on average over the 12 months ended August 2024. Further, these working capital limits are expected to increase to meet the incremental working capital requirements. Cash and equivalent stood at Rs 250 crore as on September 30, 2024.

Outlook: Stable

Genus will continue to benefit from its strong market position and healthy financial risk profile.

Rating sensitivity factors

Upward factors:

• Sustenance of operating margin over 14% along with expected improvement in working capital profile
• Significant improvement in the profile of investments/ project SPVs along with efficiency in working capital management

 

Downward factors:

• Slow pace of improvement in working capital cycle (compared to 215 days of receivables and 165 days of inventory in fiscal 2024)
• Reduction in operating margin for sustainable period (compared to earnings before interest, tax, depreciation and amortization (ebitda) margin of 12.1% in fiscal 2024)

About the Company

Incorporated in 1992, Genus manufactures electric meters, gas meters and smart meters. The company is promoted by Mr Ishwar Chand Agarwal. Genus has manufacturing facilities in Jaipur, Haridwar and Guwahati with total capacity of 1.2 crore meters per annum. It is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Any other information: Not Applicable