Emkay Global Sees Big Potential in Genus Power Infra, Sets Target Price at ₹500

Positive Outlook on Genus Power Infra

Emkay Global Financial is optimistic about Genus Power Infra and has given it a “buy” rating with a target price of ₹500 in their research report from October 7, 2024.

Strong Market Position

They believe Genus Power Infra (GPIL) is a great investment, with a target price based on the sum of its parts (SOTP) that suggests a potential upside of around 38%. GPIL holds over 25% of the market for electricity meters in India and is well-positioned to benefit from a major push to install smart meters as part of a ₹3 trillion government plan to improve the power distribution sector. This initiative aims to replace traditional meters, changing the financial landscape of the power sector.

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Comprehensive Services and Strategic Partnerships

As India’s largest listed smart electricity meter company, GPIL offers comprehensive services, including setting up Advanced Metering Infrastructure (AMI) and Facility Management Systems (FMS). A recent partnership with GIC (Singapore) is a game-changer for GPIL, providing a steady supply of business and significantly reducing working capital needs. Currently, there are only 13.7 million smart meters installed, showing that there is a large opportunity ahead, though the speed of execution will be crucial.

Key Player in Power Distribution Reforms

GPIL is a key player in the recent power distribution reforms. The company has a manufacturing capacity of 11 million meters per year and is investing in various areas of the infrastructure chain. It holds over 25% of the market for both conventional and smart meters, and is also exploring the production of gas and water meters. About 10% of its annual revenue comes from exports.

Expansive Domestic Market for Smart Meters

There is a huge domestic market for smart meters due to the ₹3 trillion investment targeting the installation of up to 100 million smart meters by December 2023 and 250 million by March 2025. This will replace the current 250 million traditional meters and significantly change the financial dynamics for distribution companies. With only 13.7 million smart meters installed as of September 2024, GPIL is expected to lead in upcoming tenders, which could boost its FMS segment and create steady revenue.

Strengthening Market Position through Strategic Deals

The partnership with GIC highlights GPIL’s strong market position. In July 2023, GPIL made a significant move by securing a deal with GIC for a ₹5.2 billion investment for a 15% stake, setting up a joint venture where GPIL owns 26% and GIC holds 74%. This venture allows GPIL to participate in smart meter bids, worth about ₹300 billion. GPIL’s contribution to the equity for this venture is USD 210 million, making it the exclusive supplier of smart meters to the joint venture. This deal strengthens GPIL’s market position in India.

Valuation Insights and Potential Risks

In terms of valuation, Emkay Global has initiated coverage on GPIL with a buy recommendation and a target price of ₹500, based on a 30x price-to-earnings ratio for the expected earnings in September 2026. Currently, the stock is priced at ₹362, trading at approximately 28x earnings for FY26 and 18x for FY27. However, there are some risks to consider, including potential delays in order execution, a slowdown in tender activities, increased competition, and rising commodity prices.