A Lesser Known Smallcap for Solar Stocks Watchlist 

India is undergoing a significant energy transition. In FY23 itself, electric category in 3-wheeler grew over 150% YoY. EV industry as a whole grew 58% YoY.

In the recent months, with electric bus orders on rise, stocks in this space such as Olectra Greentech and JBM Auto have witnessed gains of over 180% in 5 months.

And, it's not just mobility space.

Renewable energy theme seems to be in charge. Stocks like Suzlon, a well-known player for harnessing wind energy, despite its negative reserves, have doubled in a similar period.

The craze around clean energy, electric vehicles, renewable energy theme has led to sharp runups in these stocks.

With policy push, and huge inflows in green energy funds, there could be more steam left.

However, I would not touch them with a 10-foot pole.

Reason: The underwhelming return ratios in these businesses, and skyrocketing valuations that don't make sense to me.

Take a look.

The underwhelming return ratios in these businesses just don't justify the current valuations.

And, I have not forgotten the history.

Once a darling of the stock markets in 2007, the subsequent years witnessed Suzlon's fall to become a penny stock.

Reason: capital intensive business, dried funding, scrapped incentives, and a balance sheet that was never in good shape to handle such setbacks.

Olectra may not have debt issues for now.

But do note that it has a stretched working capital cycle. And most of the target segment - State Transport units, are not profitable.

Now I'm not predicting a doom here.

I do believe that the green energy revolution has serious policy push and more legs this time.

It's just that one has to find safer ways to play it...Both from a business and valuation perspective.

Today, I'm going to talk about one such business that may not be a part of any thematic or screener related to clean energy yet, and could benefit significantly from the investments in the solar capacities and the rise of green energy.

Before I come to this specific company, here's what the opportunity in solar space looks like.

Green energy is one of the key nodes of seven priorities in the latest Budget. In the Budget 2022-23, the Government has allocated Rs 195 bn for PLI scheme to boost manufacturing of high efficiency solar modules. By the end of the decade, the target for India's installed renewable energy capacity is at 450 GW vs 166 GW in October 2022. Of this, over 60% is expected from Solar. Already, 59 solar parks with aggregate capacity 40 GW have been approved in India. The world's largest renewable energy park of 30 GW capacity solar-wind hybrid project is under installation in Gujarat. Solar roof top solutions and floating solar panels are gaining momentum in the country.

Now an obvious way to play is to go for Waaree, Adani Green, Tata Power, Insolation Energy, Solex, and so on.

The issue with these companies is either huge debt on the balance sheet or high valuations or both.

But if you are averse to debt or buying companies at high PEs, there are cheaper alternates that you could add to your watchlist.

GHCL Ltd is one such option.

Here's a bit about the business.

The company is the second largest producer of soda ash in the country, and largest manufacturer of soda ash at a single location in the country. The soda ash produced from this plant accounts for 26% of annual domestic demand. With its planned capex, GHCL is likely to be the largest in India in soda ash with 30% market share in five to six years. With captive mining facilities in Gujarat for raw materials for soda ash, that is, lignite and limestone, GHCL has a clear advantage from backward integration.

So, how's GHCL Ltd linked to solar and green energy revolution?

You see, Soda ash is a chemical that primarily goes into making detergents and glass, and lithium batteries.

The rise in demand in emerging end-use segments of solar glass and lithium carbonate will be a key positive for the demand of soda ash.

At the same time, the company's fortunes are not entirely dependent on the renewable energy megatrend. In other words, while it stands to benefit from rise of green energy, it's an optionality play with downside protection.

Unlike the front runners in the clean energy revolution, where return ratios leave a lot to be desired, the company enjoys return ratios of over 40%, along with a zero net debt on the balance sheet. Its Revenues over last five years have grown at a CAGR of 17%.

Apart from soda ash, the company makes sodium bicarbonate with applications in pharma, food, chemicals, tannery, and animal feed. It's potential application in treatment of flue gas, which is done to reduce pollutants from use of fossil fuels, is under trial and could be a game changer for the company.

The cherry on the cake are GHCL's undemanding valuations. The stock trades at a PE of 4.4 times and at a price to book value of 1.3 times. And it offers a dividend yield of 3.3%.

Now do not consider it a stock recommendation. But I believe it's a worthy candidate for your 'Renewable Energy stock' watchlist.

Do press the like button and share it if you found the video interesting. And let me know your feedback in the comments section.

Subscribe to this channel for more such investing related updates.

Thank you for watching.

Goodbye.