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  • Sep 1, 2022 - 4 Renewable Energy Stocks in India You Probably Never Heard of

4 Renewable Energy Stocks in India You Probably Never Heard of

Sep 1, 2022

4 Renewable Energy Stocks in India You Probably Never Heard of

The transition towards a cleaner environment has seen a tremendous growth in the top renewable energy stocks in India.

India is now the third largest market for renewable energy after China and the US. Exciting time waits for companies involved in this space as growth prospects propel their stock prices.

When it comes to renewable energy stocks in India, we all know the obvious names which are spearheading the green revolution. There's Tata Power, the Adani group, Reliance Industries, among other prominent names.

But what about the lesser-known companies in this space?

Often, investors take into consideration the big companies which are fundamentally strong and don't focus more on the smaller counterparts which are also involved in this space.

The reasons are justified as smaller companies are more volatile and they can destroy your wealth at a faster pace.

But they also come with potentially huge opportunities so one can't just avoid them.

So, are there such companies involved in the Indian renewable energy sector? If yes, where do they stand on the financials front and what are their growth prospects?

Let's find out...

#1 Gita Renewable Energy

Based in Chennai, Gita Renewable Energy generates power from renewable resources including wind, solar, and hydro.

This little-known renewable energy company first came to our attention in August 2021 owing to its spectacular rally.

The stock had rallied a massive 3,600% between February 2020 and August 2021.

Co-head of research at Equitymaster Tanushree Banerjee even wrote a detailed editorial, explaining why Gita Renewable Energy won't keep you wealthy.

Here's an excerpt:

  • It's difficult to ascribe reasons to the monstrous rally in Gita Renewable over the past twelve months.

    You can guess the mere presence of the word 'renewable' in the name has attracted investors. Especially, given the market's newfound love for all things green i.e. ESG stocks.

    Gita Renewable has not reported profits for the past four consecutive years. Its sales were stagnant during that period. To the company's credit, it did manage to break its streak of reporting net losses in the first quarter of financial year 2022.

    But there is nothing to justify the four-digit rally in the stock.

The stock turned out to one of the biggest wealth creators of 2022. But 2022's volatility has taken the stock way off from its highs.

Also, share price of Gita Renewable Energy has seen wild swings in the past one year. Take a look at the company's share price performance since the start of 2020.

chart

Like Zomato, the company is present in a high growth sector but has a history of reporting continuous losses.

The company has been incurring losses continuously since the quarter ended September 2017. In between, it posted a profit in the March 2021 quarter and the recent March 2022 and June 2022 quarter.

Full year financials paint a same story. Take a look at the table below:

Financial Snapshot

Rs m, standalone 2018 2019 2020 2021 2022
Net Sales 0.8 3.6 5.1 4.2 32.7
Gross Profit 0 3.6 3.6 2.4 2.4
Net Profit -20.2 -18.7 -17.5 -141.4 23.8
Total Debt 0 0 0 0 264.4
Debt to Equity (x) 0 0 0 0 1.66
Data Source: Ace Equity

The company did turn profitable in 2022, which should come as a big achievement as it has posted losses since 2015 when it got listed on the bourses.

But simply because you believe Gita Renewable's businesses are of the future, one can't predict when the company will be able to post consistent sales and profits.

Investors are brainwashed with the idea that even if the company is loss making today, it will eventually turn profitable and make shareholders super rich.

An ideal approach here would be to wait for the company to have some track record of profits and sales.

#2 Swelect Energy Systems

Swelect Energy Systems is the flagship company of the Swelect group. The company is engaged in the sale of solar power, manufacture of photovoltaic inverters, solar charge controllers, and solar junction boxes.

Based in Chennai, the company also undertakes rooftop installation and EPC contracts for solar power project.

Even if it's not categorised as the top solar stock in India, the company is involved in the solar energy vertical for the past three decades. In the solar PV module manufacturing business, the company took plunge in the year 2013.

Swelect was known as Numeric Power Systems till 2012 when it used to make uninterrupted power systems. It entered solar module manufacturing in 2013 when it bought into Bengaluru-based HHV Solar, which was producing 30 MW of modules a year.

Talking about the company's financials, it had a rough couple of years in between but has a track record of posting consistent revenue and profit.

As the company has low reliance on external funds for fundraising capacity among other reasons, its debt metrics have also been under control.

Financial Snapshot

Rs m, consolidated 2018 2019 2020 2021 2022
Net Sales 3,218.2 2,559.8 2,798.1 2,823.9 4,119.3
Sales Growth (%) 16% -20% 9% 1% 46%
Gross Profit 1,076.3 1,183.7 1,287.7 1,371.6 1,864.9
Net Profit 158.9 68.3 -101.7 260.4 324.2
NPM (%) 5% 3% -4% 9% 8%
Total Debt 2,063.9 1,975.0 2,234.1 3,535.1 4,565.2
Debt to Equity (x) 0.29 0.27 0.31 0.48 0.59
Dividend per share (Rs) 4.0 2.5 2.0 3.0 3.0
Data Source: Ace Equity

The company also has a track record of paying dividends, having paid dividends since 1998.

Its share price has seen a consistent rise in the past three years. Here's the chart:

chart

An added advantage for the company is that it has entered into power-purchase agreements (PPAs) with tenure of 10-25 years at competitive tariff. Long term tenures will take care of the demand for the company.

In an interview this year, the company's MD R Chellappan said the company intends to triple its solar module manufacturing capacity to 300 MW a year.

Recently, the government issued a new list of manufacturers for solar PV modules and Swelect Energy was on the list of manufacturers. Domestic solar manufacturers like Swelect stand to benefit if they get big orders.

#3 Visaka Industries

Visaka Industries has a diversified business ranging from manufacture of cement fibre sheets, fibre cement boards & panels, solar panels and synthetic yarn.

The cement asbestos business is the prime driver of revenues, contributing more than 60% of revenues. Visaka is the second largest player in the asbestos cement sheet (ACS) segment in India.

Taking note of the opportunity in the solar space, the company launched a solar roofing product called ATUM in 2018, which is an integrated solar roofing system providing all the functions of a traditional roof while generating energy.

According to the company, ATUM is the world's first completely integrated, seamless solar roof and is more efficient than traditional solar panels. This segment could be the key growth driver for the company in the next few quarters.

In financial year 2022-23, the company recorded its highest ever annual operating revenues.

Financial Snapshot

Rs m, standalone 2018 2019 2020 2021 2022
Net Sales 10,168.9 11,518.7 10,570.1 11,553.2 14,264.7
Sales Growth (%) 5% 13% -8% 9% 23%
Gross Profit 5,300.4 5,840.8 5,371.7 6,222.4 7,448.5
Net Profit 665.6 674.1 493.0 1,106.5 1,185.3
NPM (%) 7% 6% 5% 10% 8%
Total Debt 2,411.4 2,463.9 2,628.6 1,154.9 1,671.8
Debt to Equity (x) 0.54 0.49 0.52 0.19 0.23
Dividend per share (Rs) 7.0 7.0 15.0 15.0 15.0
Data Source: Ace Equity

The company has a track record of paying dividends. In recent years, the payout has increased. Though it has a long way to go if it needs to feature in the list of dividend growth stocks in India.

Over the next two years, the company plans to become debt free.

Also, here's something interesting...apart from being involved in the solar space, the company is also engaged in the Indian electric vehicle (EV) market.

The company has set up over 250 ATUM EV charging stations nationwide and is looking to double that within the year.

These rosy details could be the reason why the stock has performed well on the bourses in the past three years.

chart

Going forward, the company is targeting a growth of 12-15% in revenues in financial year 2022-23.

The government has also set a target of 100 GW solar capacity by December 2022. Visaka could see increased orders this year owing to this.

#4 Orient Green Power

It's rare to come across a penny stock which is involved in high growth sectors like EVs or renewable energy.

A penny stock to feature on this list, Orient Green Power is an independent producer of renewable power. The company is engaged in developing, owning, and operating a diversified portfolio of wind energy power plants.

With an installed operational capacity of 417 MW wind power projects, the company has an established market presence.

Even as the company has an established presence, it has struggled on the financials front.

Financial Snapshot

Rs m, consolidated 2018 2019 2020 2021 2022
Net Sales 4,331.3 3,706.4 3,912.1 2,627.0 3,152.2
Sales Growth (%) -6% -14% 6% -33% 20%
Gross Profit 3,685.0 3,221.1 3,259.4 2,537.6 3,097.2
Net Profit -714.3 -486.4 198.8 -507.1 465.5
NPM (%) -16% -13% 5% -19% 15%
Total Debt 15,889.4 15,083.4 13,543.5 13,246.1 12,150.0
Debt to Equity (x) 2.99 3.04 2.64 2.9 2.48
Data Source: Ace Equity

As can be seen from the table above, revenues and profits don't show a consistent trend while the company is also saddled with debt. High debt is always a red flag.

There have been repeated instances where the company could not service its debt. Also, the company hasn't paid any dividends.

In January 2022, there were reports that promoters of Orient Green - the Shriram Group - is in talks with investors to sell stake in Orient Green. This comes as the group exits its non-finance businesses.

Owing to this and the company posting back-to-back quarterly profits, its share price surged between October 2021 and January 2022.

chart

As of December 2021, promoters of the company held 48% stake. Skip forward two quarters, the latest shareholding pattern shows that promoter stake stands at 34.5%.

Another worrying concern is promoters have pledged their entire holdings.

To know more, check out Orient Green's latest shareholding pattern.

Final words

It's becoming increasingly clear the world is moving towards green energy. So, keeping track of all the stocks involved in this space makes sense, even if it is loss making.

But here's something you should be wary of. In theory, we know we have to avoid investing in a declining business, a business where profits are going in the reverse and there is no possibility or a turnaround anytime in the future.

Two out of the four companies mentioned above, Gita Renewables and Orient Green, have no consistency in profits and revenues.

But an argument can also be made that these companies are part of a fast-growing industry and have good growth prospects.

History suggests that there will be surprises along the way and some businesses may never recover. While some struggling businesses may even succeed if they pivot their business.

It remains to be seen whether the green energy revolution will turn on lights for struggling companies and to what extent.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

Equitymaster requests your view! Post a comment on "4 Renewable Energy Stocks in India You Probably Never Heard of". Click here!

1 Responses to "4 Renewable Energy Stocks in India You Probably Never Heard of"

Janardan Mohanty

Sep 6, 2022

Read an interesting Piece of news today. An American Lab has filed patent for a new discovery on Hydrogen generation. They immersed an alloy of Gallium+Aluminium in any kind of water be it sea water, waste water or household water at room temperature to produce Hydrogen 20x times than electrolysis. If this comes out true there will be a paradigm shift in how mankind produces Power or runs the vehicles. The key raw materials Aluminium & Gallium (extracted from Bauxite ore) will power the world in the future.

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Equitymaster requests your view! Post a comment on "4 Renewable Energy Stocks in India You Probably Never Heard of". Click here!