Smart Metering Stocks in India: An Overlooked Investment Theme

You'll agree with me when I say investing trends move in cycles.

For example, a trend will be nonexistent at the start. Then it will gain momentum once more developments start to uncover.

Eventually it'll get overhyped and retail investors will take note.

We saw this happen with so many trends in the past couple of years. Green hydrogen, space technology, semiconductors and the list goes on.

Finally, when technology caught up to the hype around these trends, innovation was adopted by the market.

The reason I gave this simple explanation is because we at Equitymaster see a new trend emerging in the current market. And we believe investors should take note early on.

We're talking about the smart metering theme.

A smart meter is basically an advanced electronic device designed to record crucial information related to electric energy consumption, such as voltage levels, current, and power factor.

In 2021, the government had announced plans to support the replacement of 250 million conventional electric meters with smart prepaid meters by March 2026, under the Revamped Distribution Sector Scheme (RDSS).

After a long time, the industry is witnessing a renewed interest from foreign investors.

Mind you, this theme is not guaranteed to succeed moving forward nor do we see any evidence that it could fail. But each execution happening in the industry suggests that it's heading in the right direction.

So let's look at the companies involved in the smart metering industry.

#1 Tata Power

First on the list is Tata Power.

Innovation and disruption is what keeps driving the biggest Tata group companies as the conglomerate leaves no stones unturned and dips toes in several emerging themes.

The group's flagship power firm is already making big strides in some of these emerging themes.

Tata Power recently announced bagging a smart metering project worth Rs 17.4 billion (bn) in Chhattisgarh. The order was awarded by Chhattisgarh State Power Distribution Company (CSPDCL).

This project will be carried out over a period of 10 years where Tata Power will install and maintain 18.6 lakh meters.

Tata Power has already carried out several smart metering projects in the past. In 2017, the company's subsidiary Tata Power Delhi Distribution and Siemens partnered for deployment of smart metering technology for 200,000 smart meters in Delhi.

As we looked at the company's annual report for FY23, it mentioned that Tata Power is the first distribution utility in Mumbai and Delhi to initiate smart metering.

Till March 2023, it had already installed 5.1+ lakh smart meters across Delhi, Mumbai, and Odisha. And now the company has also won orders from Chhattisgarh.

Note that Tata Power plans to invest about Rs 120 bn in FY24 as part of its capex plan across segments. It aims to focus on renewable energy, distribution, transmission, and solar equipment manufacturing.

It's already leading the electric vehicle charging station pack, having installed over 3,000 public and private chargers as of June 2023.

And we won't be surprised if it takes an early lead in the smart metering space.

#2 Genus Power Infrastructures

Next on the list is Genus Power.

After languishing for many years, shares of the company have seen a massive breakout on charts.

And one probable reason for this could be the company securing big smart metering projects in recent months.

Genus Power is among the largest players in the metering solutions industry, capturing approximately 27% of the market share. And it claims to be the largest player in smart metering space with over 70% market share.

In its latest annual report, the company has mentioned the word 'smart meter' 76 times. This compares with 48 times in FY22. Nothing to relate here but just putting the facts out there.

Last month, the company's wholly owned subsidiary won an order worth Rs 22.1 bn for deploying smart meters.

The company will design an advanced metering infrastructure system with supply, installation, and commissioning of 21.77 lakh smart prepaid meters. Prior to this, it had won an order worth the same amount in July 2023.

The company's management has already said it might receive more orders in coming quarters of FY24 as several State Electricity Boards (SEBs) initiate the process of inviting bids for deployment.

Genus Power also made a big agreement for setting up platform to fund smart metering projects with an affiliate of Singapore sovereign wealth fund GIC. The fund has reportedly committed an initial investment of around US $2 bn (about Rs 160 bn).

After the current orders, the company has a strong order book of over Rs 82 bn.

#3 HPL Electric & Power

Third on the list is HPL Electric & Power.

In July 2023, we first wrote about the company's meteoric rise in a short span. Here's an excerpt...

• One major factor in the rise of the stock is the acquisition of smart meter orders worth Rs 9 bn. This order adds to the company's total order pipeline which now stands at over Rs 22.5 bn.
  
  HPL Electric & Power commands a substantial market share of around 20% in the domestic meters market. It has an installed capacity of 11 million units per year. Its strong presence in this segment positions it well to capitalise on the growing demand for smart meters.
  
  The company's focus on driving healthy growth in its consumer business has also boosted investor confidence. In FY21, around 63% of its total revenue came from the consumer business.
  
  By prioritising this segment, HPL Electric aims to lower its overall working capital cycle and generate a higher return on capital employed. This has added to the positive outlook of investors.
  
  In May 2023, HPL Electric won additional smart meter orders worth Rs 20.4 billion from customers with a pan-India presence. This demonstrates the continued demand for the company's products and further reinforces its market position.

As the company has a strong order book and it's also a leading player in the industry, HPL Electric is well positioned to capitalise on the smart meter opportunity.

#4 GMR Power & Urban Infra

Next on the list is GMR Power & Urban Infra.

Like the stocks mentioned above, this company has also seen a meteoric rise in shares in the past couple of months. And the reasons are not very hard to guess.

Two big orders came in the month of July 2023 when it first received an order to install, integrate and maintain 75.69 lakh smart meters in Uttar Pradesh's Purvanchal area.

The company is making a strong presence in several districts of Uttar Pradesh.

Recently, it received another order worth Rs 51.2 bn in Uttar Pradesh. For this order, it will install, integrate and maintain 50.17 lakh smart meters.

Note that GMR Power made a strong comeback in FY23 as it became profitable after reporting losses for the past three years.

Financial Snapshot

Rs m, consolidated	FY21	FY22	FY23
Revenue	27,332.3	41,018.1	55,246.9
Growth (%)	-	50%	35%
Operating Profit	6,590.2	6,753.8	7,604.2
OPM (%)	24%	16%	14%
Net Profit	-20,577.0	-6,475.4	11,827.9
NPM (%)	-75%	-16%	21%

Data Source: Ace Equity

Going forward, the company's multi-year orders that it won recently could support revenue and profit growth.

#5 RMC Switchgears

Next on the list is RMC Switchgears.

The company is primarily engaged in the business of designing and manufacturing enclosures of energy meters, switchgears, among other things.

This is what an enclosure looks like.

According to its latest investor presentation, the company has participated in the tenders floated by the PSUs under the smart metering projects for enclosures worth Rs 1.6 bn.

Apart from this, it has also participated in tenders worth Rs 6.2 bn including projects related to smart meter enclosures.

Earlier this week, the company announced the issuance of bonus shares in the ratio of 1:2. The record date for the same is not finalized yet.

After witnessing a slowdown in the past 3 years between 2020-22, the company posted a strong set of numbers for FY23.

Financial Snapshot

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Revenue	1,317.4	593.9	366.0	415.6	1,250.0
Growth (%)	59%	-55%	-38%	14%	201%
Operating Profit	136.9	82.4	66.9	60.2	260.0
OPM (%)	10%	14%	18%	14%	21%
Net Profit	38.0	3.0	4.5	5.8	120.0
NPM (%)	3%	1%	1%	1%	10%
Debt to Equity	1.5	1.5	1.4	1.5	1.0

Data Source: Ace Equity

During the year, the company strengthened its market position on account of healthy order flows from state-run authorities in the smart metering space.

Revenue visibility for this year is supported by its healthy order book of Rs 3.1 bn as of June 2023.

A cause of concern is debt, which stands at 1.02x as of financial year 2023.

#6 Power Grid Corporation of India

Next on the list is India's largest power transmission utility - Power Grid Corp of India.

In recent years, the company has taken projects for the installation of smart meters for state utilities and also begun procurement process for smart metering solution for 10 million smart meters.

In July this year, it informed exchanges about receiving board approvals for the implementation of advanced metering infra projects worth Rs 40.7 bn. The project duration is for 10 years, and it has orders for 6.9 million smart meter installation in Vadodara and Ahmedabad.

In the next 9 years, the company is planning to spend an estimated Rs 150 bn on smart metering infrastructure.

Like Tata Power, Power Grid has also ventured into EV charging infrastructure and is setting up charging stations across the country.

Going forward, the smart metering biz, growth in renewable energy capacity, and its EV charging network is expected to drive revenue and profitability.

#7 Permanent Magnets

Next on the list is Permanent Magnets.

One of the flagship companies of Taparia group, it manufactures and exports magnetic assemblies, shunt assemblies & brass terminals, and other accessories of electricity meters in the world.

Apart from the smart meter theme, the company is also involved in the electric vehicle (EV) segment.

The company's MD in his investor presentation said that they secured a bigger order than anticipated in the electricity meter segment from an existing customer.

In the financial year ended March 2023, the company posted strong growth in topline and bottomline while margins also improved substantially.

Financial Snapshot

Rs m, standalone	FY19	FY20	FY21	FY22	FY23
Revenue	1,208.4	1,065.6	1,166.8	1,295.1	1,827.4
Growth (%)	30%	-12%	9%	11%	41%
Operating Profit	239.1	233.0	261.6	305.3	467.7
OPM (%)	20%	22%	22%	24%	26%
Net Profit	148.1	143.2	161.4	190.4	297.5
NPM (%)	12%	13%	14%	15%	16%
Debt to Equity	0.3	0.0	0.0	0.0	0.1

Data Source: Ace Equity

Shares of Permanent Magnets have been on a roll in the past one year, rising from Rs 440 to Rs 1,400 at present.

To know more, check out its financial factsheet.

#8 Shivalik Bimetal Controls

Last on the list is Shivalik Bimetal Controls.

The company's products find application in various sectors including smart metering, switchgears, consumer durables, and renewable energy.

Within the smart metering space, its sensors, shunt resistors and silver contracts enable accurate monitoring and control of energy consumption.

Demand for these critical electrical products is expected to increase as more companies implement smart metering projects.

What gives the company an edge is it's one of the few manufacturers of bimetal parts and shunt resistors in India.

This factor has supported its financial situation over the years. Take a look...

Financial Snapshot

Rs m, consolidated	FY19	FY20	FY21	FY22	FY23
Revenue	1,933.9	1,872.2	2,037.2	3,239.9	4,703.7
Growth (%)	22%	-3%	9%	59%	45%
Operating Profit	409.3	251.6	401.8	789.3	1,188.7
OPM (%)	21%	13%	20%	24%	25%
Net Profit	246.3	134.5	254.9	551.1	791.0
NPM (%)	13%	7%	13%	17%	17%
Debt to Equity	0.4	0.2	0.2	0.3	0.2

Data Source: Ace Equity

The company recently reported its first quarter earnings where revenue grew 14.8% to Rs 1,271 m while net profit came in flat at Rs 207 m compared to Rs 208 m in June 2022.

In the past one year, shares of the company have gained over 35%.

#9 Adani Energy Solutions

Recently, the Adani group bagged two contracts worth Rs 138.9 bn from a state-owned discom to install smart meters.

The group has a sizeable presence in the power sector. It recently won a Rs 10 bn contract to install smart meters in the area serviced by BEST Undertaking in Mumbai.

The group's transmission arm Adani Energy Solutions, which was earlier known as Adani Transmission, is actively engaged in the smart meter segment.

Reports state that after these mega order wins, Adani Group will emerge as the largest smart meter supplier in the country, commanding a 30% share of the market. It has already won contracts to install such meters in four to five states.

So there you have it. A list of stocks that are making big strides in the smart metering space.

Apart from the above, some other companies are also looking at capturing a minor slice of the pie of the smart metering megatrend.

For instance, civil construction company NCC has also been awarded with smart meter orders in two zones.

Please note, we're not making any recommendations throughout this article. The idea is to keep a watch on these companies and see how they're progression on the smart metering front.

A good way to select stocks is to look for these parameters:

• Stocks with nil or no promoter pledging
• High promoter stake (preferably above 45%)
• Low debt to equity (preferably below 0.8 times)
• High ROE and ROCE (preferably above 15%)
• Low cash conversion cycle (below 100 preferably) and low receivable days (preferably below 90).
• And of course, also look for consistency in operating profit margins.

Happy Investing!

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...