Why you should not invest in Gensol Engineering Ltd? Stock Analysis by Finology

Once considered a leading player in the solar EPC industry, Gensol Engineering has fallen more than 90% in the last 1 year.

Finology Research Desk has analysed the company this week, providing a clear verdict why Gensol Engineering Ltd. is not a good long term stock. Find out in this article.

Business Model of Gensol

Founded in 2012 by two brothers, Anmol Singh Jaggi and Puneet Singh Jaggi, Gensol Engineering Ltd. is engaged in the business of solar power Engineering, Procurement and Construction (EPC), which involves the entire process of designing, sourcing materials and installing the solar power system) and Battery Energy Storage System (BESS) services.

 

 

Source: Finology Research Desk

Besides the solar EPC, the company also operates in the electric vehicle segment, where they manufacture and lease out electric vehicles. The company leases EVs mainly to BluSmart, an all-electric taxi service provider co-founded by Gensol's founder, Anmol Jaggi. 
 

 

Source: Investors presentation Q3FY24

Revenue Mix of Gensol

Gensol derives its revenue primarily through two segments:

 

 

Source: Finology Research Desk, Annual Report FY24

Solar EPC

Gensol derives majority 86% of their revenue from the solar EPC segment by providing its services for solar projects globally. The company has successfully executed 770 MW ground-mounted, rooftop and floating solar EPC projects as of 2024.

 

 

Source: Finology Research Desk

EV Leasing

EV leasing segment, on the other hand contributes around 14% of its revenue. The company provides EV leasing solutions across 46 cities in India, covering a wide range of electric vehicles such as two wheelers, four wheelers, light commercial vehicles, etc. BluSmart is one of the largest suppliers of Gensol’s EV leasing business, accounting for more than 50% of its four-wheeler electric vehicles.

 

 

Source: Investors presentation Q4FY24

What makes this industry special?

The Indian renewable energy industry was valued at USD 24 billion in 2024 and is expected to grow at a 9% CAGR to reach USD 46.7 billion by 2032. The industry’s growth is expected to be driven by increasing concern for climate change, technological advancements, and government policies that promote the adoption of renewable energy.

India is emerging as a global leader in clean energy, ranking 4th in terms of installed renewable energy capacity as of 2023, with a commitment to achieving 500 GW of non-fossil fuel-based energy capacity (including nuclear energy) by 2030, up from 217.62 GW as of Jan 2025.

 

Source: pib.gov.in, Finology Research Desk

Solar energy has been a major contributor to India’s renewable energy growth, accounting for 47% of the total installed renewable energy capacity, with 2.82 GW in 2014 to 90.76 GW in May 2024. This significant growth has positioned India as the fifth-largest country globally in terms of solar power capacity. The rooftop solar sector has also been experiencing significant growth, with 4.59 GW of new capacity installed in 2024, increasing 53% from 2023. This increase was driven by declining costs of solar technology and increasing energy demand.

 

 

Source: pib.gov.in

With the transformation of India’s renewable energy industry and a shift towards a cleaner future, the Electric Vehicle industry is also expanding rapidly. The Indian Electric Vehicle industry was valued at USD  23.38 billion in 2024 and is estimated to reach USD 117.78 billion by 2032, growing at a CAGR of 22.4% over this period, driven by high operational costs of conventional vehicles due to increasing fuel prices and increasing awareness about environmental issues.

 

 

Source: Finology Research Desk, Fortune Business Insights

Porter's 5 Forces Analysis of Gensol Engineering Ltd.

 

 

Source: Finology Research Desk

1.  Low Threat of New Entrants: The solar EPC sector has high barriers to entry. However, setting up a business in this industry is very challenging, requiring huge capital investment, technological expertise and strict compliance with government regulations, which overcomes this threat for existing players like Gensol.

2. High Competition in the Market: The solar EPC market is very competitive, with multiple players competing with each other over price and market share. Despite being one of the established players in the Solar EPC market, the company faces severe competition from players like KPI Green Energy Ltd, Tata Power Solar, Adani Green Energy, Waaree Renewable Technologies, etc.

3. High Bargaining Power of Suppliers: With increasing adoption of solar energy and availability of a limited number of suppliers, the solar EPC sector faces high bargaining power of suppliers. Gensol sources its raw materials from a limited number of local and global suppliers which could impact its business operations in case of delayed supply or unavailability of key raw materials.

4. High Bargaining Power of Customers: Due to the existence of multiple players in the market, Gensol Engineering does not have significant pricing power over its customers. Price sensitivity plays a crucial role in this regard, influencing customer decisions. 

5. Low Threat of Substitutes: Gensol Engineering has a low threat of substitutes in the business. Due to the increasing scarcity of fossil fuels, growing environmental concern and cost effectiveness of these sources, people are effectively using renewable energy sources as a viable alternative to fossil fuels-based energy. Solar energy is the widely used renewable energy source in India with an overall capacity of 45.1%, with the government actively promoting its use to meet growing energy demands.

Why we never considered Gensol Engineering Ltd. for Finology 30?

1. High Debt Burden and Downgraded Credit Rating - The company’s debt has been increasing significantly over the years from 13 Cr. in FY20 to 1,397 Cr. in FY24. Adding to this, credit rating agencies ICRA and CARE Ratings have downgraded the company’s rating from BBB-  to D (default or expected to be in default) due to delays in servicing its debt obligations.

The company has also been accused of sharing falsified debt servicing documents with ICRA. In the Q3FY25 investors' call, the company stated a liquidity of 250 Cr. to support its operations, which seems contradictory given the delay in meeting its obligations, raising liquidity concerns and issues regarding corporate governance. 

2. High Promoter Pledging - Promoter share pledging has increased significantly over the year, from 42.78% in Dec 2023 to 81.70% as of Dec 2024. Such a high promoter pledging is concerning as it increases the financial risk, stock price volatility and potential corporate governance issues.

Furthermore, three lenders of Gensol have recently offloaded a total of 6.96% of the pledged shares due to the inability of the founders to provide more collateral for the loan after its stock prices declined by 68% from 1 Jan, raising concern about financial stability and potential decline in promoters’ control over the company.

 

 

Source: Finology Ticker

3. Inefficient Cash Conversion - Despite reporting a profit after tax PAT) of 53.46 Cr. in FY24, the company's cash flow from operations (CFO) stood at -98.10, indicating the inability of the company to translate its profits into actual cash inflows. Generally a CFO/PAT ratio of greater than 1 is considered good, indicating the company is turning its profits into cash. 

However, in the case of Gensol, its 5-year average CFO/PAT ratio stands at only 0.07, which is significantly lower, suggesting poor operational cash conversion as compared to its earnings and raises concern about the company's liquidity position.

 

 

Source: Finology Research Desk, Finology Ticker

4. Over-committing and Under-delivering - The company’s promoters have not been able to fulfill their commitments over the years. The company had initially guided a revenue figure of 1,500 Cr. for FY24 but later on revised it to 1,000 Cr. Even after this change, the company was only able to achieve 963 Cr. in FY24.

Additionally, the revenue guidance for FY25 stands at 2000 Cr. but the company is able to achieve only 1,053 till Q3FY25 (9 months). Continuous failure to achieve the guided figures reduces the investors confidence in the business and its management and indicates poor corporate governance in the company.

The Bottom Line

Gensol Engineering Ltd., one of the EPC and BESS firms, have reported significant growth in both its revenue and profits, with a compound annual growth rate (CAGR) exceeding 50% over the past five years. 

However, there are multiple red flags in the business, notably the promoters' pledge of 81.70% of their holdings raises concerns about potential control issues. The company's high debt burden, declined credit ratings and inability to meet its debt servicing obligations on time indicate liquidity and corporate governance issues in the company. Additionally, the consecutive failure of the company to achieve its guidance and inefficient cash conversion over the years highlight increased risk and instability in the business.

For Finology 30, our ideology has been to focus on business models with robust financials and strong management pedigree. Gensol failed to pass our investment checklist. So, we decided not to go ahead with Gensol Engineering Ltd.

However, there are very few stocks that made it to Finology 30. Check them out here.