Monday, January 10, 2011
Alternate energy as a segment has always been a hot cake. There has always been a buzz around companies that are in anyway remotely related to wind power, solar power, power from anything like plastics or waste and Green tech. It is indeed true that alternate energy sources have been increasing their share among the total energy production in the world. Their growth rates are also staggering due to the low base effect. But, how far the companies working on these alternate energy sources are successful have mostly been dependent on the kind of companies. There is only one Praj industries and in spite of such a huge global and domestic market, there is nobody even remotely closer to Suzlon from India. The success in Alternate energy sector has been very selective.
We would have received many queries asking us to analyze the Solar Energy sector and associated companies and all of them have felt that the sector will make everybody involved in it as Wealth creators. But, our reply has always been the same saying there is no satisfactory investment bet that we am aware of in Solar energy sector in India. We also place a cautionary statement that the view is susceptible to change.
When we discuss about Solar Energy in India, the three companies that would prop up immediately are Moser Baer, Websol Energy Systems (previously Webel SL) and XL Telecom and Energy. These are the only 3 listed companies that have done something credible and they are into manufacturing Solar PV cells. Most of the others have done only the talking. There are also few companies related to silica manufacturing which can be related to this topic.
When the Solar power market and the alternate energy market in general was severely hit in the last 2 years (the average realizations halved), it was only Websol that managed to come out with some kind of face that is visible while the other two were caught in trouble. XL Telecom, which was tagged the blue chip for the decade piled up huge debt levels, witnessing loss of business and finally has entered into corporate debt restructuring. The operations of Moser Baer has been clustered with other business segment and the company has been posting losses more easily than profits for five years.
Websol energy systems was incorporated in 1990 and started production in 1994 at Falta, WB and this is probably the second company in India that ventured into PV cells manufacturing. I believe TATA BP Solar ventured just 4 years ahead of Websol and they remain to be privately held. It is good that Websol had some kind of futuristic vision when compared to Moser Baer or XL Tele, which ventured to Solar power for the predominant reason that it was something hot.
Websol Energy systems started with a 1 MW capacity and gradually increased it to 5 MW capacity by 2004. It then increased the capacity from 5 MW to 10 MW capacity by mid 2006. Then came the grand Capex plan from the company that would multiply the installed capacity by around 10 times to 120 MW. The company announced that it would go ahead with a capacity expansion where the capacity will be increase in two phases - from 10 MW to 40 MW and then to 120 MW. The company has indicated the first phase of Capex plan would be complete by mid 2007 and gave a revenue target of 500 crore for FY 08.
Almost 2 full financial years have gone by and the revenues for this financial year is expected to be around 120 crore. The company announced by early FY 10 that the capacity addition of 30 MW is complete but has been giving one or other reason for not making use of them. For the first set of quarters, it said it was testing the new facilities and in the very latest announcement that came in, the company has reported that it will carry out fine tuning of synchronization of the new machineries that will again delay the usage.
Clearly, the company's guidance have been un realistic and we are not sure if that was intentional or not. Only in the month of Nov 2009, the company had announced that they will end the year with a 60 MW capacity and it is highly unlikely that it will happen. With the first phase of expansion itself taking 2 years of over time, we do not know when the rest is going to come.
There are certain positive as well. The company has good reputation among the overseas buyers and has all necessary certification. While the technology that the company employs is not the best, it is not worst either. We went through the National Solar Mission document and it is really encouraging for companies like Websol.
And finally, if you were to ask us if we would recommend this company to our subscribers as a Hidden Gem, we would not. The debt levels are high, the demand is not going to come back that easily, interest expense and depreciation is on the rise for a zero sum game, competition is on the rise and management's guidance and expectations are unrealistic.
Saral Gyan Team
Are you Investing in Alternate Energy Stocks?