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    Stock Analysis: Swelect Energy Systems Ltd.: Energised Profits!


    September 26, 2022 - Rahul Sharma

     

      (Code: 532051) (FV: Rs.10) (CMP: Rs.343.25)

      Incorporated in 1994, Swelect Energy Systems Ltd. manufactures and trades Solar power projects, off-grid solar photovoltaic modules based on crystalline silicon technology (c-Si), solar and wind power generation, contract manufacturing services, installation and maintenance services, sale of Solar Photovoltaic inverters and energy efficient lighting systems. The company along with its subsidiaries manufactures a wide range of Steel Castings covering WCB / Stainless Steel / Duplex and Special alloy steel; Iron Castings in Grey Iron and spheroidal Graphite Iron Metallurgy; solar photo voltaic models, solar pumps, solar inverters, hydro panels and servo stabilisers.

      Analysts are highly bullish on this counter due to the following reasons:

      Well-equipped manufacturing facilities and capacity

      The company is a mid-sized solar panel manufacturer with a current capacity of 140 MW per annum with plants in Tamil Nadu and Karnataka. The group has an installed capacity of ~89 MW of solar power assets that supply power to Solar Energy Corporation of India (SECI), TANGEDCO, Chamundeshwari Electricity Supply Corporation (CESC), Airports Authority of India (AAI), HatsunAgro among others. It has recently commissioned a 16-MW solar power plant under the IPP segment, taking the total portfolio of solar power assets to ~89 MW (excluding the capacity of 5.5 MW used for internal consumption).

      2nd trench of PLI Scheme for solar PV modules with allocation of Rs.19500 crore

      The Union Cabinet on September 21 approved the second tranche of the performance-linked incentive (PLI) scheme for the development of solar PV modules at an outlay of Rs.19,500 crore. The solar PV manufacturers, who will benefit from the PLI scheme, will be selected through a transparent selection process, the government said. The incentive will be disbursed for five years post commissioning of solar PV manufacturing plants "on sales of high-efficiency solar PV modules from the domestic market will be incentivised", it added.

      Manufacturing at Coimbatore plant

      The company's wholly-owned subsidiary namely SWELECT HHV Solar Photovoltaics Pvt Ltd. is constructing a 500 MW Solar PV Module Manufacturing plant at Coimbatore with the latest cell technology [M10 (182 mm) and M 12 (210 mm) cells] and is expected to start its commercial operations by the end of FY23. The company expects this plant to cater to major utility-scale developers, the Commercial & Industrial (C&I) segment as well as the export market.

      Fundamentals

      The company has a ROCE of 4.88% and an ROE of 3.85%. The company is highly undervalued and its stock is available below its book value. Also, the stock trades at a PE of just 15.7x against the industry average PE of 36.4x. Despite the increase in debt to fund its capex, Swelect Energy still has a decent debt: equity ratio of 0.59x. The company reported 78% CAGR growth in PAT over the last 3 years. Promoters are the majority stakeholders holding with 56.37% stake. Investor, PorinjuVeliyath, holds 1.12% stake in the company. Considering the above factors, we initiate a buy call on Swelect Energy Systems Ltd. with a target price of Rs.600.

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