Swelect Energy Systems (“Swelect Energy” or the “Company”) is a leading Chennai based manufacturer of power electronics and renewable energy. Swelect Energy operates primarily across 4 major segments, namely, contract manufacturing, solar energy systems/ services, foundry and others.

WHAT’S GOING FOR THE STOCK

Leading Producer of Power Electronics and Renewable Energy

The Company is engaged in the business of manufacturing and dealing of solar power projects, solar and wind power generation, contract manufacturing services, installation and maintenance services, sale of solar photovoltaic inverters and energy efficient lighting systems.

Swelect Energy line of businesses include:

  • Manufacturing : Solar PV Modules, Solar Inverters and Mounting Structures
  • Solar Power Generation & Systems Integration
  • Iron & Steel Foundry Products

In FY 2016, to increase its international presence, the Company has incorporated Swelect Inc. (a wholly owned subsidiary Company of Swelect Energy Systems) and Swelect Energy Systems LLC (a subsidiary Company of Swelect Inc.). This expansion will address the U.S. market where almost all the States have strong SPO (Solar Power Obligation) mandate.

Strong Financial Position

Swelect Energy has shown consistent growth over the last 4 years (i.e. 2012-13 to 2015-16). For FY 2016, the Company’s EBITDA increased by 51% to Rs. 51.71 Cr. from Rs. 34.20 Cr. The Company has reserves in excess of Rs. 691.54 Cr and operates with negligible debt on its books.

Particulars (in Rs. Cr.) 2014 2015 2016
Income from operations 203.30 248.63 241.50
EBITDA 33.03 34.20 51.71
PAT 16.18 (0.38) 13.22
EPS 16.00 13
Equity Share Capital 10.11 10.11 10.11
Reserves & Surplus 668.31 667.89 681.43
Total Debt 75.30 94.74 50.62
EBITDA Margin (In %) 18.71 15.41 25.05
PAT Margin (In %) 9.35 (0.11) 6.40
Return on capital employed (In %) 2.10 (0.04) 1.72
Return on Shareholders’ funds (In %) 2.39 (0.05) 1.92
Current Ratio 4.75 5.37 3.67

Diversified Product Portfolio

[1] Renewable Energy

·   Solar PV Module 

Offers a wide range of crystalline silicon solar PV modules. These products find their application in:

  • Grid connected power plants
  • Solar street-lighting systems
  • Solar power packs
  • Water pumping system
  • Other off-grid systems
·   Solar Charge Controller 

Swelect offers Pulse Width Modulation (PWM) Charge Controllers which is used to achieve constant voltage battery charging.

·   Solar Power Pack 

  • Battery Charging through both Solar and Grid
  • Inbuilt solar priority system
  • Power saver system
  • Generator Capability
·   Solar Power Generator and Off Grid Inverters 

 

·   Energy Efficient Lighting 

  • Solar Emergency Light/FAN
  • OA Lights – Down Lights, T-Bar Lights
  • LED Tube Lights
  • LED  Street Lights

[2] Iron & Steel – Includes iron & steel foundry products like bonnet, yoke, wedge, adaptor, insulator flanges, elevator wheels and brakes etc.

Sharp Rise In Exports Of Solar Modules – A Key Growth Driver For Swelect

India witnessed a significant increase in the export of solar modules, which grew by 116% during April-July 2016 and touched $41 million.

India saw nearly 82% of the exports to Europe, notably to Germany, followed by the Netherlands and the UK. This turned out to be good for the solar module manufacturer like Swelect. Swelect has the potential to grab a substantial share of exports going forward, as the Company has recently entered into an agreement with a Germany-based company through its wholly owned subsidiary, HHV.  With expectations of a sustained rate of growth in exports, we expect the Company to grab a considerable portion of revenue from exports. Currently, Swelect’s earns ~25% of revenue from outside India..

Major Beneficiary of Government’s Focus on Solar Energy

India has the potential to host a solar power project everywhere. To reap the benefits of this golden opportunity, the Modi-led government, has laid down the ambitious plan to raise the target to increase solar power capacity five-folds to 1,00,000 MW by 2022, as against its previous target of 20,000 MW, which is seen as an opportunity for solar equipment manufacturers.

Additionally, the ministry is rolling out a scheme for setting up 25 solar parks, including ones with ultra-mega solar power projects of 500 MW or more. The ministry expects to commission the projects by FY 2019 and the plan will have an estimated central financial assistance of Rs. 40.5 billion.

With renewable energy gaining traction in India, the sector is likely to attract huge investments going forward. Swelect is well placed to take benefits of this opportunity.

INVESTMENT RISK FACTOR

Entry of Small Players and Cheap Chinese Products

Entry of small time and unorganized players from overseas with short term business vision are posing a threat to the industry with substandard quality of products and project execution. Lack of enforcement of RPO (Renewable Purchase Obligation) is slowing down the adoption of renewable sources of energy. Cheap Chinese PV Modules and Anti-dumping Duty (ADD) have not been enforced by the Central Govt. which is causing a strain on the domestic manufacturing.

PEERS

Name Price* Market Cap.*
(Rs. Cr.)
Revenue (Rs. Cr.)** Net Profit (Rs. Cr.)**
Havells India 418.30 26,148.89 5,436.88 715.35
Techno Electric 376.00 4,293.26 1,032.84 124.68
Crompton Greave 67.50 4,230.54 5,716.78 (395.52)
Honda Siel 1,400.05 1,420.08 672.80 48.83
HBL Power 44.55 1,127.12 1,288.36 19.43
HPL Electric & Power 116.30 747.81 1,121.25 36.62
Bharat Bijlee 853.00 482.08 639.51 7.19
Swelect Energy 346.00 349.66 241.50 13.22

* As on 20 February 2017

**FY 2016