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COMPANY'S BUSINESS OPERATIONS

Bright Solar is primarily engaged in the business of assembling solar pumps and solar pump systems. They also undertake contracts for setting up Photovoltaic cells where they supply, install and commission the pump systems and undertake maintenance for a period of 1-5 years. These are usually EPC  ( Engineering, Procurement, & Construction) contracts. 

What this means is that the company

1) Procures its water pumps, inverters and solar panels from its suppliers

2) Assembles them at their service centre/warehouses

3) Either sell them directly or set them up according to customer specification.

The company does most of its assembly work in Gujarat and sells most of its products in Bihar. 

SO WHERE IS THE COMPETITIVE ADVANTAGE HERE?

Well, we can’t say for sure. After paying close attention to the company’s business operations, divisional chart and employee payroll we are still struggling to figure this one out. The company has multiple verticals but only has about 18 employees on its payroll as of January 2018. It has chosen to concentrate on different avenues to make money, including consulting, and has plans to enter into water supply, sewerages and infra projects.

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POINT OF INTEREST?

The company paid about 5 lacs in total to all their employees as salaries during FY 2016-17

Also, the company wants to set up a solar module manufacturing and water treatment plant assembling unit in the future and at this point we have no idea what Bright Solar’s competitive advantage ought to be, if its planning to do all this and more.

The company made revenues totalling 28 Crore for the period ending January 2018 with a PAT of about 5 Crores. From its main source of operation i.e. EPC projects and Solar pumps, it made about 23.7 Crores and in addition, made consulting revenues totalling 4.2 Crores.

The year before that, FY 2016-2017, they made revenues totalling 18 Crore with a PAT of around 1.7 Crores.Not bad right? Well, it’s definitely not all that bad, except that the company has receivables of over 32 Crores.

HIGH DAY SALES OUTSTANDING

Also, on average it took the company 214 days to collect payments after the service/sale has been executed during FY 2018. If you think this is bad, might we also point out that this was a marked improvement from the previous year. During FY 2017 it took them a whopping 300 days to collect payment on average. 

So, if they have such high receivables and they take forever to collect payment, how exactly are they financing their operation?

Well, companies with high receivables, usually finance their operation through debt/equity until they can get their receivables down to manageable levels. Our company, to a large degree has refrained from doing both. It has instead placed this financial burden on its suppliers. On average, it took them 300 days to make payments towards their supplier during FY2018 and their trade payables stands at about 36 Crores. We are not quite sure why their suppliers are extending them such gracious credit periods but we thought we should point this out anyway.

IS THIS AN INDUSTRY WIDE PHENOMENON??
Also this isn’t really an industry wide phenomenon. Yes, our company executes EPC projects for the government and we all know that governments are notorious for delaying payments but we picked another SME, Waa Solar, that pretty much does the same things as our company. Waa Solar had very little receivables and virtually no trade payables at all. So yeah, this is most definitely not an industry wide phenomenon.
BLACKLISTED BY STATE GOVERNMENTS
  1. Speaking of Governments, the company has been blacklisted by the Karnataka Government for non-execution of Solar Water Pumping Works for Irrigation in Karnataka.
  2. Paschim Gujarat Vij Company Limited has also issued the company a stop deal notice for not fulfilling its contractual obligations. 
  3. The promoter during our interview said that these unacceptable events were due to bureaucratic issues outside of his control.

But the company has made up for these indiscretions since then and it now has an order book totalling almost 97 crores. So, is the company raising money to fund its working capital requirements and meet its contractual obligations?

Yes, the company wants to spend a good portion of its money on meeting working capital requirements. Out of the 20 Crores it plans to raise, the company wants to use 11 Crores in funding its working capital requirement and another 3.5 Crores for general corporate expenses. And then another 4 Crores in buying land to build their manufacturing facility for future endeavours .

WHAT'S THE PROBLEM HERE?

Only problem is, the company is buying this land off of the promoter’s wife. We asked the promoter if leasing this land would have been a more prudent choice. The promoter told us it wasn’t and that the decision to buy this land was a more appropriate decision, financially.

POINT OF INTEREST?

While the promoter plans to buy land from his wife to build a manufacturing facility that produces solar modules/panels it must be noted that the promoter has no prior experience in the business of manufacturing solar panels. Also we have no idea when this new plant is expected to be operational. Further, no details on its production capacity, capital requirement or how the promoter plans to raise capital to set up this facility has been furnished in the DRHP

Based on our analysis, with annualized earnings the P/E multiple translates to about 11 and sure, it’s not extremely expensive. But its still a lot to pay for a company that plans to do a lot in the upcoming years without actually building on one single competitive strength. A lot of Bright Solar’s prospective rests on large promises and we hope that the promoter meets success in all his endeavours.

DISCLAIMER
No content on this blog should be construed to be investment advice. You should consult a qualified financial advisor prior to making any actual investment or trading decisions. All information is a point of view, and is for educational and informational use only. The author accepts no liability for any interpretation of articles or comments on this blog being used for actual investments.

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