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Genus Power Infrastructures (GPIL) continued to operate at low capacity utilisation on semiconductor and other electronic component shortages during Q1FY23, which resulted in lower revenue and margin due to lack of operating leverage. In Q1FY23, revenue at Rs1.9bn was up 3.3% QoQ and 43.5% YoY, while EBITDA margin was lower QoQ at 7.7%. PAT at Rs7mn declined 94% QoQ. We believe while H1FY23 will be underwhelming, the tide may turn over the next few months in terms of both order execution and margins, mainly due to 1) improvement in semiconductor availability which will help improve capacity utilisation substantially, 2) execution of better margin orders and 3) substantial increase in order awarding. Maintain BUY, but with a revised target price of Rs107/sh (earlier: Rs117/sh).

* Revenue lower than expectations hit by semiconductor shortages: For Q1FY23, GPIL’s revenue came in at Rs1,870mn, up 3.3% QoQ and 43.5% YoY. However, revenue was lower than expectations due to continued shortage of semiconductors and other electronic components. EBITDA at Rs143mn was 25.2% lower QoQ but 182% higher YoY, while EBITDA margin at 7.7% was lower than Q4FY22, and continued to be severely impacted by – 1) high RM costs due to execution of lower-margin orders (fixedprice contracts), and 2) lack of operating leverage due to low capacity utilisation. PAT at Rs7mn declined 94% QoQ mainly on lower EBITDA and lower other income (which was negative Rs16mn due to MTM loss on treasury bonds). Management expects semiconductor supplies to normalise in next 3-6 months, and a significant increase in order execution in H2FY23.

* We revise our estimates downwards; orderbook and tender pipeline the only bright spots in an otherwise disappointing quarter: Considering the lower than previously expected H1FY23 performance, we reduce our revenue estimate for FY23E to Rs9.3bn from Rs12bn earlier (management has guided for Rs10bn vs Rs12bn earlier). We conservatively expect the company to clock 10.8%/13.9% EBITDA margin for FY23E/FY24E, respectively. The Rs8.3bn order won in Q1FY23 for the AMI implementation of 1mn smart meters from South Bihar discom helped grow the orderbook to Rs18.6bn at Q1FY23-end from Rs10.8bn at FY22-end. The project is expected to commence in next 2-3 months. It is the largest order received by GPIL and one of the largest AMI-SP order awarded till date. GPIL has received the first tranche of advance of Rs150mn. We believe while GPIL’s current orderbook provides good visibility, strong tender outlook of Rs180-200bn worth of orders expected to be awarded in FY23 will result in higher order inflows and improved margins for the company. Execution should improve significantly once semiconductor supplies normalise.

* Valuation: We maintain our BUY rating but revise our target price to Rs107 (earlier: Rs117), valuing the stock at 20x FY24E EPS of Rs5.4/sh, as we lower our EBITDA estimates for both FY23E and FY24E, as well as revenue estimates for FY23E. We maintain our FY24E revenue estimates at similar levels considering the robust tender pipeline and subsequent order inflow for GPIL. At CMP of Rs75/share, the stock is trading at 14x P/E and 1.9x P/B on FY24E basis.

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