KPI Green Energy Ltd

A typical 2 pager explaining why the company seems interesting.

KPI Green Energy Ltd is in the business of solar power generation. In Solar power generation, company provides power as both as an independent power producer (IPP) and Engineering, Procurement, Construction (EPC) services to Captive Power producers(CPP) customers. 

What is the difference between IPP & CPP?

IPP: Where company puts up a solar plant and sells Solar power to business houses through Power Purchase Agreements (PPA).

CPP: Company develops, transfers, operates, maintains and sells grid-connected solar power projects to customers by providing them power evacuation infrastructure along with grid-connected land to generate solar power.

An important point to note is that the company unlike others offers CPP plants only on land owned by KPI Green. This gives them the ability to charge O&M & lease rentals for the full tenure of the project (usually these are 25 year contracts).

O&M & Lease rental revenue: KPI Green charges ~Rs.5 lakh per annum per MW of O&M and a similar amount of lease rental fee. The O&M revenue virtually flows into the bottom line.

What is the company’s moat?

LAND ACQUISITION.

Setting up a Solar power plant, or selling power has no moat in itself. Sure it involves technicalities but land acquisition is the key to be successful in this business. 1 MW of Solar power requires ~4 acres of land. The company as of FY23 has in all 248MW of Solar power. This requires a 1000 ACRES of land parcel!. Company has a land bank of 1374acre (owned + leased) as of end of FY23.

I believe the real value of the business is of the ability of the promoter to acquire land at reasonable prices.

Newer technology adoption

I did a plant visit to understand the operations on ground. One thing I really like of KPI Green is openness to adoption of new technology. Company is trying newer technology which can enhance productivity. These are:

1. Bifacial solar panels: Bifacial solar panels helps generate electricity from both sides of the modules by capturing sunlight from the front and reflected light from the rear side.

2. Hybrid (solar and wind) model: It increase the overall energy generation capacity and system efficiency by employing the hybrid model of using wind turbines along with solar panels for generating energy and integrating them before injecting the combined energy into the grid.

3. Robotics cleaning:  These robotic systems are equipped with brushes, wipers, air blowers, battery and digital control systems to automate the solar panel cleaning process.

4. Single axis tracker:  A single-axis tracker is a device that allows solar panels to follow the trajectory of the Sun from the East to West, as the Sun moves across the sky.

5. Waterless cleaning: Aims to reduce water footprint and have adopted waterless cleaning techniques.

6. Drone shots:  This is a quick and effective way to find potential fault points, losses, little flaws and abnormalities, improving the efficiency and precision of the data collected, compared to the manual data collection.

7. Thermal imaging: Utilizes thermal imaging system using IR thermal cameras to assess our solar installations on-site, enabling us to efficiently identify any potential concerns in specific areas.

8. SCADA: SCADA is used for real-time monitoring of the key performance parameters of all plants.

Growth trajectory

Company has a target of reaching 1000 MW capacity by 2025. Of this the company aims to have 250MW of IPP & 750MW CPP capacity. According to my assumptions, company will be able to generate PAT of Rs.300 crore+ by FY26 (on a very conservative basis, considering only about ~600MW of IPP & CPP power). Considering they have the ability to generate ROCEs of ~20%, giving it a multiple of 10x to 15x of PAT would be reasonable.

Disclaimer:

PARTH KOTAK (PROPRIETOR: PLUS91) is a SEBI Registered (SEBI Registration No. INA000018081) Investment Advisory Firm. The research and reports express our opinions which we have based upon generally available public information, field research, inferences and deductions through are due diligence and analytical process. To the best our ability and belief, all information contained here is accurate and reliable, and has been obtained from public sources we believe to be accurate and reliable. We make no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. This report does not represent an investment advice or a recommendation or a solicitation to buy any securities.