Fundamental Analysis Of Servotech Power Systems: When it comes to investing, many investors tend to focus on well-known companies from the large-cap category. However, small-cap stocks have long been the hidden gems that, if chosen correctly, can offer significant growth potential.
One such stock in the small cap category is Servotech Power Systems. Since November 2021, the stock has given multiple over 4000% to its investors. In this article, we will perform a Fundamental Analysis of Servotech Power Systems and see if the stock has future potential to increase in the future.
Fundamental Analysis of Servotech Power Systems
We’ll begin our Fundamental Analysis of Servotech Power Systems by getting to know the company’s operations and products. After that, we will go into the finances of the shares. The article concludes with an outline of future plans and a summary.
Company Overview
Incorporated in 2004, Servotech Power Systems Ltd is a comprehensive manufacturer, acquirer and distributor of advanced solar products, medical devices and energy efficient lighting solutions.
The company has also ventured into the electric vehicle (EV) market, launching cutting-edge EV charging equipment. Its strategic goal is to quickly establish a nationwide EV charging infrastructure, contributing to India’s transition to the electric revolution.
Currently, with the help of its subsidiaries, the company has diversified into Solar Solutions, EV Chargers, Power and backup, LED and Service Stabilizers. The following image presents the company’s complete product offering
The following picture presents the important customers of the company:
Company Subsidiaries
Let’s get a brief overview of the company’s subsidiaries through which the company does its business
Rebreathe Medical Devices Pvt. Ltd
Rebreathe Medical Devices Pvt. Ltd. is a private company founded in July 2021. It specializes in manufacturing, purchasing, selling and trading of environmental products, machinery, medical equipment and related services. In addition, the company also does healthy R&D and contract manufacturing in India and abroad.
Techbec Industries Limited
Techbec Industries Limited, established in 2022, is a private company involved in the manufacture, sale and trade of various types of batteries, including lithium, lead-acid, and solar energy batteries. They also produce emergency lights for domestic and international markets.
Techbec Global Solutions Pvt. Ltd
Techbec Global Solutions Pvt. Ltd. was founded on November 23, 2022. It is engaged in the production, purchase, sale, import, export and trade of various types of batteries, including lithium, lead-acid, stationary, starting, storage, traction, alkaline, dry. , button batteries, and solar energy batteries. Additionally, it produces mini batteries and emergency lights for domestic and international markets.
Techbec Green Energy Private Limited
Techbec Green Energy Private Limited is a company that specializes in manufacturing and supplying essential components for Electric Vehicle (EV) Chargers, as well as Lithium-ion Batteries and other relevant components. Their subsidiary is actively involved in the supply and distribution of primary and rechargeable batteries, as well as cells containing materials such as manganese oxide, mercury oxide, silver oxide or other relevant components.
Industry Overview
Here are the overviews of different businesses under which the company operates:
Electric vehicle market
India’s EV market is expected to grow from USD 3.21 billion in 2022 to USD 113.99 billion in 2029, with a CAGR of 66.52% during the forecast period. The growth of the EV market is attributed to government support, environmental awareness and technological advances.cal advances.
Solar Industry
The solar energy industry in India is expanding rapidly, with an expected market value of around $238 billion by 2030, driven by a remarkable 40% CAGR between 2023 and 2032. India is set to generate 79.07 GW of solar energy by the end of the current. year, with a projection to reach 195.11 GW within the next five years, at 19.8% CAGR during this period.
Key growth drivers include decreasing solar energy technology costs, improved flexibility of solar systems, and the ecological nature of solar energy production. Government policies, especially those of the Ministry of New and Renewable Energy (MNRE), are pivotal in promoting renewable power generation in India.
Light Industry
Between 2023 and 2029, the LED lighting market is expected to grow at a CAGR of 17.6%. However, the global outbreak of COVID-19 has resulted in lower demand for light-emitting diode lighting in all regions compared to pre-pandemic levels.
UV Disinfection Equipment Market
The market for ultraviolet disinfection equipment was estimated to be worth $3,629.3 million in 2022 and is projected to grow at a CAGR of 6.9% from 2023 to 2030. The growth of the market has been positively influenced by the pandemic.
Healthcare Industry
India’s healthcare industry is a major contributor to the economy, projected to grow at 11.07% CAGR from 2023-27. It is expected to create more than 7.4 million jobs in 2022. India has a competitive advantage in well-trained medical professionals and cost competitiveness compared to other countries in Asia and the West.
Servotech Power Systems – Finances
We will now do a Fundamental Analysis of Servotech Power using the reports provided by the company.
Note: Before FY22, Servotech Power had only one business segment. Hence the data given below till FY21 is self-contained. However, the data for FY22 and FY23 are consolidated as the company expanded its business segment during these years.
Revenue and Net Profit Growth
Through the financial statements, we can see that the revenue earned by the company remained constant from FY19 to FY21. However, it saw a significant increase in FY22 and FY23 due to the expansion in the product segment.
In the last 5 financial years, the company’s revenues increased from ₹ 88.5 crore in FY19 to ₹ 278.48 crore in FY23. This gives the company a 5-year CAGR of 33.19% on its total revenue.
Similarly, the company’s net profits increased after FY21. The company reported an increase in net profit from ₹ 3 Crore in FY19 to ₹ 11.07 Crore in FY23. This gives the company a 5-year CAGR of 38.60% on its net profits.
Let’s now analyze the company’s margins and find out where the company is making big expenses that have resulted in the decline in its profits.
Marginal Analysis
Although the company has increased its revenues and profits, we can see that there have been no significant changes in the company’s margins. During FY23, the company reported operating profit margin and net profit margin of 6.74% and 3.98%, respectively.
Return Ratios: RoCE and RoE
Both the company’s ROE and RoCE were below average till FY22. However, the company reported ROE and RoCE of 13% and 13.1%, respectively in FY23.
This indicates that the company gave a below-average return on the capital invested by the shareholders and also did not use its resources effectively.
Debt & Interest Coverage Ratio
Looking at the company’s leverage status, we can see that it has maintained relatively low debt despite the company’s expansion in its business segments. Over the last 5 years, the highest recorded debt-to-equity ratio was 0.64 in FY21.
This indicates that the company is less financially burdened because it relies less on borrowed capital to finance its operations and expansion.
This also means that the company can retain more of its income because it does not have a large obligation to repay debt and interest.
In terms of interest, the company’s interest coverage ratio improved in FY23, which was reported at 7.06. This means that the company generated enough gross profits to cover its interest expenses 7 times.
Future Plans of Servotech Power
So far we’ve looked at previous fiscal data for our Fundamental Analysis of Servotech Power Systems. Let’s now explore what plans the company has for the future.
- The company has set up a new EV factory with a production capacity of 6 lakh EV Chargers per annum.
- The company aims to increase the revenue of the EV charging segment from ₹ 240 Crs to ₹ 1,200 Crs by 2025.
- The company is focused on increasing the capacity of the lithium battery plant from 50 MWh to 500 MWh.
- The company plans to increase the revenue of the lithium battery segment from ₹ 85 Crs to ₹ 850 Crs by 2027.
- The company intends to improve and prioritize indoor production of solar microinverters.
Key Metrics
We are almost at the end of our Fundamental Analysis Of Servotech Power Systems. Let’s look at the important measures of the stock.
In Closing
We have reached the end of the fundamental analysis of Servotech Power Systems. Through this article, we can conclude that, if the company’s earnings continue to increase along with its implementation of plans that it has foreseen, its stock has a good potential to increase in the future.
However, if investing in a small cap, it is advised that investors closely monitor the earnings and events related to it, as these stocks are highly volatile in nature.
Written by Aaron Vas
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