Why is KPI green stock surging today?
KPI Green Energy is a Gujarat-based company that installs dedicated solar, wind, and hybrid private plants known as Captive Power Plants for other companies. Companies need this when the power supply is erratic, as state DISCOMS prioritise domestic supply. The benefit it offers is a reliable electricity supply and lower cost, and reduced dependence on fossil fuels. In addition, the company also provides electricity to factories based on per unit cost, which is generally lower than distribution companies in their area.
The company has provided good returns of:
- 3,283% over the past five years
- 394% over the past three years.
However, it has seen a nearly 20% decline since the beginning of this year. This could be attributed to the loss of investor confidence as some of its projects had enhanced risk due to governments across states halting green projects temporarily. In addition, there has been some revenue loss due to a lack of infrastructure that distributes energy produced by KPI Green.
On the other hand, the company has seen pretty strong financials, and its profit has grown by around 68% in the first half of the financial year when compared to the same period of the last financial year. The revenue has increased by 77% over the same period. Before the stock price surged today, the KPI Green stock was trading at a low P/E of around 20, while green energy funds have a P/E of around 50.
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Other risks include less clarity on intercompany transactions between the group and its companies. This puts a dent in the quality of earnings. In addition, the company has been diluting equity or issuing new shares, which results in a lowering of the P/E value.
Recent Developments - Equity Dilution
The issue of Equity dilution is a considerable risk with KPI Green. While the management stated in the last concall that they are not diluting equity any further, nearly two weeks ago, the company’s board approved a preferential issue of up to 1.01 crore fully convertible equity warrants, each with a face value of ₹5 at an issue price of ₹470.3, aggregating to ₹475 crore to Quoyosh Energia Pvt Ltd., an entity within the promoter group category. This resulted in the shares falling 2% the next day, in the wake of the news.
Recent Developments - KPI Green Energy wins plasma gasification-based green hydrogen project from NTPC.
It is, however, not every clear why the stock rose nearly 17%. New order worth ₹128.49 Crore Order for Green Hydrogen Project from NTPC was secured on 24th December, which is not likely to affect the prices nearly a week later. In addition, the order was small when compared to the other orders currently in the order book. However, the Hydrogen project may open up a new revenue source for the company, and this may have something to do with the price rise.
Indications from the Order Flow
Large order flows have been noticed in the company’s trading activity, which is likely to result from institutional investors driving up volumes. Now, this, coupled with positive developments in the company, may trigger further interest in the stock, but it is still left to be seen how the stock performs in the wake of the risk factors that it has to deal with. Read our detailed analysis here.
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