Gensol Engineering Finds Itself in a Governance Crisis

Gensol Engineering, once celebrated as a frontrunner in the green energy sector, is currently engulfed in a whirlwind of financial turmoil and governance issues. The company’s shares have been trapped in the lower circuit for an alarming seven consecutive trading days. This downward spiral is largely attributed to a SEBI investigation that has raised serious questions about its operations, alongside growing debt concerns, a freeze on stock splits, and a wave of resignations from key personnel.

Gensol Engineering: A Shift from Promising Innovator to Controversial Figure

Founded through an SME IPO in 2019, Gensol Engineering initially impressed investors with its expanding order book and ambitious growth strategies, eventually gaining entry to the NSE and BSE mainboards. However, the current state of affairs is far from rosy, as the stock continues to plummet, leaving shareholders anxious about their investments.

SEBI Investigation: Uncovering Troubling Allegations

The turning point for Gensol came when SEBI, the market regulator, issued an urgent interim order on April 15 that revealed alarming insights. A complaint lodged in June 2024 accused the company and its promoters of engaging in share price manipulation and misusing funds. Following this, SEBI’s investigation exposed issues that are now evident in the company’s stock performance.

• Lack of Operational Activity: SEBI reported that there was virtually “no manufacturing activity” at Gensol’s EV facility in Pune. An inspection by an NSE official found merely 2-3 workers present at the site on April 9, and electricity bills indicated minimal operational costs, with the highest monthly bill being just Rs 1.57 lakh.

• Questionable Pre-orders: Gensol had previously announced receiving pre-orders for 30,000 EVs after the Bharat Mobility Global Expo in January, but SEBI clarified these were merely MoUs with nine companies, lacking pricing and delivery commitments.

The Debt Dilemma: Over Rs 977 Crore in Loans

Recent reports indicate that Gensol Engineering secured loans totaling Rs 977.75 crore from IREDA and PFC between FY22 and FY24. Of this amount, Rs 663.89 crore was intended for purchasing 6,400 EVs, yet only 4,704 vehicles were acquired, costing Rs 567.73 crore. This discrepancy leaves Rs 262 crore unaccounted for.

SEBI suspects that a portion of this borrowed money might have been diverted to entities connected to the promoter brothers, Anmol and Puneet Singh Jaggi, and could have been used for personal expenses, including purchasing luxury real estate.

Regulatory Actions: Promoters Barred and Stock Split Suspended

In light of these revelations, SEBI has imposed strict measures against the Jaggi brothers, prohibiting them from participating in the securities market and holding any directorial roles within Gensol Engineering. Additionally, the company’s planned 1:10 stock split has been put on hold.

Following the regulatory actions, both Anmol and Puneet have stepped down from their positions on the board.

High Stakes: 82% of Promoter Shares Pledged

Recent data reveals that 82% of Gensol Engineering’s promoter shares are pledged, an increase from 80% in September 2024. This heavy borrowing against stock poses significant risks; as share prices decline, lenders may liquidate pledged shares, which can further depress the stock price.

Gensol Engineering’s Response: Aiming for Transparency

In an attempt to reassure investors, Gensol Engineering has released a statement attributing the situation to a cash flow mismatch in significant projects, rather than any deliberate misreporting. They have established an independent committee to probe these issues further.

The company asserts that it has repaid Rs 230 crore this year and aims to reduce its debt by Rs 665 crore through asset sales. They emphasize a strong order book valued at Rs 7,000 crore, alongside promising fiscal projections for FY25, including a 42% increase in revenue.

A Tumultuous Stock Journey: Gensol’s Plummeting Value

As Gensol Engineering navigates these turbulent waters, its stock performance reflects the mounting challenges. Over the past year, Gensol’s share price has plummeted by an astonishing 88%, erasing much of its market capitalization. The decline shows no signs of reversing, with a 16% drop in just five days, a staggering 53% decrease in the past month, and an 86% decline over the last six months. Year-to-date, Gensol’s stock is down nearly 86%.

For more insights on the current state of Gensol Engineering and its impact on the green energy sector, check out our detailed analysis.