Gensol Engineering Shares Plunge 10% Amid Liquidity Crunch and Alleged Data Falsification

Gensol Faces Rating Downgrade, Stock Declines Over 50% in 2024

The shares of Gensol Engineering extended their losing streak on March 6, falling another 10% amid concerns over the company’s financial health and corporate governance. The persistent decline comes after credit rating agency ICRA downgraded Gensol’s long-term debt rating to ‘default’, citing an alleged falsification of debt servicing documents.

Despite strong assurances from the company’s leadership, the stock remains under pressure, reflecting investor skepticism over its liquidity position and ability to meet debt obligations.

ICRA’s Allegations and Gensol’s Response

On March 4, ICRA stated that certain documents submitted by Gensol Engineering regarding its debt servicing track record appeared to be falsified, raising red flags about corporate governance and liquidity risks. The rating agency’s report further noted delays in debt servicing and a liquidity mismatch, leading to the downgrade.

In response, Anmol Singh Jaggi, Chairman and Managing Director (CMD) of Gensol, denied any wrongdoing and insisted that the company was not involved in falsification of data. Jaggi assured stakeholders that an independent committee would be set up to investigate the matter and reaffirmed his commitment to resolving the ongoing crisis.

He attributed the current liquidity crunch to the simultaneous execution of multiple large-scale projects, which created short-term cash flow constraints.

Stock Performance and Market Reaction

As of 11:50 AM on March 6, Gensol’s stock was trading 10% lower, extending its five-day decline to 34%. Year-to-date, the stock has plummeted by 56%, making it one of the worst-performing stocks in the infrastructure sector in 2024.

Liquidity Mismatch: What Went Wrong?

According to Jaggi, the company had been actively repaying its obligations, clearing around ₹230 crore in debt repayments during the first nine months of the fiscal year. However, the recent cash flow mismatch arose due to the rapid growth in Gensol’s order book, which surged to ₹7,000 crore worth of new projects in just the last four to five months.

To execute these projects efficiently and maintain operations, the company requires an estimated ₹20 crore per month for debt servicing, amounting to ₹60 crore over the next quarter.

Steps Taken to Address the Liquidity Crisis

1. Asset Sales – Gensol is in the process of finalizing two major asset sales, which are expected to generate ₹650 crore. The CMD believes these transactions will help restore liquidity and improve the company’s credit profile.

2. Operational Focus – The company’s primary goal is to safeguard its business, ensure customer confidence, and maintain continuity of operations while addressing its financial obligations.

3. Rebuilding Investor Confidence – Jaggi has expressed personal confidence in Gensol’s future, revealing that his family holds approximately 2 crore shares in the company. He also indicated his intention to increase his stake in Gensol by purchasing additional shares, though no timeline was provided.

Impact on Gensol’s Future Growth Plans

Despite the current financial strain, Gensol’s long-term growth prospects remain strong, given the booming demand for renewable energy infrastructure and engineering procurement & construction (EPC) services. The company is optimistic about resolving its liquidity issues and expects a credit rating upgrade within the next three months once its funding gaps are addressed.

Additionally, BluSmart, the electric mobility startup in which Gensol has a stake, continues to perform well, reporting 80% year-on-year growth. Jaggi clarified that BluSmart has no outstanding dues linked to Gensol, further reinforcing the company’s ability to manage its financial challenges independently.

Looking Ahead: Can Gensol Regain Investor Confidence?

While Gensol Engineering remains under pressure in the short term, the company’s aggressive debt repayment efforts and asset monetization strategies could help restore investor confidence. However, the key challenge lies in rebuilding trust, especially following allegations of document falsification.

The company’s ability to execute its large order book, improve cash flows, and secure fresh funding will determine whether it can bounce back or continue facing market headwinds.

For now, investors remain cautious as they await further clarity on the investigation into governance concerns and the outcome of Gensol’s liquidity management efforts.