Why Gensol Engineering’s Stock has been Falling?

The Rise of Gensol Engineering

Gensol Engineering went public in 2019 through an SME IPO and later transitioned to the NSE and BSE main platforms by 2023. Operating in renewable energy and EV mobility, two fast-growing sectors, the company generated significant investor interest. With a strong ₹7,000 crore order book, growing revenues, and expansion plans, Gensol appeared to be a promising investment.

What is Happening to Gensol Engineering?

The recent sell-off started when ICRA and Care Ratings downgraded Gensol’s credit rating from BBB- to D for its bank loans, indicating financial distress. A downgrade to D signals severe repayment issues and raises doubts about the company’s financial health.

Credit rating agencies act as financial watchdogs, assessing a company’s ability to meet its obligations. While an AAA rating indicates financial strength, a D rating signals default risk. Investors were particularly alarmed as the company had previously claimed that all debt obligations were being met.

The Debt Problem and Cash Flow Issues

Gensol’s financial troubles are reflected in its high debt levels, amounting to ₹1,146 crore, against reserves and equity of ₹589 crore. With a debt-to-equity ratio of 2x, the company is under financial strain. More concerning is its struggle to service debt, despite claiming otherwise.

Gensol planned to raise ₹244 crore through warrants by March 2024 but has only secured ₹140 crore so far, delaying the rest until December 2025. This funding shortfall raises questions about its ability to execute projects efficiently.

Promoter Pledging Raises Red Flags

Another major concern is promoter share pledging. As of now, 82% of promoter shares are pledged, up from 80% in September 2024.

When promoters pledge shares as collateral for loans, it can be risky. If the stock price drops, lenders may demand additional shares or liquidate pledged holdings, further dragging the stock price down. The pledging reached as high as 85% at one point, signalling financial instability.

The Blusmart Mobility Problem

Gensol’s subsidiary, Blusmart Mobility, is also facing challenges. The company is not profitable and recently defaulted on non-convertible debentures, further weakening Gensol’s financial position.

With Gensol already struggling, the subsidiary’s losses make it even harder for the company to attract fresh investors or secure new funding.

Gensol’s Response: Damage Control or Genuine Fix?

Following the downgrade, Gensol’s management issued clarifications, attributing the financial strain to a cash flow mismatch from large projects. The company maintains that there was no financial misreporting and has formed an independent committee to verify its claims.

Management has highlighted its ₹7,000 crore order book as a sign of revenue stability and reported strong financials for FY25, including:

• 42% increase in revenue
• 89% rise in operating profit
• 34% jump in net profit

To address liquidity concerns, Gensol has announced plans to sell assets and reduce debt by ₹665 crore, with ₹230 crore already repaid in 2024.

Conclusion

Gensol Engineering’s stock crash highlights the risks of high debt, excessive share pledging, and governance concerns. While the company insists that its financials are stable, investors remain unconvinced. To regain trust, Gensol must demonstrate consistent debt repayment, real profitability growth, and promoter commitment. Until then, the uncertainty surrounding its financial health remains a major concern.

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