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The Future of Renewable Energy!

The Future of Renewable Energy!
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How can one benefit by investing in high growth emerging sectors?

An industry’s potential can be huge but not all companies make big in that industry. Returns can vary a lot depending on your stock selection

 As Buffett says ‘there is a lot more to picking stocks than to work out which is going to be the wonderful industry’

Buffett to new investors in Berkshire AGM: ‘It’s not as easy as it sounds’

Buffett shared that in 1903, the year his father was born, automobiles were the exciting industry. “Everybody started car companies just like everybody’s starting something now that can be where you can get money from people.”

There were at least 2,000 companies that entered the auto business, because it clearly had this incredible future. In 2009, there were three left, two of which went bankrupt.

“But in any event, there were at least 2,000 companies that entered the auto business, because it clearly had this incredible future. And of course, you remember that in 2009, there were three left, two of which went bankrupt.

Dotcom bubble – Dotcom bubble caused by higher expectations in internet-based businesses.

Several online and technology entities declared bankruptcy and faced liquidation – namely Pets.com, Webvan, 360Networks, Boo.com, eToys, and others. However, other internet-based companies struggled but survived and are giants today – notably Microsoft, Amazon, eBay, Qualcomm, and Cisco, among others.

Here we can see the companies who survived the bubble have created huge wealth for the investors.

We have identified a sector that has amazing potential but at the same time not all companies in that sector will make a good investment.

At Niveshaay, our approach is to invest in the peripheral story. We follow second order thinking approach where we analyse multiple variables and invest in those companies which are likely to be less disruptive and enjoy competitive advantage in some form.

Here are just handful of examples that we like to discuss:

Example 1:  Looking at companies in hot sector

Renewable energy boom – What happened in tech & automobile companies in the past, the same we are witnessing in the renewable energy sector. The sector is emerging, trends are very clear and the industry is growing at a very fast rate.

India’s total installed capacity has increased by 15x in the last 6 years. Indian Government is targeting 100 GW of installed capacity of solar power in India by 2022 and 300 GW by 2030.

Similar to tech & automobile sector, in India many big companies like Suzlon & Moser Baer (India) failed in the past cycle of renewable energy sector.

So, the most important part of any theme is picking good ideas. But here, it is very difficult to identify the direct company, which will become successful and a leader.

What is a good investment idea? How we can look here at second-order demand rather than the most obvious one.

Apply the process of second-order thinking. Which sectors are likely to get benefit from the whole trend? Which company is likely to get the least disruption in the whole chain of the product?

How to Identify Opportunity in the Sector – Solar PV Value Chain

The best way to start is to identify the full value chain. Here, you will have a great idea about the whole sector & what side trends are booming due to growth in the main story.

Price Movement of Solar Materials

Solar glass is one of the least disrupted products in the solar chain. Price of solar glass has been very stable in the last 5 years. So, this is obviously one of the key products in the solar chain, which can keep growing at a higher rate for the next few years without getting disrupted.

Best fit in the chain – Borosil Renewables Limited

It’s the only player in India which has struggled to compete with large Chinese manufactures over the past decade and hence not been able to grow much profitable but now after many years of struggle the company has been able to come at the lower side of the cost curve to compete with the global giants.

Example 2: Types of stock that we targeted during the Chemical & Pharma Boom in 2018-19

Chemical & Pharma Sector Boom – Back in 2018-19, India’s chemical & pharma companies were investing heavily on capacity expansions in order to cater to rising demand from domestic and overseas markets, following plant shutdowns & shift of manufacturing from china.

When the Chemical industry was picking up, we picked HLE Glascoat Ltd which is aglass lined equipment manufacturer instead of direct chemical manufacturers. HLE Glascoat Ltd was untouched and unaddressed till that time, however was getting maximum benefit from sector growth.

The demand for Glass Lined Equipment is directly correlated to capex cycle of Pharma, Agro and Fine chemicals.Approximately, 10% of the total CAPEX of Pharma and Chemical is spent on Glass lined equipment.

HLE Glascoat – HLE glascoat is 2nd largest manufacturer of glass lined equipment in India. HLE Glascoat caters to requirement of leading Pharmaceutical / API, Specialty Chemicals, Dyes / Colours, Agro Chemicals, Food Processing and allied Industries.

The company is involved in the manufacturing of Filtration, Drying and other equipment, Glass Lined Equipment and Chemical Products which are used in Pharma, Agro and Chemical Industry.

Glass Lined Equipment (GLE) are used where lot of chemical reactions are to take place.

Change in promoters was another trigger –The company witnessed a change in management as HLE Engineering (a Gujarat- based company) (PATEL GROUP) acquired stake of Mr.Sudharshan Amin – the former promoter of SGEL in FY2017.Post management change the company started gaining benefit from economy of scale, enhanced efficiencies and combine similar business interests into one corporate entity, resulting in operational synergies, simplification, and integration of processes, focused management, streamlining and optimization of the business.

Resulting stock has went up 16 times, from our first coverage.

Case studies are just for educational purposes, not an investment recommendation.

Mid and Small Cap Focused Portfolio – Live from Sep, 2019

https://www.smallcase.com/embed/smallcase?scid=NIVMO_0001&cardsize=big&primaryCta=view&viewOnCreatorPlatform=true

Green Energy Portfolio – Live from March, 2021

https://www.smallcase.com/embed/smallcase?scid=NIVTR_0001&cardsize=big&primaryCta=view&viewOnCreatorPlatform=true

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The Future of Renewable Energy!
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