XL Energy: Fundamentals

XL Energy was earlier known as XL Telecom & Energy Ltd.

The company used to supply telecom equipment and cables to service providers such as BSNL in its hey days. It has also been present in the field of solar energy.

The company saw its business fall down- in the telecoms space. The business that had grown with BSNL saw the decline as there was no more of it later. Since then the stock has taken a heavy beating, falling from levels as high as 500 to 19.

When people are considering buying into this stock, they should know the following at the least:

1) The company's business has been reoriented to energy. It claims to be supplying solar energy equipment. The clients are unknown, and the business is very less transparent.
2) It claims to have a subsidiary in Spain that has started building solar power plants and aims to expand rapidly in solar space in Italy and Spain. As of now, only one of these plants has been operational and the others may take a large gestation period.
3) The balance sheet has taken a huge hit, and the company has undergone debt restructuring.
4) The announcements of the company look vague, though they try to give a promising outlook.
5) Goldman Sachs has picked up a large stake (about 8%) as a result of FCCB conversion, and has recently offloaded some stake, booking a loss.

Although turnover had totally vanished, it is returning slowly. It has a market cap if 45 cr at current market price; has large debt on the books, has large operational expenditure and is clearly net cash negative. That the stock price is still at a premium to the nominal value is a surprise if you go look at the financial performance of the last few quarters.

The contrarian would still bet on it- if the sales are a result of sales of solar panels to real clients, and if they pick up once again in the coming quarters, the stock may show some improvement- although the really large debt on the books may never allow the sales to beat the expenditure, and we can see losses for consecutive quarters- if not years, by this simple fact. And mounting negative cash flows can defeat the business sense altogether- the company may raise more debt or expand equity.

A risk averse investor would avoid this stock, but if you really feel like betting your bucks on a really large turnaround, and booming sales of solar panels to european markets where clients are unidentifiable and the company's management unclear, and this may all turn out to be good, you can go ahead, and make a killing. The risk is there, the stock is battered. Goldman Sachs is still holding a large stake, waiting for a turnaround.