Gensol Engineering Shares Crashes 5%, Faces Severe Stock Volatility and Financial Concerns

Gensol Engineering's stock has declined sharply owing to the recent controversies, hitting a new 52-week low of ₹111.65. The stock opened with a gap down of 4.98%, indicating ongoing bearish sentiment. Over the past year, Gensol Engineering's shares have declined by 90%, sharply contrasting with the Sensex's positive return of 8.18%. The share price also hit the lower circuit for eight straight sessions. On Monday, the shares crashed by 5% to new 52-week lows on both the BSE and NSE. The stock tanked 4.98% to ₹111.65 on the BSE and slumped 5% to ₹110.71 on the NSE, representing the lower circuit and 52-week low levels. From its 52-week high of ₹1,125.75, the stock has now fallen by about 90%. At 1:00 PM, the share price of the company was trading at ₹110.71.

Concerns Regarding Financial Health 

The company's financial health is concerning, highlighted by a high Debt to EBITDA ratio of 3.27 times, indicating challenges in servicing its debt obligations. Despite some positive long-term growth indicators, such as increasing net sales and operating profit, the bearish sentiment persists. Furthermore, a significant portion of promoter shares, 81.7%, are pledged, adding further pressure in a declining market.

SEBI Investigation and Governance Issues 

The markets regulator SEBI has flagged significant governance issues at Gensol Engineering. An interim order was issued on April 15 following a complaint in June 2024 alleging share price manipulation and fund misappropriation by the company and its promoters. SEBI's investigation revealed "no manufacturing activity" at the company’s electric vehicle (EV) facility in Pune during a National Stock Exchange (NSE) official's visit. Only two to three workers were present at the facility in Chakan, Pune, on April 9. Electricity bills also suggested limited consumption, supporting the conclusion of no manufacturing operations. SEBI highlighted numerous inconsistencies and misleading disclosures made by Gensol Engineering.

Misleading Information Regarding EV Pre-Orders 

Gensol had notified stock exchanges about receiving pre-orders for 30,000 EV units. However, SEBI's investigation disclosed that these were merely Memorandums of Understanding (MoUs) with nine organisations for 29,000 vehicles, lacking specific pricing or delivery timelines, leading SEBI to believe the company provided misleading information to investors.

Alleged Diversion and Misappropriation of Funds 

Reports indicate that Gensol obtained loans totalling ₹977.75 crore from IREDA and PFC between FY22 and FY24, with ₹663.89 crore designated for EV acquisition. However, the company acknowledged purchasing only 4,704 vehicles valued at ₹ 567.73 crore, leaving ₹262.13 crore unaccounted for. The regulator discovered that funds intended for EV purchases were allegedly redirected to Gensol or related entities owned by the Jaggi brothers and used for personal expenditures, including a luxury apartment, money transfers to relatives, and investments in privately held businesses.

SEBI's Decisive Actions and Their Aftermath 

In response to these findings, SEBI has prohibited the Jaggi brothers from accessing the securities market and from holding any managerial or directorial positions in Gensol until further notice. SEBI also instructed Gensol to pause its planned 1:10 stock split. Following the interim ruling, both Anmol and Puneet Singh Jaggi have resigned from the company’s board. 

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