Servotech Q1 FY26: The Profit Puzzle – Why Its Core Business Soared While Consolidated PAT Stalled

Servotech Renewable Power System Limited, a key player in India’s clean energy and EV charging space, has unveiled its Q1 FY26 results. The numbers paint a picture of robust standalone growth, hinting at the underlying strength of its core operations. However, a closer look at the consolidated figures reveals strategic shifts and initial investments in new ventures that have impacted the overall group profitability this quarter. Let’s delve into the details.

Laying the Foundation: A Glimpse into Servotech’s Order Book

For businesses like Servotech, the order book serves as a vital indicator of future revenue visibility. In Q1 FY26, Servotech demonstrated its prowess in securing significant projects, particularly in the burgeoning solar sector.

The company bagged a substantial 16 MW rooftop solar project from Madhya Pradesh Urja Vikas Nigam Ltd., earmarking deployment across various government buildings. This is a significant win, showcasing the company’s capability to execute large-scale projects and align with government initiatives like PM Surya Ghar Yojana. Furthermore, additional rooftop solar orders from Indian Railways (Waltair and North-Eastern divisions) totaling 1.1 MW capacity underscore its expanding footprint.

In the EV charging domain, Servotech continued its momentum by securing a prestigious order from Kempegowda International Airport, Bengaluru, for installing 10 high-speed 240 kW DC EV chargers, amounting to a total capacity of 2.4 MW. This highlights its role in building critical EV infrastructure at key public touchpoints.

While specific order-to-sales conversion timelines aren’t explicitly detailed for all orders, the management indicated that the execution and revenue visibility for the large MP government solar rooftop project are expected by the end of Q2 FY26 or Q3 FY26. This provides a clear path for future revenue recognition and signals management’s confidence in project delivery. The consistent stream of new orders, particularly large-scale government and institutional projects, provides a strong foundation for future sales performance and reflects the company’s ability to capitalize on India’s green energy transition.

Revenue Performance: Riding the Clean Energy Wave, With a Twist

Servotech’s top-line performance in Q1 FY26 shows commendable growth, especially on a standalone basis, which reflects the health of its core solar and EV charging manufacturing and solutions business.

Revenue from Operations (INR Lakh)

Standalone revenue surged by 26.6% YoY, reaching ₹12,344.3 lacs, while consolidated revenue grew by a respectable 21.9% YoY to ₹13,674.2 lacs. This solid growth trajectory indicates robust demand for its solar products and EV charging infrastructure. The slight sequential dip from Q4 FY25 to Q1 FY26 (consolidated: 14,628.1 to 13,674.2; standalone: 12,613.0 to 12,344.3) is not uncommon for seasonal businesses or at the beginning of a new fiscal year after a strong year-end push, but the strong YoY growth signals underlying strength.

Interestingly, the company noted a strategic shift in its business mix. While traditionally balanced, Servotech aims for solar to contribute 60-70% of total revenue this year, marking a reversal from last year’s EV dominance (60-70%). However, for Q1 FY26 specifically, the EV segment still accounted for 62% of the total revenue. This suggests the strategic pivot towards solar is a forward-looking goal that will likely materialize over the subsequent quarters as major solar EPC orders get executed. This adaptability in business focus, responding to market dynamics and government initiatives (like the PM Surya Ghar Yojana), positions Servotech well to capture growth in areas with clearer infrastructure.

The Profitability Puzzle: Standalone Sparkles, Consolidated Moderates 🧩

While revenue growth is crucial, profitability offers a deeper insight into operational efficiency and financial health. Here, Servotech presents a mixed picture, with a clear divergence between its standalone and consolidated earnings.

EBITDA (INR Lakh)

PAT (INR Lakh)

On a standalone basis, Servotech delivered an impressive performance:

• EBITDA soared by 63.6% YoY to ₹1,423.2 lacs.
• PAT jumped by a significant 59.2% YoY to ₹755.1 lacs.
• Standalone EBITDA Margin expanded to 11.4% (from 8.9% YoY), and PAT Margin improved to 6.0% (from 4.9% YoY). This indicates robust operational efficiency and strong core business profitability.

However, the consolidated figures tell a different story for the bottom line:

• Consolidated EBITDA grew by a healthy 26.9% YoY to ₹1,083.2 lacs, with EBITDA Margin slightly improving to 7.9%.
• But consolidated PAT saw a marginal increase of just 1.4% YoY to ₹455.0 lacs, leading to a dip in PAT Margin to 3.3% (from 4.0% YoY).

What explains this significant divergence in PAT growth? 🤔 The earnings call transcript sheds light on this. The management attributed the lower consolidated PAT growth primarily to two factors:

1. Increased Operating Expenses from New Subsidiaries: The establishment of new step-down subsidiaries in sports and entertainment (Servotech Sports & Entertainment Pvt. Ltd., Servotech Siliguri Strikers Pvt. Ltd.) contributed to substantially higher operating costs at the consolidated level. These new ventures are likely in an investment or ramp-up phase, incurring initial expenses without immediately contributing proportionate profits, thus diluting overall group profitability.
2. Accounting for Shareholding Sales: The management clarified that profits from the sale of some shareholdings were reflected only in the standalone reports, not in the consolidated report, impacting consolidated PAT by approximately ₹2-3 crores.

This suggests that while Servotech’s core clean energy business is thriving (as evidenced by standalone numbers), the strategic diversification into unrelated ventures is currently weighing on consolidated profitability. For investors, it’s crucial to monitor if these new subsidiaries start contributing meaningfully to the bottom line in future quarters, or if they continue to be a drag. Based on the standalone performance, Servotech exhibits characteristics of a fast grower in its core segments, driven by both revenue growth and improved operational efficiencies.

Strategic Initiatives: Powering Future Growth 🌱

Servotech isn’t resting on its laurels. The company is actively pursuing several strategic initiatives to bolster its market position, enhance profitability, and tap into new growth avenues.

• Backward Integration with Rhine Solar: The acquisition of a 27% equity stake in Rhine Solar Ltd. is a smart move for vertical integration. This aims to secure a reliable supply of solar modules, improve profit margins, and align with the government’s emphasis on Domestic Content Requirement (DCR) components. This kind of strategic investment helps in cost control and quality assurance, directly impacting future earnings positively.
• International Ambitions with Errol Musk: A bold step is the appointment of Mr. Errol Musk (Elon Musk’s father) as a Global Advisor. His role is to help Servotech penetrate global markets, particularly in GCC (Qatar, UAE) and African countries. The plan to establish a new free-zone subsidiary in UAE before mid-August 2025 underscores this international push. This could potentially diversify revenue streams, reduce reliance on the Indian market, and leverage cost efficiencies to compete globally. This move also aims to mitigate pressure from domestic infrastructure challenges in the EV charger market.
• Innovation in On-Board Chargers: Servotech is developing “on-board chargers,” which are critical components for electric two-wheelers, three-wheelers, and e-rickshaws. By aiming to become an OEM supplier, Servotech seeks to capture a fixed market share in the booming Indian EV manufacturing sector, reducing the current reliance on imports. This strategic product development promises stable, recurring revenue streams from the growing EV ecosystem.

These strategic initiatives, while potentially incurring initial costs (as seen in Q1 consolidated expenses), are geared towards long-term revenue growth, margin improvement, and market leadership.

Industry Tailwinds & Outlook: A Favorable Gust for Green Energy 💨

Servotech operates in sectors brimming with opportunities, thanks to strong government backing and evolving market dynamics.

• Government Push: Initiatives like PM Suryoday Yojana (solarization of 1 crore households), subsidies for EV infrastructure, favorable budgetary measures (Pumped Storage Policy, lithium duty exemptions), and a nationwide focus on carbon neutrality are creating a massive demand for Servotech’s products and services.
• EV Adoption: India’s rapidly increasing EV adoption necessitates widespread charging infrastructure, directly benefiting Servotech’s core business.

The company anticipates continued pressure in Q2 FY26 due to challenges in EV infrastructure development and a significant shortage of raw materials for DCR components. However, management remains confident in achieving aggressive revenue targets for FY26, stressing their commitment to surpass last year’s performance and ensure the company remains profitable, always crossing its breakeven point. This outlook, though cautiously optimistic about the near term, projects FY26 to be one of Servotech’s best financial years in the last five, indicating strong future earnings potential driven by strategic execution and favorable market conditions.

Key Takeaways for Investors

Servotech’s Q1 FY26 results offer a compelling narrative of a company well-positioned to capitalize on India’s clean energy and EV revolution.

• Core Business Strength: The robust standalone performance, particularly the 59.2% PAT growth, clearly demonstrates the strength and efficiency of Servotech’s core solar and EV charging manufacturing operations. This aligns with the broader Indian market trend of domestic-growth themes like infrastructure and capital goods benefiting from government capex revival.
• Strategic Diversification vs. Core Focus: The lower consolidated PAT growth (1.4%) serves as a reminder that strategic diversification, especially into unrelated sectors like sports and entertainment, can impact short-term profitability due to initial investment and scaling costs. Investors should closely monitor the performance and integration of these new ventures.
• Future Visibility: Significant project wins in solar and EV charging provide strong revenue visibility for the upcoming quarters, indicating management’s capability to secure and execute large orders.
• Long-Term Growth Catalysts: Strategic moves like backward integration, aggressive international expansion plans with high-profile advisors, and innovation in on-board chargers are strong indicators of Servotech’s commitment to long-term growth and market leadership. These initiatives aim to improve margins and open new revenue streams, reinforcing the belief that the company is a fast grower aiming for substantial expansion.

While short-term supply chain and infrastructure challenges might introduce some volatility, Servotech’s strong project pipeline, strategic investments, and alignment with favorable macro trends in India’s clean energy landscape position it as a compelling stock-picking candidate for investors seeking exposure to domestic growth themes with earnings visibility.

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