Torrent Capital’s management team has excelled at finding companies with the potential to outperform the assumptions the market has made about them.

Green & Clean is in.


Global developments suggest a Canadian migration to a green economy is essential to competitiveness. However, if one searches for Canadian clean tech issuers listed on a Canadian exchange, one will likely come up with a select few, while the number of listed Canadian-based oil and gas companies is lopsided. Combine a global oil glut with an anticipated decline in oil demand in the near term, in conjunction with growing negative sentiment towards hydrocarbons, and the writing is on the wall.

Canada is coming from behind and its priorities are due for an adjustment.

The most recent dagger for the oil and gas industry stems from vehicle legislative initiatives in the EU and China, requiring a transition to zero-emission and low-emission vehicles. In short, this is principally causing a shift to electric vehicles (EVs).

Accordingly, European corporate and government investments in EV production and batteries reached US$70Bn in 2019. The International Energy Agency expects EV use to rise from 4 million vehicles in 2018 to 120 million by 2030.

Momentum within the EV sector has been soaring in recent months, with practically every major vehicle manufacturer announcing new electric models and concept vehicles. EV auto manufacturers are receiving increased market attention and high valuations as investors price in the electrification of the auto industry.   Meanwhile, there is an EV company that has remained underappreciated by the market, and it is right here on our own turf in Canada.

Come Electrovaya (TSX: EFL)

Raymnnd Corp forklift from Electrovaya


While most competitors in the EV space are focused on passenger vehicles, Electrovaya is growing in a niche vertical of the EV market that is largely overlooked – electric materials handling vehicles. Electrovaya produces unique ultra-long cycle life battery systems specially designed for materials handling EVs such as forklifts and warehouse machinery. The Company is also a supplier to major OEMs for specialized battery module and battery systems. E-Commerce demand is soaring, and warehouses are operating 24/7/365.

Electrovaya batteries competitive advantages include: their cycle life, saved energy cost, increased productivity, reduced maintenance and Wi-Fi communication; vs. traditional and alternate sources of battery power for its target customers. Their battery technology is robust and supported with over 100 patents and over US$75M invested in R&D.

After months of rigorous testing validation, Electrovaya has landed and delivered on contracts with the largest forklift manufacturer in the world, Raymond Corp (a Toyota subsidiary). The Company also supplies batteries to Walmart Canada. EFL batteries are powering e-forklifts in 26 locations across USA, Canada and Mexico.

We estimate that Walmart has 20-30K forklifts in operation.   This customer alone represents a US$300-450M revenue opportunity at full penetration. Walmart Canada recently announced a major $3.5Bn investment for growth and customer experience transformation and announced its intent to convert all material handling equipment to lithium ion or hydrogen technology. As a Walmart supplier of lithium ion batteries, we believe EFL is poised to directly benefit from this initiative.

We estimate Toyota, the parent company of Raymond, owns ~25% of the e-forklift market globally and ~50% of the North American e-forklift market. The opportunity within Raymond is multiples larger than that of Walmart. We estimate there are ~140K e-forklifts sold annually in North America, with Raymond holding an approximate 50% market share. Under this assumption, the total addressable market within Raymond alone is upwards of US$1.4Bn.   In the years ahead, we look for an adoption rate within Raymond of at least 20% at scale.

Market Share Analysis

EFL is developing and marketing cells and modules for energy storage and green electro-mobility vehicles. EFL recently received a contract from Sustainable Development Technology Canada for assistance in developing a high voltage large battery to power electric buses. Recent moves such as the city of Oakville deciding to no longer purchase gas fueled city buses are tailwinds for this end-market. The e-bus segment is an opportunity for supplemented growth in the coming quarters.

Electrovaya was listed on the Toronto Stock Exchange (TSX:EFL) in 2000 as a research and development company focused on lithium-ion technologies. The Company is at a key turning point in its operating results and performance, having reported significant EBITDA losses in recent years as well as scattered annual revenues in the US$5-9M range. Meanwhile, the three fiscal 2020 quarters reported to date show growing revenue of US$7.6M.  The company also achieved EBITDA profitability with its most recent fiscal Q3 2020.

Earlier this week, EFL pre-announced fiscal Q4 2020 revenue of US$6.9M, showing substantial revenue growth reflecting continued strong demand for the Company’s lithium ion batteries.

Recent Annual Performance

Recent Quarterly Performance

As illustrated above, EFL has a history of utilizing financial leverage. While this creates inherent risk and exposure to operating slippage, we believe the Company is now positioned to benefit from its capital structure and associated operating leverage as operating cash flow increases. Revenue and cash flow visibility into the coming quarters is strengthening and we expect to see continued deleveraging of the balance sheet as evidenced throughout 2020 thus far.

We believe the company is in the early stages of a rapid growth phase. It has taken years of R&D, investment and perseverance for Electrovaya to build its business model, contributing to a greener, more efficient world.    The company has latched onto the e-forklift market, a sizable one, which can provide sizable revenue growth in near-term. In addition to e-forklifts, we would not be surprised to see penetration into the e-bus market over time.

As illustrated in the valuation table below, EFL is trading at a 2021 EV/Revenue multiple of 2.3x versus its peer average of 4.7x. Premium multiples are awarded to companies demonstrating profitable growth and healthy margins. To this extent, we note EFL reported positive EBITDA and net income in its most recently reported Fiscal Q3 2020 all while growing revenue 300%. Gross margins in recent quarters have varied in the 30-40% range, which represents a healthy premium over its peers. Over time, we look for margin expansion as efficiencies of scale and volume increases are realized.

EFL presently has one analyst following the story out of New York and expects Fiscal 2021 revenue and net income of US$52.0M and US$4.8M, respectively.

Valuation Comparables

Valuation Comparables

With a fully diluted market cap of US$121.4M, Torrent Capital believes Electrovaya Inc. represents a compelling investment opportunity with significant upside. The commercial EV market is still in its early stages and is growing quickly. Demand for North American produced lithium ion batteries should only increase as the transition from lead to lithium ion batteries accelerates and adoption rates increase.

Electrovaya is signaling that the future can be greener, cleaner and equally important, make economic sense for its customers.

Torrent Capital, October 8, 2020

Search Insights

Latest Insights

Keep in Touch


Subscribe here to have our up-to-date news and market insights delivered to your inbox.