CMP: Rs. 451.95; Market Cap:
Rs. 10,029.59 Cr; 52 Week High/Low: Rs. 494.40 / Rs. 325.00.
Total Shares: 22,19,18,226 shares;
Promoters : 19,00,00,000 shares –85.62 %; Total Public holding : 3,19,18,226
shares –14.38 %; Book Value: Rs. 21.85; Face
Value: Rs. 10.00; EPS: Rs. 7.21; Dividend: 0.00 %; P/E: 62.68 times; Ind. P/E:
69.22; EV/EBITDA: 51.67.
Total Debt: Rs. 480.40 Cr; Enterprise Value: Rs. 10,509.00 Cr.
INOX WIND LIMITED: Incorporated on April 9, 2009 and is based in
Noida, India. Inox Wind Ltd is a subsidiary of Gujarat
Fluoro chemicals Limited. Inox Wind Limited manufactures and sells wind turbine
generators and components in India. The
company came out with an IPO on March 18 2015 offering 3,19,18,226 equity shares
of Rs. 10 each for Rs. 325 per share raising Rs. 1,037.34 Cr, retail investor
were given a discount of Rs. 15 per share. It got listed on April 9, 2015 at
Rs. 400 making a high of Rs. 427.40 on listing day. The object of offer for
sale was to invest in new equipment at the Una (Himachal Pradesh) unit to
optimise the capacity of the nacelle and hub manufacturing facility, for
expansion and up-gradation of existing manufacturing facilities, for long term
working capital requirements, for investment in their subsidiary Inox Wind Infrastructure Services Ltd for the
purpose of development of power evacuation infrastructure and other
infrastructure developments and for other general corporate purposes. Inox Wind Ltd provides turnkey
solutions for wind farm projects & offers services including wind resource
assessment, site acquisition, infrastructure development, erections and
commissioning, and also long term operations and maintenance of wind power
projects. Company manufacture the components of wind turbine generators
in-house with a view to ensuring high quality, advanced technology and
reliability and maintaining cost competitiveness. Company has facilities
dedicated to manufacturing nacelles, hubs, rotor blade sets and towers. Inox
Wind have a perpetual license from AMSC Austria GmbH (formerly Windtec GmbH), or
AMSC, a leading wind energy technology company based in Austria, to manufacture
2 MW WTGs in India based on AMSC’s proprietary technology. Inox Wind has a fully integrated state-of-the-art
manufacturing plants at Una (Himachal Pradesh) for Hubs and Nacelles and
Rohika, near Ahmedabad (Gujarat) for Blades and Tubular Towers. Inox Wind
manufactures the key components of the Wind Turbine Generator (WTG) to ensure
high quality based on the most advanced technology, reliability of performance,
and cost competitiveness. Inox WTGs are designed for low wind speed sites such
as those in India. Inox Wind is an ISO 9001:2008 certified company. In
addition, IWL’s manufacturing units are awarded with ISO 14001:2004, OHSAS
18001:2007 and ISO 3834-2 (tower manufacturing facility). Inox Wind turbines
are type certified by TUV SUD according to “The Guidelines for the
Certification of Wind Turbines issued by Germanischer Lloyd” and are duly
enlisted in RLMM by C-WET. Inox Wind
manufacturers two different WTG models 2 MW rating: Rotor
diameter of 93 meters with hub height of 80 meters Rotor Diameter of 100 meters
with hub height of 80 to 92 meters. Inox Wind owns a 100 % subsidiary, Inox
Wind Infrastructure Services, which does the project development in respect of
wind power projects, including wind studies, energy assessments, land
acquisition, site infrastructure development, power evacuation, statutory
approvals, erection and commissioning and long term operation and maintenance
of the wind farms. Company
produced and sold 60 turbine generators and in FY 2013; 60 turbine generators
of 2 MW each. INOX WIND Limited is locally compared with Suzlon Energy Ltd, Honda
Siel Power Products Ltd, Triveni Turbine Ltd, TD Power System Ltd, BHEL,
Siemens Ltd, Crompton Greaves Ltd, Thermax Ltd, ABB India Ltd, Alstom India
Ltd, KEC International Ltd, Gamesa Wind Turbines Pvt Ltd, GE India Industrial
Pvt Ltd, Vestas Wind Technology India Private ltd, Sinovel DB India Pvt Ltd and
globally compared with AZZ Inc of USA,
Ametek Inc of USA, Babcock & Wilcox Enterpr of USA, Broadwind Energy Inc of
USA, Enersys of USA, Franklin Electric Co Inc of USA, Areva of France, Alstom
of France, Gamesa Corp Technologica S.A.
of Spain, Vestas Wind Systems A/s of Germany, Schneider Electric S.E.of France,
PNE WIND AG of Germany.
Investment Rationale:
Inox
Wind Ltd, an Inox Group company, is India’s fourth-largest wind turbine generator
(WTG) manufacturer and commands market share of 7 % in FY14. The Inox Group is operational
from 1923 in India and currently operates in industrial gases, engineering
plastics, refrigerants, chemicals, cryogenic engineering, renewable energy and
entertainment sectors. The Group has two publicly-listed companies – Gujarat
Fluorochemicals and Inox Leisure. Inox Wind Ltd is the subsidiary of Gujarat
Fluorochemicals. Inox Wind Ltd commenced its operations in March 2010, and is
into manufacturing of key components of Wind Turbine Generators and other parts
like nacelles, hubs, rotor blade sets, and towers used to generate electricity
from wind power. It provides turnkey solutions for wind farm projects through
its wholly-owned subsidiaries, and has a project site pipeline of 4GW. Inox Wind Limited has two 2 business models: Turnkey
Solution provider: In this model, Inox takes care of all the aspects
related to development of wind power project from concept to commissioning
including operation and maintenance. This includes wind studies, energy
assessment, land acquisition, site infrastructure development, power
evacuation, statutory approvals, and supplies of WTG, erection and
commissioning and long term operation and maintenance of the wind farms and its
Second model is of Equipment Supply: In this model, Inox Wind supplies
the WTG and other associated equipment’s to customers for erection on sites
owned by them. The rest of the project development work, which includes wind
studies, energy assessment, land acquisition, site infrastructure development,
power evacuation, statutory approvals, etc., is onto the customers’ while erection
of tower and commissioning and long term operation and maintenance of the wind
farms is onto Inox. Civil works could either be on Inox or on customer, on a
case to case basis. India has significant untapped wind potential.
According to the Centre for Wind Energy Technology, India has the potential to install over 100,000 MW of wind turbines at
80 meters hub height, implying an untapped wind power potential of 78GW. Based
on C-WET estimates, India has explored only 22 % of its wind power potential.
This indicates strong long term business opportunity for domestic WTG
manufacturers. India
has set a target of achieving overall wind energy installed capacity of 27,300
MW by 2017 and 38,500 MW by 2022. As per NOVONOUS estimates, this creates an US$ 31.25 billion opportunity in the wind energy market
in India till 2022. The wind energy market in India has been growing
since the last many years. The total installed capacity of the Indian Wind
Energy market is 21,136.20 MW. India stands at the 5th Rank in terms of the
total installed wind power capacity just behind China, USA, Germany and Spain.
But the potential is far from being utilized. The wind energy sector in
India had witnessed a sharp fall in capacity addition from 3.2GW in FY12 to
1.2GW in FY13, led by withdrawal of accelerated depreciation (AD) and
generation-based incentives (GBI) in March 2012. However, renewable energy is
now a key focus area for the new government, which has ambitious plans to set
up an installed capacity base of 60GW in the wind energy segment by 2022 vs
23GW as at end FY15. There are multiple tailwinds that will help drive the size
of the Indian wind energy market from 2.3GW in FY15 to 4-5GW in medium term. Inox Wind’s order book as at December 2014
stood at 1,258MW, and cumulative installations or supplies stood at 1,044MW including
312MW yet to be erected INXW has a 100 % subsidiary, Inox Wind Infrastructure
Services, which does project development and operation and maintenance
(O&M) of wind farms. Currently,
IWL has an installed capacity of 550 nacelles and hubs at Una, Himachal Pradesh,
400 rotor blade sets, and a capacity of 300 towers at Rohika, Ahmedabad,
Gujarat. The company is setting up a new integrated capacity of 400 nacelles
and hubs, 400 rotor blade sets, and 300 towers at Barwani, Madhya Pradesh. This
would take the total nacelles and hubs capacity to 950 units, rotor blades
capacity to 800 sets, and tower capacity to 600 units. The projected cost of construction of the proposed
unit is around Rs. 200 crore. The facility is expected to commence production
during FY16. Post the expansion, the total production capacity is expected at reach
950 nacelles and hubs, 800 rotor blade sets and 600 towers. Hence, the production
capacity will effectively double from 800 MW to 1600 MW by FY16. IWL has
acquired access to certain project sites in Rajasthan, Gujarat, Andhra Pradesh
and Madhya Pradesh. The company expects to gain access to wind sites under
acquisition in Rajasthan, Gujarat, Andhra Pradesh and Madhya Pradesh, which is estimated
for the installation of an aggregate 4,052 MW capacity. There are many initiatives taken by the new government like several
states such as Rajasthan, Madhya Pradesh, Gujarat, Andhra Pradesh, Telangana, Maharashtra
and Karnataka have provided preferential tariff over and above MNRE’s GBI of Rs.
0.5 per kilowatt-hour to attract investment. Some have also increased wind
power tariffs by 2-15 % to attract investments. These states are expected to
witness traction and will play a critical role to achieve the aggregate target
of 4-5 GW per annum. Several states including Tamil Nadu, Karnataka, Maharashtra
and Gujarat have policies that eliminate or reduce value-added tax (VAT) for
wind turbine components. The
Maharashtra Energy Development Agency (MEDA) has created a green cess (tax)
fund. A part of this fund is used to create infrastructure for grid connectivity
with proposed wind farms. Strong evacuation infrastructure promotes investments
in wind power. State governments like Rajasthan, Madhya Pradesh and Gujarat
have formalized land facilitation policies to expedite wind energy projects. Major
projects get delayed mainly on account of delays in land acquisition.
Outlook and Valuation:
Inox Wind Ltd provides turnkey solutions for wind farm
projects & offers services including wind resource
assessment, site acquisition, infrastructure development, erections and
commissioning, and also long term operations and maintenance of wind power
projects. Company manufacture the components of wind turbine generators
in-house with a view to ensuring high quality, advanced technology and
reliability and maintaining cost competitiveness. Company has facilities
dedicated to manufacturing nacelles, hubs, rotor blade sets and towers. Inox
Wind have a perpetual license from AMSC Austria GmbH (formerly Windtec GmbH), or
AMSC, a leading wind energy technology company based in Austria, to manufacture
2 MW WTGs in India based on AMSC’s proprietary technology. In August 2014, Inox Wind and AMSC amended
the agreement to cover all 2 MW WTGs with rotor diameters between 85 meters and
120 meters. In addition, Inox Wind has a non-exclusive license to manufacture 2 MW
WTGs worldwide based on AMSC’s proprietary technology. Globally, over 15 GW of aggregate
production capacity operates on AMSC technology. As per the terms of license from
AMSC, Inox Wind is required to purchase Electronic Control System manufactured by
AMSC or its affiliates. Inox Wind has a non-exclusive perpetual license from WINDnovation
Engineering Solutions GmbH, Germany for the technology on manufacturing Rotor
blade sets. Inox Wind procures gearboxes from DHHI (China) and Wikov Industry a.s.
(Czech Republic), and generators from Emerson Industrial Automation and ABB
India for its gearboxes and generators. In the equipment supply
business, Inox Wind's is among the top-2 players in India; while the size of this
segment is 15 % for the WTG industry, it is targeted to contribute 30 % to Inox Wind’s
revenue in FY16. The major Wind Turbine
Manufactures in India are Chiranjjeevi Wind Energy, Elecon Engineering, Garuda
Vaayu Shakti, Ghodawat Energy, Inox Wind, NEPC India, Pioneer Wincon,PowerWind,
Regen Power Tech, RRB Energy, Siva Windturbine, Southern Wind Farm, SRC Green
Power, SUZLON.
Inox Wind manufactures the key components for WTGs in-house, which ensures cost competitiveness,
cost-effective logistics, and attractive margins. It has split its manufacturing
activities to ensure cost-efficiency. The existing rotor blade and tower
manufacturing facilities are located at Rohika in Gujarat, adjacent to a highway
to facilitate easier handling during transportation to wind sites and sea ports.
This location is also close to states like Rajasthan, Gujarat, Maharashtra and Madhya
Pradesh, where there is good potential for wind energy production. The more
easily transportable nacelles and hubs are manufactured in Himachal Pradesh, which
gives Inox Wind certain tax incentives. Inox Wind has entered into technology tie-ups
with global players to source key components of the WTG equipment. Technology
tie-ups ensure that Inox Wind has access to latest technology and also saves on R&D
cost, which helps to keep its cost structure lean. Inox Wind outsources raw material
and components that it does not manufacture inhouse. It sources a portion of
the towers required for WTGs from Fedders Lloyd Corporation. Inox Wind gets
warranties from component and raw material suppliers against deficient performance
and resultant liabilities, this arrangement eliminates provisioning for this raw
materials procured. The average wind installation size in India has been
increasing with the shift in customer base from individuals (AD market) to IPPs
(GBI market). The average project size has increased from 2 MW in 2009 to 7 MW in
2013. Project size of 50 MW and above is becoming the norm for IPPs in India.
This customer profile shift augurs well for Inox Wind, as its business model is
focused on the IPP segment rather than the accelerated depreciation (AD)
market. It is the preferred partner for 8 of the top-10 IPPs in India. Focus on
IPPs and timely project execution has helped Inox Wind to develop strong relationships
with the IPPs. Encouraged by enabling government policies, several IPPs have
firmed-up strong capacity addition plans. Given Inox Wind’s relationships with the
IPPs, provides Inox Wind with a sweet spot. In India, 80 % of the wind
energy projects are executed on turnkey basis, as wind power developers do not
have in-house capabilities to undertake project development on a large scale.
Inox Wind’s business model, however, is equally focused on turnkey solutions and WTG
supplies. While turnkey solutions contribute 48 % of its order book, WTG
supplies constitute 52 %. Its balanced business model helps Inox Wind to optimally
utilize its organizational resources. Inox Wind provides turnkey solutions together
with its wholly-owned subsidiaries, Inox Wind Infrastructure Services Limited
(IWISL) and Maruti-Shakti India Limited (MSEIL). Its services include wind
resource assessment, site acquisition, infrastructure development, erection and
commissioning, and long-term operation and maintenance of wind power projects. As of March 2015, Inox Wind’s order book
stood at 1,178 MW, comprising 614 MW for the supply and erection of WTGs and
564 MW for the supply of WTGs. The order book includes executed binding contracts
for 825 MW and term sheets or letters of intent for 432 MW. Robust order book and
ready pipeline of project sites provides comfort on the revenue visibility
front. INXW can to deliver 825 MW in FY16 and 950 MW in FY17. Given its
cumulative supplies of 1,044 MW, operation and maintenance (O&M) provides
interesting opportunities. It is expected that the contribution of O&M to
increase meaningfully post the two-year warranty. The equipment supplier retains
O&M on 100 % of the projects and the business has gross margins of 50 % to 55 %.
The typical cost for O&M stands at Rs. 10 lakh per MW per annum. Backed by strong
revenue and earnings growth and robust return ratios with RoE of 28 % and RoCE of
32 % in FY17. At the CMP of Rs. 451.90, the stock is trading at its all-time high P/E of 16.98x FY16E, 14.30x FY17E. The company can post EPS of Rs. 26.60 for FY16E and Rs. 31.60 for FY17E.
| KEY FINANCIALS | FY14 | FY15 | FY16E | FY17E |
|---|
| SALES (₹ Crs) | 1,567.00 | 2,710.00 | 4,980.00 | 5,943.00 |
| NET PROFIT (₹ Cr) | 132.00 | 296.00 | 590.00 | 701.00 |
| EPS (₹) | 6.60 | 13.40 | 26.60 | 31.60 |
| PE (x) | 66.50 | 32.90 | 16.50 | 13.90 |
| P/BV (x) | 20.20 | 6.90 | 4.80 | 3.60 |
| EV/EBITDA (x) | 51.60 | 21.30 | 12.20 | 9.60 |
| ROE (%) | 36.60 | 32.60 | 35.00 | 30.00 |
| ROCE (%) | 20.80 | 27.60 | 32.00 | 31.50 |
As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase. (Why Strict stop loss of 8 % ?) - Click Here
*As the author of this blog I disclose that I do not hold INOX WIND India Ltd in my any of the portfolios.
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