Investors may Consider Inox Wind Offer
erational by FY16, its capacity will double. The company has sold wind power with capacity of 1,042 MW since it began its operations in 2010. The company’s market share in FY14 increased to 15.71%, up from a mere 3.87% in FY12. In the nine months of FY15 (Apr-Dec), the company received nearly 40% of its total WTG orders. Higher wind turbine efficiency, superior project execution capabilities, and pipeline of project sites have helped the company grab this market share. The size of its order book is 1,258MW — of which 65% is part of binding contracts. While a large number of its peers are struggling to expand, Inox Wind has been gaining market share with its net profit growing at a CAGR of 130% in the past four years ending December FY15. In the Union Budget for FY16, the government planned to target wind power capacity of 80,000 MW by 2022. For the first time, the government is giving a gross generation-based incentive (GBI) and an accelerated depreciation together to firms setting up wind power plants. These incentives provide tax benefits. The government is also asking companies to set up coal thermal power plants, 10% of which would be renewable energy plants.
Risk & Concerns
High working capital needs have put pressure on the company’s cash generation ability. Its trade receivables during the last nine months of FY15 stood at 77% of its total revenues. Consequently, it has been recording a negative cash inflow. Trade receivables have increased by a whopping 104% during the nine months of FY15 against the sale of products, which rose by 89% during the same period. There is also a yawning gap between the installed capacity of WTG manufactured and the current demand. This could put pressure on its margins if competition becomes stiff. The company is planning to raise .` 1,000 crore through the IPO — .` 700 crore will be raised via a fresh issue of shares and the balance by an offer for sale by the promoters. Post the IPO, the promoter’s holding will drop to 85% from the pre-issue level. Its price band is fixed between .` 315 and .` 325.
At the higher end of the price band, it will have an implied valuation of .` 7,200 crore. According to analysts’ estimates, at .` 325 per share, the stock is quoting an EV/EBIDTA of 11.5 times its FY17 projected operating profits. This is at a premium when compared with global WTG companies’ average. This premium is justified given the growth prospects of India’s renewable energy segment, which is likely to generate high return of equity.