INOX Wind – IPO : Should you subscribe?

Inox Wind Ltd. is coming out with an initial public offer (IPO) which will be opening on 18th of March. The Co., promoted by Gujarat Flourochemicals Ltd., part of Inox group of companies, is one of India’s leading wind power solutions providers. The Company manufactures wind turbine generators (WTGs) and provide turnkey solutions by supplying WTGs and offering services including wind resource assessment, site acquisition, infrastructure development, erection and commissioning, and also long term operations and maintenance of wind power projects.

Co manufacture the key components of WTGs in-house while it manufacture nacelles and hubs at its Una Unit, located in Himachal Pradesh. Also, co’s rotor blade manufacturing facility and its tower manufacturing facility are housed in Rohika Unit, located in the Ahmedabad district of Gujarat. Through its wholly owned subsidiaries, Inox Wind Infrastructure Services Limited (“IWISL”) and Marut-Shakti India Limited (“MSEIL”) company provide turnkey solutions for wind farm projects. The objects of the issue mainly involves expansion and up-gradation of the above existing manufacturing facilities; meeting long-term working capital requirements; investment in its subsidiary, IWISL, and other infrastructure development.

Factors to consider:

Promising growth opportunities: As was evident from the Budget 2015, renewable energy is one of the key focus areas of the new government, and its vision is to multiply the capacity of the renewable energy sector. Under the National Action Plan on Climate Change (NAPCC), the Government of India has set a target of having 15% renewable energy in the electricity generation mix by 2020, implying a total installed base of approximately 100GW of renewable energy generation capacity.

Access to superior technology and project execution capability: IWL has a perpetual and exclusive licence from AMSC to manufacture 2-MW WTGs in India and a nonexclusive licence to manufacture outside India. This gives huge technological competitiveness to IWL and in future the company could look out for business opportunities outside India too. Moreover, it stands out on the basis of the execution capability of its management demonstrated in the past. (It is to be noted that AMSC has recently run into some financial difficulties and accordingly, the Co. carries a risk in the licence.)

Strong order book and earnings potential: IWL intends to use part of the IPO proceeds to invest in new equipment at the Una unit to optimise the capacity of the nacelle and hub manufacturing facility. Combined with the strong order book it carries (approx. 1,258MW) and the expansion plans, the company is expected to deliver a healthy revenue growth ahead.

Valuation: The issue is quoted at price band of ₹315-325 (Incl ₹15/Sh discount to Retail & Employee) at p/e multiple of 29-30 on post issue 9MFY15 annualized EPS of ₹10.76.

Past listing performance: Inox Leisure – Issued at ₹110 and listed at ₹185 in 2006, achieved a lifetime high of ₹245 and is currently trading at ₹180.5

The issue opens on March 18th and closes on the 20th. The company plans to sell up to 1 crore shares held by the current promoters along with a fresh issue of 2 crores equity shares of ₹10 each. The issue is expected to garner about 700 crores. The price band is fixed at ₹315-325 per share. Retail investors (those investing less than ₹2 lakh) can get a discount of ₹15 on the issue price.

The company with its robust financial performance, well recognized promoter group, healthy order book & strong business potential looks promising for an investment. In addition, with its listed domestic peer Suzlon Energy, struggling with massive debts and profitability issues, IWL would emerge as a quality player in the renewable energy industry and attract scarcity premium. Therefore, this will be the issue to look out for in 2015 so far. We recommend, “Subscribe” on this issue, both for listing gains as well as long term earnings and growth.