IPO Note | Capital Goods / Renewable Energy
March 17, 2015
Inox Wind
SUBSCRIBE
Issue Open: March 18, 2015
IPO Note - Strong growth prospects; Subscribe
Issue Close: March 20, 2015
Company background: Inox Wind Ltd (IWL), incorporated in 2009 and a part of
the Inox Group, is one of the leading manufacturers of wind turbine generators
Issue Details
(WTG’s) in India. The company also provides turnkey solutions, and operation
Face Value: `10
and maintenance services for wind power projects. Currently, IWL has an installed
Present Eq. Paid up Capital: `200cr
capacity of 550 nacelles and hubs, 256 rotor blade sets and a capacity of 150
towers. The company is setting up a new integrated capacity which would take the
Fresh Issue**: 2.12cr Shares
total nacelles and hubs capacity to 950 units, rotor blades capacity to 800 sets
Offer for Sale: 1.0cr Shares
and tower capacity to 600 units.
Post Eq. Paid up Capital**: `221.54cr
Strong order book: IWL has shown a strong growth during FY2014 and
Issue size (amount)**: `1,014cr - `1,046cr
9MFY2015 periods, wherein it sold 330MW and 380MW of WTGs during the
period; plus, it also has a strong order book (as of December 2014). Currently
Price Band**: `315-325
IWL has an order book of
1,136MW, as against Suzlon’s order book
Post-issue implied mkt. cap**: `6,999.3cr-
7,221.5cr
of 1,148MW, and Gamesa India Pvt Ltd’s order inflow of 850MW (as of
Promoters holding Pre-Issue: 100.0%
December 2014). These provide strong revenue visibility for FY2016.
Promoters holding Post-Issue: 85.5%
IWL has access to wind project sites which have been acquired or are under the
Note:**at Lower and Upper price band respectively
acquisition process by its group companies - GFL and IRL - and its subsidiary
IWISL. Currently the wind sites acquired have an aggregate power project
capacity of 2,130MW, while the wind sites which are under the acquisition
Book Building
process have a power project capacity of 1,922MW. Thus, it provides healthy
QIBs
50% of issue
revenue visibility for IWL in the medium term.
Non-Institutional
At least 15%
Government focus on renewable energy: The government has set a target of
Retail
At least 35%
installed wind power capacity of 60,000MW till FY2022 from the current capacity
of 21,150MW. This will create a huge opportunity for the company in the
upcoming period. Hence we expect order inflow to increase at a faster pace
Post Issue Shareholding Pattern
during the next few years. We expect industry order flow to come in at the run rate
Promoters Group
85.5
of 5,000-6,000MW per annum as against the current run rate of 2,000MW per
MF/Banks/Indian
annum. The government has provided various incentives and framed several rules
FIs/FIIs/Public & Others
14.5
and regulations to increase demand for renewable energy.
Outlook and Valuation: On EV/sales, the company is valued at 3.3x (at the upper
end of the price band) on the basis of 9MFY2015 annualized numbers. Looking
at the strong order book of the company and government focus on the sector, we
recommend a Subscribe on the issue.
Key Financials
Y/E March (` cr)
FY2013
FY2014
Net Sales
1059
1567
Net Profit
150
131
OPM (%)
18.6
11.2
EPS (`)
6.8
5.9
P/E (x)*
48.0
54.9
Shrenik C. Gujrathi
P/BV (x)*
4.4
15.5
+91 22 3935 7800 Ext: 6872
EV/Sales (x)*
7.1
4.9
Source: Company, Angel Research; Note: *The above numbers are considering subscription at the
upper end of the price band
Please refer to important disclosures at the end of this report
1
Inox Wind | IPO Note
Issue details
The company’s issue consists of fresh issue of equity shares of `10 each via the
book building process in the price band of `315-325, aggregating up to `700cr;
and offer for sale by promoters group of 1.0cr shares. Further, the company has
offered a discount of `15 per share to employees and retail investors. The issue
will constitute 14.5% of the post-issue paid-up equity share capital of company.
Exhibit 1: Share Holding pattern
Particulars
Pre-Issue
Post-Issue
No. of shares
(%)
No. of shares
(%)
Promoter group
200,000,000
100.0
190,000,000
85.8
Others
-
-
31,538,460
14.2
Total
200,000,000
100.0
221,538,460
100.0
Source: RHP, Angel Research
Objects of the issue
Expansion and up gradation of existing manufacturing facilities. Amount to be
financed from the net proceeds will be `147.5cr.
Long term working capital requirements. Amount to be financed from the net
proceeds will be `290cr.
Investment in subsidiary (IWISL) for the purpose of development of power
evacuation infrastructure and other infrastructure development. Amount to be
financed from the net proceeds will be `131.5cr.
March 17, 2015
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Inox Wind | IPO Note
Key investment arguments
Strong order book and ready pipeline of project sites: IWL has shown a strong
growth during FY2014 and 9MFY2015 period wherein it has sold 330MW and
380MW of WTGs during the period; plus, it has a strong order book (as of
December 2014). In the initial years of business, IWL’s orders were only from the
group companies, but now it has orders from major corporates like Oil India, Tata
Power, CESE, Welspun, Bangur and Hero group companies. Currently IWL has an
order book of 1,136MW (only 50MW is from group companies) as against
Suzlon’s order book of 1,148MW and Gamesa India Pvt Ltd’s order inflow of
850MW, as of December 2014. These provide us strong revenue visibility for
FY2016. Out of this order book 694MW orders are turnkey orders where it has to
supply WTGs and carry out wind studies, energy assessment, land acquisition,
infrastructure development, erection and commissioning of the projects. The
remaining 564MW order is only for the supply of WTGs. IWL has already executed
122MW and revenue in respect of this has been booked as of December 2014.
Exhibit 2: Inox WTG sales/commissioning in India (MW)
Exhibit 3: Declining in house contribution in net sales
(MW)
(%)
400
100
350
80
300
180
66
250
150
60
85
200
100
100
20
40
150
154
100
200
180
178
20
34
50
44
15
0
0
FY2013
FY2014
9MFY14
9MFY15
FY2013
FY2014
FY2014
9MFY15
WTG Sales EPC
Group company Sales
Third Party Sales
Source: RHP, Angel Research
Source: RHP, Angel Research
Exhibit 4: Peers companies order book as on December 2014
Company Name
MW
Inox Wind Ltd
1136
Suzlon Ltd
1148
Gamesa Corp*
850
Source: RHP, Angel Research; Note: *Order inflow from India during 2014.
IWL has access to wind sites which have been acquired or are under the
acquisition process by its group companies - GFL and IRL - and its subsidiary
IWISL. Currently the wind sites acquired have an aggregate power project capacity
of 2,130MW, while the wind sites which are under the acquisition process have a
power project capacity of 1,922MW. All these sites are located in Rajasthan,
Gujarat, Madhya Pradesh and Andhra Pradesh. IWL has made an agreement with
group companies under which they get access to the wind sites for construction of
wind power projects. IWL would reimburse the cost incurred by group companies
on site acquisition along with markup equal to 10% p.a.
March 17, 2015
3
Inox Wind | IPO Note
Procedure for Acquisition of Wind Sites
A project developer is required to apply to the government to obtain leasehold
rights in government land for the development of wind farms.
After that the project developer does the survey (collection of wind availability
data and project feasibility study) for selection of potential sites for project.
Once the site is identified then the project develpoer would register the project
in its name.
After that, the project developer is required to make certain payments pursuant
to the rules, following which the government makes a recommendation to the
district collector to allot the specified land to the project developer for wind
farm development.
Upon the land being allotted to the project developer, the project developer
enters into a lease deed with the relevant authority, and acquires possession of
the land.
The project developer is required to ensure that the project commences
operation within certain period of time (differs from state to state) following the
date of allotment of land. For acquisition of land, the project developer
doesn’t require much funds as the same is provided by the government or is
provided at a nominal lease rental.
The company has acquired healthy amount of wind sites (2,130MW) so far, which
is likely to convert in sales and moreover, the process for acquiring additional
1,922MW wind sites is under process. In our view the company has a strong
potential to convert this additional sites into order book. Thus this gives us a
medium term revenue visibility for the company going forward.
Exhibit 5: Visibility of Project Pipeline
Acquired Wind sites
MW Wind Sites under acquisition process
MW
Rajasthan
1,415
Rajasthan
1,194
Gujarat-IRL
154
Gujarat
74
Gujarat-GFL
212
Madhya Pradesh
634
Gujarat-IWISL
44
Andhra Pradesh
20
Madhya Pradesh
285
Andhra Pradesh
20
Total
2,130
Total
1,922
Source: RHP, Angel Research
Capacity addition to drive growth
The strong order book shows the medium term revenue visibility for the company.
To improve the utilization levels of its nacelles and hubs plant, IWL is increasing
rotor blade and tower production capacity from 256 to 400 rotor blade sets and
150 to 300 towers per annum at its Rohika unit, Ahmedabad, Gujarat. The
company is also constructing new integrated manufacturing unit at Barwani,
Madhya Pradesh with nacelles and Hubs capacity of 400 units, rotor blades
capacity of 400 sets and tower capacity of 300 units. This new plant is expected to
March 17, 2015
4
Inox Wind | IPO Note
commence operations during 2HFY2016. Thus, IWL’s total capacity of nacelles
and hubs will increase to 950 units, rotor blade capacity to 800 sets and tower
capacity to 600 units.
Exhibit 6: Manufacturing Capacity
Installed
Post
Component(s)
Plant Location
Annual Production
Proposed
Capacity
Expansion
Nacelles and Hubs
Himachal Pradesh
550
550
Nacelles and Hubs
Madhya Pradesh
-
400
Rotor blade sets
Madhya Pradesh
-
400
Towers
Madhya Pradesh
-
300
Rotor blade sets
Gujarat
256
400
Towers
Gujarat
150
300
Source: RHP, Angel Research
Government focus on renewable energy: The government has set a target of
installed wind power capacity of 60,000MW till FY2022 from the current capacity
of 21,150MW. This will create a huge opportunity for the company in the
upcoming period. Hence we expect order inflow to increase at a faster pace
during the next few years. We expect industry order flow to come in at the run
rate of 5,000-6,000MW per annum as against the current run rate of
2,000MW per annum. The government has reintroduced the accelerated
depreciation and generation based incentives scheme which are the major
demand drivers for the wind energy sector. Furthermore, in order to increase the
demand for renewable energy, Renewable Purchase Obligation (RPO) is being
implemented throughout the country and SERCs are obliged to purchase certain
percentage of their power consumption from renewable energy sources.
Exhibit 7: Potential versus currently installed wind capacity (MW)
Installable Potential
State / UTs
at 50 meter
at 80 meter
Installed Capacity
hub height
hub height
Andhra Pradesh
5,394
14,497
748
Gujarat
10,609
35,071
3,454
Karnataka
8,591
13,593
2,324
Kerala
790
837
35
Madhya Pradesh
920
2,931
423
Maharashtra
5,439
5,961
4,086
Rajasthan
5,005
5,050
22,802
Tamil Nadu
5,374
14,152
7,273
Others
7,008
10,336
4
Total
49,130
102,788
21,489
Source: RHP, Angel Research
March 17, 2015
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Inox Wind | IPO Note
Availability of high quality technology and ability to provide
turnkey solution
IWL has perpetual license from ASMC, a leading wind technology company from
Austria, to manufacture 2MW WTGs in India. The company also provides turnkey
solution services to its customers as it is preferred by wind farm developers and
independent power producers as they do have capabilities to undertake such large
project development.
Strong financials: Typically WTG manufacturers require large working capital,
mainly due to higher receivables. Therefore companies with well capitalized
balance sheets are likely to be in a position to manage their working capital
requirement and successfully expand business going forward. IWL plans to utilize
`290cr from this IPO issue for long term working capital so as to expand business
activity going forward.
Outlook and Valuation
IWL has shown a strong growth in its initial stage of business operation. Given the
government thrust on renewable energy sector and the company’s strong order
book, we think the company is well positioned to grow at a healthy rate in the
coming years. Currently it is attractively placed in terms of financial stability as its
margins are quite strong and has healthy balance sheet as compared to its closely
listed peer Suzlon Energy. On EV/sales, the company is valued at 3.3x (at the
upper end of the price band) on the basis of 9MFY2015 annualized numbers.
Looking at the strong order book of the company and government focus on the
sector, we recommend a Subscribe on the issue.
Exhibit 8: Valuation table (9MFY2015 annualized)
Inox Wind
**Suzlon Energy
Sales
2,373
5,276
EV
7,910
16,446
Order Book (MW)
1,136
1,148
EV/Sales
3.3
3.1
Source: Company, Angel Research, Note: Considered upper price band to arrive at implied market
cap, EV and Book value.** Suzlon valuation is based on sale of overseas business and fresh equity
infusion.
March 17, 2015
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Inox Wind | IPO Note
Key investment concerns
Wind energy potential of the country is limited
Centre of Wind Energy Technologies, a research organization in wind energy, has
said in a report (released in March 2014) that India has a wind power potential of
102,788MW on 80 meter hub height. Currently 20.5% of wind energy potential
has been exploited. Moreover, based on government target of wind capacity
addition by 2022, 60% of the potential would be exhausted.
Increase in competition might put pressure on margin
The WTG manufacturing capacity in India currently is estimated to be 12,000MW
per annum, and we expect competition to increase in this segment in the coming
years. IWL competes with players like Suzlon Energy, Gamesa Wind Turbine Pvt
Ltd, Vestas and Win Wind Power Energy Pvt Ltd. Moreover, some more
international players are eyeing the Indian market. Therefore, competition is likely
to remain high. In order to gain market share, the company might have to reduce
the prices of its product and services. This might put pressure on its margins going
forward.
Exhibit 9: WTG manufacturing Capacity
Manufacturer name
MW (per annum)
Gamesa Wind Turbine Private Limited
1,500
GE India
450
Leitner Shiram Manufacturing Ltd
1,100
Kenersys India Pvt. Ltd
400
Leitner Shiram Manufacturing Ltd
250
ReGen Powertech Pvt. Ltd.
750
Suzlon Energy Limited
3,700
Vestas Wind Technology India Pvt. Ltd.
1,000
WinWinD Power Energy Pvt. Ltd.
1,000
Inox Wind Ltd
1,100
Total Industry
12,000
Source: Company, Angel Research
March 17, 2015
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Inox Wind | IPO Note
Profit & Loss
Y/E March (` cr)
FY2013
FY2014
9MFY14
9MFY15
Net Sales
1,058.9
1,567.2
877.4
1,779.5
% chg
70.3
48.0
(44.0)
102.8
Total Expenditure
862.4
1,391.7
756.6
1,496.7
Raw Materials
678.9
939.7
578.4
1,152.6
(% of Net Sales)
64.1
60.0
65.9
64.8
Employee Cost
25.0
38.4
29.4
39.1
(% of Net Sales)
2.4
2.5
3.3
2.2
EPC, O&M, Common
94.1
273.4
56.4
172.6
Inf Facility and Site Dev exp.
(% of Net Sales)
8.9
17.4
6.4
9.7
Other Expenses
64.4
140.2
92.4
132.4
(% of Net Sales)
6.1
8.9
10.5
7.4
EBITDA
196.5
175.5
120.8
282.8
(% of Net Sales)
18.6
11.2
13.8
15.9
Depreciation
8.9
11.6
8.6
14.7
EBIT
187.6
163.9
112.2
268.1
Interest
38.7
46.0
38.0
46.4
Other Income
4.8
9.1
7.9
15.5
PBT before exceptional items
153.7
127.0
82.1
237.1
PBT
153 7
127 0
82 1
237 1
Tax
3.3
(4.4)
(3.2)
57.8
(% of PBT)
2.1
(3.5)
(3.9)
24.4
PAT
150.4
131.5
85.3
179.3
Adj. Net Profit
150.4
131.5
85.3
179.3
Margin (%)
14.2
8.4
9.7
10.1
yoy growth (%)
50.7
(12.6)
110.3
EPS
6.8
5.9
8.1
38
March 17, 2015
8
Inox Wind | IPO Note
Balance sheet
Y/E March (` in cr)
FY2013
FY2014
9MFY14
9MFY15
SOURCES OF FUNDS
Equity Share Capital
40
200
200
200
Reserve and Surplus
256
220
174
398
Net Worth
296
420
374
598
Loans
337
480
533
729
Other Long term liabilities
2
2
2
2
Deferred tax liabilities
20
15
16
4
Total Liabilities
654
918
926
1,333
APPLICATION OF FUNDS
Fixed Assets
157
174
177
168
Capital Work-in-Progress
4
25
15
45
Investments
-
45
45
-
Current Assets
789
1,228
1,092
1,962
Inventories
79
271
234
312
Sundry Debtors
500
710
613
1,251
Cash
2
4
2
19
Loans & Advances
196
203
228
341
Other Assets
12
41
15
40
Current Liabilities
296
555
403
842
Net Current Assets
494
673
688
1,120
Total Assets
654
918
926
1,333
March 17, 2015
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Inox Wind | IPO Note
Cash flow statement
Y/E March (` in cr)
FY2013
FY2014
9MFY14
9MFY15
Profit before tax
154
127
82
237
Depreciation
9
12
9
15
Change in Working Capital
(286)
(238)
(307)
(292)
Interest / Dividend (Net)
34
39
32
40
Direct taxes paid
(29)
(33)
(21)
(48)
Others
(3)
6
4
4
Cash Flow from Operations
(121)
(88)
(202)
(45)
(Inc.)/ Dec. in Fixed Assets
(351)
(44)
(32)
(54)
(Inc.)/ Dec. in Investments
216
(0)
21
(17)
Cash Flow from Investing
(135)
(44)
(11)
(71)
Issue of Equity
0
0
0
0
Inc./(Dec.) in loans
256
179
250
191
Dividend Paid (Incl. Tax)
0
0
0
0
Interest / Dividend (Net)
(38)
(46)
(38)
(71)
Cash Flow from Financing
219
132
212
120
Inc./(Dec.) in Cash
(37)
0
(1)
4
Opening Cash balances
39
2
2
2
Closing Cash balances
2
2
1
6
March 17, 2015
10
Inox Wind | IPO Note
Key Ratios
Y/E March
FY2013
FY2014
Valuation Ratio (x)
P/E (on FDEPS)
48.0
54.9
P/CEPS
45.3
50.5
P/BV
4.4
15.5
EV/Sales
7.1
4.9
EV/EBITDA
38.4
43.5
EV / Total Assets
11.5
8.3
Debt/Equity
1.1
1.1
EPS (fully diluted)
6.8
5.9
Cash EPS
7.2
6.4
Book Value
73.9
21.0
Turnover ratios (x)
Inventory / Sales (days)
27
63
Receivables (days)
172
165
Payables (days)
125
146
WC cycle (ex-cash) (days)
170
156
Note: Valuation Ratio at the upper price band
March 17, 2015
11
Inox Wind | IPO Note
Research Team Tel: 022 - 39357800
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March 17, 2015
12
