Well-Positioned to Benefit from Tailwinds in the Wind Sector
We initiate coverage of Inox Wind Limited (IWL) with a BUY recommendation and a target price of Rs 185/Share, implying an upside potential of 33% from the CMP. Inox Wind is a fully integrated wind energy solutions provider. The company is engaged in the business of manufacturing and selling wind turbine generators (WTGs). It also provides erection, procurement, and commissioning (EPC), operations and maintenance (O&M), and common infrastructure facilities services for WTGs and wind farm development services.
Post the promoter infusion, IWL has reduced its interest-bearing debt to nil. The company is well positioned to capture the market share of the growing wind sector in India thanks to its strengthened balance sheet, robust order book of 2.7 GW across a well-diversified customer base, and a leaner O&M arm (Inox Green Energy Services Ltd. with robust margins of 45%+). India plans to add around 75 GW of wind power capacity by FY32 over the current base of 46 GW. With the transition from 2 MW to 3-3.3 MW and the development of the 4.X MW WTG platform, it is also technologically ready for the next decade.
Investment Thesis
• Strong Order Book – As of 31st Mar’24, the company has a strong order book at 2.7 GW, which will be sold for the next 2.5 years. The 2.7 GW order book is a mix of all customers, PSUs, IPPs, C&I market and retail market with a healthy mix of turnkey and equipment supplies. The company also has multiple IPP & C&I orders in the pipeline which are at advanced stages of closure.
• Ramp-up in Execution – In FY24, the company’s execution stood at 376 MW as compared to 104 MW in FY23, indicating a 262% YoY jump in execution. With the large order book, the company expects higher order execution from FY25 onwards (guidance of 800/1,200 MW for FY25/26E) with a target of 2 GW of annual execution in the medium term. The company has the capability and supply chain readiness to execute higher MWs. In FY16, it had commissioned 786 MW when the wind sector was at its peak.
• Technological Advancement – The company has ramped up the manufacturing of 3 MW wind turbines and successfully transitioned to 3 MW wind turbine from 2 MW. It has also secured the license of a 4.X MW wind turbine platform. The 4.X MW wind turbine with a large rotor diameter for low wind sites will be a revolutionary product in India.
• Financial Performance – The company incurred losses during FY19-24, primarily due to reduced execution linked to lower wind capacity additions. This was caused by the abrupt transition to a reverse bidding auction regime starting from FY18 and the additional impact of COVID-19 in FY21-22. We expect the company to return to profitability from FY25 onwards, driven by higher execution, which will be supported by its robust order book. We project a Revenue/EBITDA CAGR of 75% over FY24-27E and project the PAT to jump to Rs 1,081 Cr in FY27E from a loss of Rs 51 Cr in FY24. We also project an EBITDA margin of 15%, in line with the company guidance range of 14-15%.
• Nil Interest-bearing debt on the books – The series of promoter’s fund infusions (cumulative of Rs 2,940 Cr over FY23-25) through stake sales has resulted in zero interest bearing debt for Inox Wind.
Valuation & Recommendation
With the interest-bearing debt coming down to zero, robust order book, technological readiness, and execution capability along with the government’s renewed focus on wind capacity additions, we assign a target P/E multiple of 30x on our FY26 EPS estimate. We further adjust it for the promoter’s fund infusion and minority stake in the Inox Green Energy Services Ltd. to arrive at our TP of Rs 185/share and initiate the coverage with a BUY rating. Our TP implies a potential upside of 33% from the CMP.
Inox Wind Ltd – Initiating Coverage – 28062024_compressed (1)_28-06-2024_11
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