INOX Wind

Re: Inox Wind – Concall Update

Technology tie-up with AMSC – Key Features
• Company got license to manufacture Electrical Control System (ECS) indigenously – Exclusive License from AMSC to manufacture ECS in India. Will pay one time license fee of $12mn to AMSC which will be capitalized. Fees will be paid in phased manner over next 1 year as the technology gets transferred. Further, Company will have to incur Rs 2-3cr capex to setup assembly unit at its existing facilities.
• Long term supply agreement of ECS from AMSC to secure sourcing of the equipment – Here AMSC will supply 50% of the ECS requirement of Inox over next 5-6 years at a fixed price (balance will be manufactured by Inox in India). As per AMSC’s press release, such agreement is valued at around $210mn (including license fees) over the agreement period – around $40mn annually (assuming 5yr agreement)
• Collaboration for 3MW turbine technology

Benefits of ESC tie-up
• Company was dependent on AMSC for ECS supply which was seen as a risk given the questionable financial health of AMSC. With this deal, company not only secured the supply of key component but also secured technology to manufacture it indigenously.
• Company will save significant cost both from cost of ECS as well as logistics/supply chain perspective
• Mgmt said ECS cost is around 8-10% of the imported cost of turbine, which is around 35% of total wind turbine cost. So cost of ECS is around 2.8-3.5% of total wind turbine cost.
• Mgmt did not divulge cost savings but the rough guesstimate would be around 50bps to 75bps/MW savings can be achievable (of 2.8-3.5% cost – 50% will remain unchanged due to imports, benefit will come in balance 50% indigenous ECS – cost saving, logistics savings, WC savings)

Benefits of 3MW turbine technology
• Mgmt said India market is not ready right now for 3MW turbine due to various factors including logistics
• However, company has secured technology to be future ready as and when India is ready for 3MW
• Will be able to roll out in next 18-24 months

Other aspects and Concerns addressed:
• On provisioning for spares and warranty: Management indicated that for outsourced components they have back to back guarantee with the suppliers. For indigenous components which company manufactures, company has insured all products for any mfg defects. Still against industry practice of providing provision every year.
• On AMSC’s health: Securing technology for key component and long term agreement, clears some air around the same.

Disclosure: Not invested