Inox Wind - Motilal Oswal Report

8/20/2019 Inox Wind - Motilal Oswal Report

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Favorable winds

Inox Wind

Initiating Coverage | 1 July 2015

Sector: Capital Goods

Amit Shah ([email protected]); +91 22 3029 5126

Satyam Agarwal ([email protected]); +91 22 3982 5410


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Inox Wind

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Prices as on 1 July 2015

Investors are advised to refer through disclosures made at the end of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset

and S&P Capital.

Inox Wind: Favorable winds

Page No.

Investment summary ..........................................................................................3

Wind energy sector at inflexion point .......................................................... 4-8

INXW: Prepped for rising wind capacity installation ................................. 9-13

Expect 65% earnings CAGR over FY15-17 .................................................. 14-16

Initiating coverage with Buy rating ........................................................... 17-18

Risks and concerns ...................................................................................... 19-20

Company background ....................................................................................... 21

Board of directors ....................................................................................... 22-23

Operating metrics .............................................................................................24

Financials and valuations ........................................................................... 25-26


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Favorable winds

Expect 65% earnings CAGR over FY15-17; re-rating imminent

n Wind energy presents a strong growth opportunity with the markets likely to

expand from 2.3GW in FY15 per annum to 4-5GW per annum in the medium term,

aided by restoration of accelerated depreciation (AD) and generation-based

incentives (GBI).

n We believe INXW is suitably placed and expect it to clock sales of 825MW in FY16

and become the number-1 player, with ~25% market share. Over FY15-17, we

expect INXW to deliver 28% volume growth.

n Earnings should grow at a CAGR of 65% over FY15-17, driven by 44% revenue

CAGR and improvement in realization. We believe a re-rating is imminent. Buy.

Wind energy sector at inflexion point: The wind energy sector in India had

witnessed a sharp fall in capacity addition from 3.2GW in FY12 to 1.2GW in

FY13, led by withdrawal of accelerated depreciation (AD) and generation-based

incentives (GBI) in March 2012. However, renewable energy is now a key focus

area for the government, which has ambitious plans to set up an installed

capacity base of 60GW in the wind energy segment by 2022 (vs 23GW as at end

FY15). We believe there are multiple tailwinds that will help drive the size of the

Indian wind energy market from 2.3GW in FY15 to 4-5GW in medium term.

INXW – prepped for rising wind capacity installation: In FY16, we expect INXW

to clock sales of 825MW and become the number-1 player, with ~25% market

share. INXW is well positioned to benefit from the wind market revival,

supported by (1) strong relationships with IPPs, (2) technology partnerships with

global leaders, (3) ready pipeline of project sites, (4) strategically located

manufacturing units, and (5) established execution track record.

Expect 65% earnings CAGR over FY15-17: We expect INXW to report 44%

revenue CAGR over FY15-17, largely supported by volume growth of 28% and

realization improvement of 8%. Operating profit is likely to witness 58% CAGR

over FY15-17, led by margin expansion of 330bp during the period. Margin

expansion to be supported by various initiatives including New product launch,

Improved logistics and supply chain benefits, Lower Royalty expense, Improved

Realizations, Recent duty benefits, etc. Driven by strong earnings growth and

debt repayment, we expect RoE to improve to 28% and RoCE to 32% in FY17.

Initiating coverage with Buy rating: INXW is well positioned to benefit from the

huge opportunity India’s wind power segment presents. We expect its revenue

to grow at a CAGR of 44% and earnings to grow at a CAGR of 65% over FY15-17.

Backed by its strong revenue and earnings growth, and robust return ratios (RoE

of 28% and RoCE of 32% in FY17E), we initiate coverage with a Buy rating. Ourtarget price of INR543 (15x FY17E EPS of INR36) implies 28% upside.

Initiating Coverage | Sector: Capital Goods

Inox WindCMP: INR425 TP: INR543 (+28%) BuyBSE Sensex S&P CNX

28,021 8,453

Stock Info

Bloomberg INXW IN

Equity Shares (m) 221.9

M.Cap. (INR b) / (USD b) 84.9/1.3

52-Week Range (INR) 495/385

1, 6, 12 Rel. Per (%) -3/-/-

Financial Snapshot (INR Billion)

Y/E March 2015 2016E 2017ENet Sales 27.1 46.1 56.4

EBITDA 4.6 8.7 11.4

Adj PAT 3.0 6.1 8.0

EPS (INR) 13.4 27.3 36.2

EPS Gr. (%) 102.0 104.1 32.7

BV/Sh. (INR) 64.8 91.5 127.6

RoE (%) 20.6 29.8 28.3

RoCE (%) 19.2 32.8 32.1

Valuations

P/E (x) 31.8 15.6 11.7

P/BV (x) 6.6 4.6 3.3

EV/EBITDA (x) 21.1 11.4 8.2

Shareholding pattern (%)

As on Mar-15

Promoter 85.6

DII 3.7

FII 3.5

Others 7.2

FII includes depository receipts


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Wind energy sector at inflexion pointMultiple tailwinds; market size to double over FY15-22

n The wind energy sector in India had witnessed a sharp fall in capacity addition from

3.2GW in FY12 to 1.2GW in FY13, led by withdrawal of accelerated depreciation (AD)

and generation-based incentives (GBI) in March 2012.n However, renewable energy is now a key focus area for the ruling BJP-led government,

which has ambitious plans to set up an installed capacity base of 60GW in the wind

energy segment and 100GW in the solar segment by 2022.

n We believe there are multiple tailwinds that will help drive the size of the Indian wind

energy market from 2.3GW in FY15 to 4-5GW in medium term.

An enabling environment is in placeThere are multiple factors supporting India’s wind energy segment: (a) the central

government’s ambitious plans (60GW of wind energy capacity by 2022), backed by

fiscal and regulatory incentives (AD and GBI), (b) finalization of feed-in tariff and

regulatory support provided by state governments, (c) inclusion of renewable

generation obligation (RGO) in the Electricity Act, (d) untapped wind power

potential of 100GW (CWET study), and (e) long-term opportunities arising from

offshore wind power installation and repowering of old WTG sites. We expect the

Indian wind market size to grow from 2.3GW in FY15 to 4-5GW in medium term.

Exhibit 1: Favorable regulatory changes to boost wind energy investment

Accelerated Depreciation (AD) Overview and Policy

§ Withdrawn in Mar 2012, reintroduced in Jul 2014 and notified i

September 2014

Impact: Brings back SME interest, Captive demand

Generation Based Incentives (GBI)

§ Withdrawn in Mar 2012, reintroduced in Mar 2013 and notified

in Sep 2013

§ INR0.50/unit incentive to generators with a cap of INR1 cr/MW,

up from Rs.0.62 cr/MW for 4-10th year

Impact: IPPs to focus on setting up new capacities

Access to low cost funding

§ National Clean Energy cess doubled to INR200/mt

§ This Fund to be used for GBI, low cost funding and green

corridors

Impact: Higher corpus available to facilitate growth

Mandatory CSR (Renewable)

§ Under new Companies Act, eligible companies have to spend 2

of its average net profit on CSR activities

§ Renewable energy / WTG qualifies under mandatory CSR spend

Impact: Demand from Corporates / PSUs to strengthen

Renewable Purchase Obligation

§ Distribution companies are required to procure a percentage o

all electricity from renewables

Impact: Aids to meet the renewable energy sourcing target of 15%

by 2020

Other incentives § Fast tracking of implementation of Green Corridor will address

evacuation constraints

§ Long term funding to infrastructure projects (up to 25 years)

§ 4% SAD on parts and RM for WTG manufacturing removed

Source: Company, MOSL


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Exhibit 2: Wind Financing Policy’s evolution

Source:Industry Reports, MOSL

To spur growth in renewable energy sector, incentives like accelerated depreciation

(AD-introduced in 1990) and gross generation incentives (GBI- introduced in 2009)

were introduced; however these initiatives were withdrawn in 2012, which led to

slump in wind energy installation and FY13/FY14 saw a muted average addition of

1.9GW per annum, down from 3GW addition in FY12. With reinstallation of these

incentives in 2014, we expect Indian wind market size to grow from 2.3GW in FY15

to 4-5GW in medium term.

The Power Ministry plans to amend the Electricity Act to introduce renewable

generation obligation (RGO), whereby conventional power plant developers would

be obligated to generate ~10% power from renewable energy sources. Successful

inclusion and implementation of the RGO norms can help the wind market to

expand from 2.3GW in FY16E to 4-5GW per annum in the medium term.

State governments also encouraging wind energyState governments hold the key for successful implementation of the central

government’s ambitious capacity installation plan of 60GW. They play a key role in

land allocation for the wind sites, evacuating power and providing grid connectivity

to the power generated from the wind sites. States have provided incentives over

and above the central government’s sops to attract investments in wind energy.

Key incentives provided by states

Feed-in tariff: Several states like Rajasthan, Madhya Pradesh, Gujarat, Andhra

Pradesh, Telangana, Maharashtra and Karnataka have provided preferential tariff

over and above MNRE’s GBI of INR0.5 per kilowatt-hour to attract investment. Some

have also increased wind power tariffs by 2-15% to attract investments. These statesare expected to witness traction and will play a critical role to achieve the aggregate

target of 4-5GW per annum.

Inclusion of RGO norms in

Electricity Act to increase

demand for renewable

power installation


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Exhibit 3: Preferential Feed in tariff (FIT) provided by states

State FiT (INR/KWh)

Andhra Pradesh 4.7

Gujarat 4.15

Chattishgarh WPD >200w/m2:6.25

WPD 201-250w/m2:5.68

WPD 251-300w/m2:5.00WPD 301-400/m2:4.17

WPD>400/m2:3.91

Gujarat 4.15

Haryana WPD 201-250w/m2:5.81

WPD 251-300w/m2:5.06

WPD 301-400/m2:4.31

WPD>400/m2:3.88

J&K CUF20% 5.80

CUF22% 5.27

CUF25% 4.64

CUF30% 3.87

CUF32% 3.62

Karnataka 4.2

Kerala 4.77

Madhya Pradesh 5.92

Maharashtra WPD 200-250w/m2:5.7

WPD 250-300w/m2:5.01

WPD 300-400w/m2:4.18

WPD>400w/m2:3.92

Orissa 4.48

Punjab 5.8

Rajasthan 5.12 (for projects in Jaisalmer, Jodhpur and Barmer

5.38 (for others)Tamil Nadu 3.51

Uttarakhand WPD >200w/m2:5.0

WPD 201-250w/m2:4.45

WPD 251-300w/m2:3.80

WPD 301-400/m2:3.05

WPD>400/m2:2.80

Uttar Pradesh 3.21; escalation of 5.71 for 10 years

West bengal Tariff cap of 5.71 for 10 years

Reduced or no VAT: Several states including Tamil Nadu, Karnataka, Maharashtra

and Gujarat have policies that eliminate or reduce value-added tax (VAT) for wind

turbine components.

Exhibit 4: VAT benefit provided to attract investments in states

State VAT rates

Tamil Nadu Reduced VAT from 14.5% to 5%

Karnataka 5.50%

Gujarat 5%

Maharashtra 5%


Wheeling and banking: For wind power, wheeling charges (paid to the distribution

company to use transmission infrastructure to send power from offsite locations)for different states are in the range of 2% (Madhya Pradesh and Maharashtra) to

7.5% (West Bengal). Of the total wind energy fed to the grid in a financial year, Tamil


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Nadu allows 5% and Karnataka 2% as banked energy that can be accessed any time

during the financial year.

Green cess fund: The Maharashtra Energy Development Agency (MEDA) has created

a green cess (tax) fund. A part of this fund is used to create infrastructure for grid

connectivity with proposed wind farms. Strong evacuation infrastructure promotes

investments in wind power.

Land facilitation policy: State governments like Rajasthan, Madhya Pradesh and

Gujarat have formalized land facilitation policies to expedite wind energy projects.

Major projects get delayed mainly on account of delays in land acquisition.

Exhibit 5:

Land facilitation policy

State Land Facilitation Policy

Rajasthan Government land at concessional rates -- 10% of DLC rates, with maximum allocation of 5 Hect./MW.

The conversion charges (private land to industrial use) will be 10% of charges levied for industrial purposes under the

relevant rules.

Madhya PradeshGovernment revenue land use permission at INR1/-(token) premium per year (as per circular No. F-16-3-93-VII-2A,

dated 06-09-2010 and No. F-6-53-2011-VII-Nazool, dated 08-08-2011)

Gujarat WTGs may be set up on private land, or revenue wasteland / GEDA land, if available

MaharashtraDeveloper/Investor can be allotted Government barren land (permissible for industrial use), at declared windy sites, on

lease basis with 30 yrs agreement

Andhra Pradesh

Each eligible developer may be allocated available Govt. land to harness up to a maximum of 200mw of wind power

initially. After commissioning of 100 MW capacity Wind farms in 1st stage in the allocated Govt. land, the Government

may allocate land for another 100 MW capacity Wind Farms. The application from the developers for Government land

will be considered on a first-cum-first-served basis.


India has significant untapped wind potentialAccording to the Centre for Wind Energy Technology (C-WET), India has thepotential to install over 100,000MW of wind turbines at 80meters hub height,

implying an untapped wind power potential of 78GW. Based on C-WET estimates,

India has explored only 22% of its wind power potential. This indicates strong long-

term business opportunity for domestic WTG manufacturers.

Exhibit 6: Potential v/s currently installed capacity (MW)

State / UTs Installable Potential Installed Capacity

@50 m @80 m

Andhra Pradesh 5,394 14,497 913

Gujarat 10,609 35,071 3,581

Jammu & Kashmir 5,311 5,685 -

Karnataka 8,591 13,593 2,549

Kerala 790 837 35

Madhya Pradesh 920 2,931 567

Maharashtra 5,439 5,961 4,370

Odisha 910 1,384 -

Rajasthan 5,005 5,050 3,053

Tamil Nadu 5,374 14,152 7,394

Uttarakhand 161 534 -

Uttar Pradesh 137 1,260 -

Others 489 1,833 -

Total 49,130 102,788 22,462

Source: C-WET,Company, MOSL


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Offshore and Repowering to be long-term demand driversOffshore wind: The Ministry of New and Renewable Energy (MNRE) issued a draft

policy for the development of offshore wind energy in 2013, which aims to deploy

wind farms within territorial waters (12 nautical miles). Preliminary assessments

indicate that the coastlines of Tamil Nadu (Rameshwaram and Kanyakumari) and

Gujarat have reasonably high offshore wind potential. A recent study conducted byWISE estimates Tamil Nadu’s offshore wind potential at 127GW at 80 meters height,

though this is yet to be corroborated by other studies (MNRE, 2013E). A separate

study estimates that India has the potential to develop 350GW of offshore wind

energy (PIB, 2013). Offshore wind energy offers a strong business opportunity for

INXW.

Repowering: Repowering low-capacity and aging wind turbines to improve

efficiency, or to achieve better grid integration or higher energy yield could be

another big business opportunity in India. Currently, Germany, Denmark, the US and

the Netherlands are at the forefront of the repowering movement. India’s currentrepowering potential is estimated at ~2,760MW (GWEC, 2012A), but there are

several practical challenges (involving land ownership, lack of supporting state

policies or economic incentives), which hinder the realization of this potential. Tamil

Nadu, which has several aging (older than 15 years) wind farms located in wind-rich

districts, is a state with high repowering potential. Gamesa is the first company to

implement a wind repowering project in India, “Project Avatar” in Tamil Nadu in

2011 (MNRE, 2011A).


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INXW: Prepped for rising wind capacity installation

To become number-1 player, with 25% market share

n

In FY16, we expect INXW to clock sales of 825MW and become the number-1 player,

with ~25% market share.

n

INXW is well positioned to benefit from the wind market revival, supported by (1)

strong relationships with IPPs, (2) technology partnerships with global leaders, (3)

ready pipeline of project sites, (4) strategically located manufacturing units, and (5)

established execution track record.

Well-balanced, differentiated business model

In India, 80% of the wind energy projects are executed on turnkey basis, as wind

power developers do not have in-house capabilities to undertake project

development on a large scale. INXW’s business model, however, is equally focused

on turnkey solutions and WTG supplies. While turnkey solutions contribute 48% of

its orderbook, WTG supplies constitute 52%. Its balanced business model helpsINXW to optimally utilize its organizational resources. Project execution on EPC basis

can severely constrain organizational bandwidth.

INXW provides turnkey solutions together with its wholly-owned subsidiaries, Inox

Wind Infrastructure Services Limited (IWISL) and Maruti-Shakti India Limited

(MSEIL). Its services include wind resource assessment, site acquisition,

infrastructure development, erection and commissioning, and long-term operation

and maintenance of wind power projects.

Exhibit 7: Complete solution provider to customersWind Farm Identification n Wind resource assessment to identify suitable site for a wind farm and physical assessment of the site

n Energy assessment of the site

n Identification of land including revenue, private, forest and tribal land

n Approach road and logistic feasibility

Power Evacuation n Study of power evacuation options at site

n Finalization of evacuation grid substation based on load flow study and capacity

n Land or light of way for the transmission line

Infrastructure Development n Development and construction of infrastructure for wind farm

n Land development to enable installation of WTGs

Support for all government

approvals

n Assist the customer in connection with obtaining statutory approvals necessary to install and operate the

wind farm and common infrastructure facilities including the sub-station and transmission lines

n Provide support in connection with power purchase agreements and wheeling and banking agreements

with state distribution companies

Engineering, Procurement

and Construction

n Construction of WTG tower foundations

n Supply, erection and installation of turbines

n Construction and installation of a unit sub-station and switch yard at each WTG

n Installation of an energy meter to measure electricity generated

n Pre-commissioning and commissioning of WTGs

Operation and Maintenance n 24/7 operation and maintenance of WTGs and wind farms, including preventive maintenance of WTGs,

unit sub-stations and common infrastructure facilities including sub-station and transmission lines

n Maintain spares and consumables for operation and maintenance of turbines

n Installation of supervisory control and data acquisition for order management

n Provide various manpower, including with respect to wind farm security

Post commissioning Support n Support for registration for renewable energy certificates (REC), generation based incentives (GBI) and

clean development mechanism (CDM)

n Dedicated customer relationship management for customers’ daily generation report, monthly billing and

other support



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INXW has focused on the IPP segment and is the preferred partner for 8 of the top-

10 IPPs in India. Focus on IPPs and timely project execution has helped INXW to

develop strong relationships with the IPPs. The government is encouraging

renewable energy projects and targets to have an installed capacity of 60GW by

2022. Encouraged by the enabling government policies, several IPPs have firmed-up

strong capacity addition plans. Given INXW’s relationships with the IPPs, we believeit is in a sweet spot.

Its successful IPO has improved INXW’s profile as a serious player, even for several

MNC PE funds / IPPs setting up wind power projects in India. This should drive

greater acceptance and also enable the company to match market pricing against a

new entrant’s strategy of offering discounts. In the equipment supply business,

INXW is among the top-2 players in India; while the size of this segment is 15% for

the WTG industry, it is targeted to contribute 30% to INXW’s revenue in FY16.

Exhibit 7: Future plans of key IPPs in India

Key Players MW CommentsRenew Energy 500 450MW pipeline to be commissioned in 2015

Continuum Wind 145 270MW under construction,580MW under development

Mytrah Energy Limited 525 Plans to have 1,000MW installed capacity by 2017

Bharat Light and power 200 Plans to have 1,000MW installed capacity by 2019

CLP India 1,081 263MW of wind power plant are under construction

Tata Power 471 469MW wind energy assets under construction across the world

Hero Future Energies Pvt 78 Plans to have 1,000MW installed capacity by 2017


Exhibit 8: Key WTG manufacturers in India with installed capacity of ~10GW

Company Installed Capacity(MW)

Product Range(KW)

Technologytie-up

Gamesa Wind Turbine Private Limited 1,500 800/850/2,000 Gamesa

GE India 450 1,500/1,600 GE

Inox Wind Ltd. 1100 2,000 AMSC- Austria

Kenersys India Pvt. Ltd. 400 2,000 Kenersys

Leitner Shiram Manufacturing Ltd. 250 1,350/1,500 WindFin B.V.

ReGen Powertech Pvt. Ltd. 750 1,500 VENSYS

Suzlon Energy Limited 3,700 600/1,250/1,500/ Suzlon Energy

Vestas Wind Technology India Pvt. Ltd. 1,000 1,650/1,800/2,000 Vestas Wind

WinWinD Power Energy Pvt. Ltd. 1,000 1,000 WinWinD,

Source: MOSL, Company

Strong order book, ready pipeline of project sites provide comfort

As of March 2015, INXW’s order book stood at 1,178MW, comprising 614MW for

the supply and erection of WTGs and 564MW for the supply of WTGs. The order

book includes executed binding contracts for 825MW and term sheets (or letters of

intent) for 432MW. Also, INXW has access to project sites in Rajasthan, Gujarat,

Andhra Pradesh, Maharashtra and Madhya Pradesh suitable for the installation of

an aggregate capacity of 4,402MW, which makes available strong ready

infrastructure to provide turnkey solutions. Robust order book and ready pipeline of

project sites provides comfort on the revenue visibility front. We expect INXW to

deliver 825MW in FY16 and 950MW in FY17.


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Exhibit 9: Order book composition – FY15


Exhibit 10: Project pipeline of 4.4GW

Acquired Wind sites (MW)

Wind Sites under acquisition

process (MW)

Rajasthan 1,355 Rajasthan 1,194

Gujarat 430 Gujarat 164

Madhya Pradesh 285 Madhya Pradesh 634

Andhra Pradesh 20 Maharashtra 300

Andhra Pradesh 20

Total 2,090 Total 2,312


Exhibit 11: Robust order inflow led by finalization of orders

from IPPs


Exhibit 12: Turnkey segment sales to reduce, improving

organizational bandwidth to increase volumes


Technology tie-ups help save on R&D cost

INXW has entered into technology tie-ups with global players to source key

components of the WTG equipment. Technology tie-ups ensure that INXW has

access to latest technology and also saves on R&D cost, which helps to keep its cost

structure lean.

n

WTG technology: INXW has licensed the technology to manufacture 2MW

WTGs in India from AMSC Austria, and has an exclusive and perpetual license in

India. In August 2014, INXW and AMSC amended the agreement to cover all2MW WTGs with rotor diameters between 85 meters and 120 meters. In

addition, INXW has a non-exclusive license to manufacture 2MW WTGs

worldwide based on AMSC’s proprietary technology. Globally, over 15GW of

aggregate production capacity operates on AMSC technology.

n Electronic control system (ECS): As per the terms of license from AMSC, INXW is

required to purchase ECS manufactured by AMSC or its affiliates.

n Rotor blade sets: INXW has a non-exclusive perpetual license from

WINDnovation Engineering Solutions GmbH, Germany.

n

Gearboxes and generators: INXW procures gearboxes from DHHI (China) and

Wikov Industry a.s. (Czech Republic), and generators from Emerson Industrial

Automation and ABB India.

Supply ofWTG, 52%

Supply and

Erection, 48

%

14120

198

630

1,162

FY11 FY12 FY13 FY14 FY15

Order inflow (MW)

100% 100% 100%87% 88%

70% 64%

13% 12%30% 36%

FY11 FY12 FY13 FY14 FY15 FY16E FY17E

Turnkey Sales (%) Equipment Sales (%)


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Strategically located manufacturing units ensure efficient cost structure

INXW manufactures the key components for WTGs in-house, which ensures cost

competitiveness, cost-effective logistics, and attractive margins. It has split its

manufacturing activities to ensure cost-efficiency. The existing rotor blade and

tower manufacturing facilities are located at Rohika in Gujarat, adjacent to a

highway to facilitate easier handling during transportation to wind sites and seaports. This location is also close to states like Rajasthan, Gujarat, Maharashtra and

Madhya Pradesh, where there is good potential for wind energy production. The

more easily transportable nacelles and hubs are manufactured in Himachal Pradesh,

which gives INXW certain tax incentives.

INXW is putting up a new integrated manufacturing facility at Barwani, Madhya

Pradesh to produce nacelles and hubs, rotor blade sets and towers. This is close to

projects in Madhya Pradesh (MP) and Rajasthan. Expansion at MP, coupled with

capacity augmentation at Gujarat would lead to a near doubling of capacity to

1.6GW by the end of FY16. On completion, total capacity would be 950 nacelles andhubs, 800 rotor blade sets, and 600 towers.

Exhibit 13: Doubling manufacturing capacity to 1.6GW by end FY16

Component(s) Plant LocationInstalled Annual

Production Capacity

Post

Proposed 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


Back-to-back warranty tie-ups with suppliers obviate provision requirement

INXW outsources raw material and components that it does not manufacture in-

house. It sources a portion of the towers required for WTGs from Fedders Lloyd

Corporation. It has a license from AMSC for the production and sale of 2MW WTGs

in India based on AMSC’s proprietary technology. It also purchases ECS

manufactured by AMSC or its affiliates for all WTGs based on AMSC technology.

INXW gets warranties from component and raw material suppliers against deficient

performance and resultant liabilities.

Shift in customer profile from individuals to IPPs augurs well for INXW

The average wind installation size in India has been increasing with the shift in

customer base from individuals (AD market) to IPPs (GBI market). The average

project size has increased from 2MW in 2009 to 7MW in 2013. Project size of 50MW

and above is becoming the norm for IPPs in India. This customer profile shift augurs

well for INXW, as its business model is focused on the IPP segment rather than the

accelerated depreciation (AD) market. It is the preferred partner for 8 of the top-10

IPPs in India. Focus on IPPs and timely project execution has helped INXW to

develop strong relationships with the IPPs. Encouraged by enabling government

policies, several IPPs have firmed-up strong capacity addition plans. Given INXW’s

relationships with the IPPs, we believe it is in a sweet spot.


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Exhibit 14: Shift in project size and customer profile in India


Operation and maintenance business provides interesting opportunities

As of December 2014, 742MW produced and sold by INXW were under operation,

84MW had been erected but not commissioned, and 312MW had been supplied but

not yet erected and commissioned. Given its cumulative supplies of 1,044MW,

operation and maintenance (O&M) provides interesting opportunities. We expect

the contribution of O&M to increase meaningfully post the two-year warranty. The

equipment supplier retains O&M on 100% of the projects and the business has gross

margins of 50-55%. The typical cost for O&M stands at ~INR1m/MW per annum. We

expect the O&M business revenue to scale up from INR39m in FY14 to INR594m in

FY17 (147% CAGR).

Exhibit 15: Robust 82% CAGR expected in installed base over

FY15-17E


Exhibit 16: O&M revenue to increase exponentially as

installed base increases


74 7360

41

15

17 25

15

23

23

7 2

19

24

21

35

12

40

2009 2010 2011 2012 2013

50MW

154 150 274

774913

318468

742

1,516

2,428

FY13 FY14 FY15 FY16E FY17E

WTG comissioned (MW) Installed base (MW)

39 159374

594

1,212

2,802

FY14 FY15 FY16E FY17E FY18E FY19E

O& MRevenue (INR M)


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Expect 65% earnings CAGR over FY15-17

Return ratios to improve

n We expect INXW to report 44% revenue CAGR over FY15-17, largely supported by

volume growth of 28% and realization improvement of 8%.

n

Operating profit is likely to witness 58% CAGR over FY15-17, led by margin expansionof 330bp during the period.

n Driven by strong earnings growth and debt repayment, we expect RoE to improve to

28% and RoCE to 32% in FY17.

Expect revenue CAGR of 44% over FY15-17

We expect revenue to grow at a CAGR of 44% over FY15-17, led by volume CAGR of

28% and 8% increase in realization. Growth in realization would be driven by

increase in sales of the new Rotor 100 product, which provides 15% higher energy

efficiency with 5% increase in cost, and by reduction of discounts.

Exhibit 17:

Improvement in realization led by increase in salesof new product Rotor 100


Exhibit 18:

Revenue to witness 44% CAGR over FY15-17 led byvolume growth and better realization


Exhibit 19: Revenue mix to move in favor of newly introduced 100 metre WTG (INR B)


Operating profit to post 58% CAGR over FY15-17, led by margin expansion

We expect operating profit to witness 58% CAGR over FY15-17, led by 330bp margin

expansion during the period. Operating margin would expand to 20.1% in FY17.

Management expects margin expansion to be supported by factors like (i) increase

in sales of Rotor 100 metre blades (150bp), (ii) improved supply chain/logistics,

better cost absorption, etc (130bp), (iii) improved market perception, leading to

lower discounts on pricing (100bp), (iv) gains from lower special additional duty

47.9

41.6 42.945.0

47.5

6.611.7

7.611.0 11.6


Realization-WTG (INR M/MW) Realization-EPC (INR M)

10,589 15,66827,099

46,09856,352

73

48

73 70

22


Revenue (INR M) Growth-YoY %

-

10

20

30

40

50

60

FY11 FY12 FY13 FY14 FY15 FY16E FY17E

93 metre 100 metre 113 Metre EPC O&M


15/28

Inox Wind

1 July 2015 15

(100bp), and (v) lower royalty expense (50bp). Inox has to pay fixed royalty per WTG

for the first 450 WTGs with rotor diameters of 93.3 meters and 100 meters, and the

first 245 WTGs with rotor diameters of 113 meters, that it produce. Lower Royalty

payment is primarily on account of extinction of royalty payment on the 93.3 metre

product. We conservatively model margin to increase from 16.9% in FY15 to 20.1%

in FY17E, (expansion of 330bps) to factor in i)increase in competitive intensity withSuzlon getting aggressive post financial restructuring ii) INXW does not make

warranty provision as against 3% provision made by SUEL.

Exhibit 20: Margins to expand primarily on account of cost

efficiencies


Exhibit 21: Operating profit to witness 58% CAGR over

FY15-17


Cash flows from operations as well as free cash flows to turn positive from

FY16

Historically, INXW has witnessed negative cash flow from operations on account of

elongated working capital cycle, as net working capital (NWC) for the industry hasdeteriorated meaningfully since FY13. Collapse of the accelerated depreciation (AD)

market had resulted in an increase in the bargaining power of IPPs. We expect

INXW’s NWC, which had peaked at 196days in FY15 to normalize at 148 days in

FY17. This is because the AD market is picking up again, the willingness of banks to

fund RE projects is increasing, and the bargaining power of equipment

manufacturers is increasing. NWC normalization would drive meaningful

improvement in cash flows from operations.

Exhibit 22: Cash flow to improve led by normalization of

working capital cycle


Exhibit 23: NWC to normalize with improvement in

receivables cycle


18.6

11.2

16.918.8

20.1

14.2

8.410.9

13.1 14.2

FY2013 FY2014 FY2015 FY2016E FY2017E

Operating Profit Margin Net Profit Margin

1,965 1,7624,574

8,659

11,354-10.3

159.6

89.3

31.1

FY2013 FY2014 FY2015 FY2016E FY2017E

Operating Profit Growth YoY %

(1.2)

(0.9)

(3.3)

0.7

7.0

(5.1)

(1.3)

(3.0)

4.2 7.2

FY2013 FY2014 FY2015 FY2016E FY2017E

Cash flow from operation (INR b) Free cash flow (INR b)

148

161196

165

148

(3)

(4)

(2)

(4)

2

FY2013 FY2014 FY2015 FY2016E FY2017E

NWC (days) Net cash (INR b)


16/28

Inox Wind

1 July 2015 16

Return ratios to improve

We expect return ratios to improve, led by strong earnings growth and debt

repayment. We expect RoE and RoCE to improve to 28% and 32%, respectively in

FY17.

Exhibit 24:

Robust return ratios led by strong earnings and debt repayment


Exhibit 25:

NWC to improve led by better receivable cycle management

NWC (Days) FY13 FY14 FY15 FY16E FY17E

Inventories 27 63 15 15 15

Debtors Excluding Retention money 172 165 150 140 140

Loans and Advances 33 34 90 88 88

Other Current Assets 4 10 5 3 3

Total Current Assets 237 272 290 258 246

Creditors 79 98 76 80 85

Current Liabilities (excl Cust Adv) 9 12 10 6 6

Provisions 1 1 7 7 7

Total Current Liabilities 89 112 94 93 98

Core NWC 148 161 196 165 148

Retention Money - - - - -

Customer Advances 3 3 - - -

Reported NWC 145 158 196 165 148


29

18 19

33 32

51

31

2130

28

FY2013 FY2014 FY2015 FY2016E FY2017E

RoCE RoE


17/28

Inox Wind

1 July 2015 17

Initiating coverage with Buy rating

Target price of INR543 implies 28% upside

We believe INXW is well positioned to benefit from the WTG demand arising from

the government’s ambitious target to install 60GW capacity from wind energy by

2022, and WTG demand revival led by fiscal and regulatory incentives provided by

central and state government. We expect INXW to post revenue of INR46.1b in FY16

(up 70%), INR56.3b in FY17 (up 22%). We expect INXW to report not just strong

revenue growth but also report far superior earnings growth. We expect INXW to

report EPS of INR27.3 in FY16E (up 104%) and INR36 in FY17E (up 33%). Backed by

strong revenue and earnings growth and robust return ratios (RoE of 28% and RoCE

of 32% in FY17), we initiate coverage on the stock with Buy rating and target price of

INR543 (15x FY17 EPS of INR36).

Our target PER of 15x is lower than Industrials / Capital Goods players like L&T (22x

FY17E), TMX (28x FY17E), etc and is constrained by the following factors:

n INXW’s earnings are prone to volatility, given the characteristics of the wind

sector that has historically witnessed large swings in capacity additions, led by

changes in government policy. Even in most of the mature markets, the industry

has not demonstrated a secular growth characteristic.

n

Health of SEB finances remain the key concern, as SEBs have generally been

reluctant to purchase expensive source of power. Challenges like poor

investments in evacuation infrastructure, backing down in peak generation

season, non availability of adequate power banking facilities, non-compliance to

RPO obligations, etc are yet to be decisively addressed. Challenges in land

acquisition could also be a constraining factor to industry growth.

n

SUEL, a key competitor, had been impacted by constrained financial position

and post the recent fund infusions by DSA / sale of Senvion, could become

aggressive.

Exhibit 26: Exhibit 26: Key financials of WTG players in India

Revenue (INR m) EBIDTA Margin (%) PAT Margin (%)

FY12 FY13 FY14 FY15 FY12 FY13 FY14 FY15 FY12 FY13 FY14 FY15

Gamesa 22,847 11,610 35,298 NA NA NA NA NA -4.4 -19.0 1.6 NA

Vestas 17,515 5,047 7,951 NA 3.7 2.6 5.3 NA 0.8 -0.2 -1.4 NA

Suzlon 100,030 32,280 56,270 48,830 7.9 -51.1 -14.4 -3.4 -10.4 -118.4 -53.1 -48.7

Inox Wind NA 10,589 15,668 27,099 NA 18.6 11.2 16.9 NA 14.2 8.4 10.9


Exhibit 27: Key financial comparison for global WTG players (USD m)

Company Name MCap Revenue EBITDA Margin (%) PAT PE (x) EV/EBIDTA (x)

CY15E CY16E CY15E CY16E CY15E CY16E CY15E CY16E CY15E CY16E

Nordex SE 2,018 2,273 2,411 8.2 9.1 78 100 26.0 20.9 9.1 7.8

Vestas Wind Systems A/S 11,370 8,731 8,704 13.8 14.2 577 600 19.6 18.8 7.9 7.7

Gamesa Corp Tecnologica SA 4,656 3,759 4,032 12.5 12.8 198 235 23.9 19.9 10.2 9.3Xinjiang Goldwind Science & Te 8,375 3,636 3,831 16.3 18.9 379 433 19.9 17.4 16.5 13.5

Source: Bloomberg, MOSL


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Inox Wind

1 July 2015 18

Exhibit 28: Comparision of Inox Wind with Suzlon (INR m)

INR M Suzlon Wind Inox Wind

FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15

Revenues 91,750 100,030 32,280 56,270 48,830 719 6,216 10,589 15,668 27,099

Less: COGS 59,700 63,920 26,160 43,351 31,380 518 4,318 7,731 12,131 20,347

Gross Profit 29,405 36,110 6,120 12,919 17,450 202 1,898 2,858 3,537 6,753

Employee Expenses 8,746 10,270 8,330 7,874 7,470 38 146 250 384 549

Other expenses 18,962 18,890 15,980 15,870 13,360 46 334 644 1,390 1,629

Exchange (Loss) / Gain 0 430 2,500 2,326 4,950 0 0 0 0 0

EBITDA 1,697 6,520 -20,690 -13,151 -8,330 118 1,418 1,965 1,762 4,575

Other Income 610 0 0 0 0 10 4 48 91 143

EBIDTA incl Other Income 2,307 6,520 -20,690 -13,151 -8,330 128 1,422 2,012 1,854 4,718

Depreciation 3,410 3,890 4,280 3,745 3,760 39 76 89 116 204

EBIT -1,103 2,630 -24,970 -16,896 -12,090 88 1,346 1,923 1,738 4,514

Interest Expense 9,488 13,740 15,320 17,850 17,660 44 152 388 460 623

PBT -10,591 -11,110 -40,290 -34,746 -29,750 45 1,194 1,536 1,278 3,892

Adjusted PAT -8,318 -10,440 -38,220 -29,890 -23,760 54 1,007 1,503 1,322 2,964

Gross Margin (%) 32% 36% 19% 23% 36% 28% 31% 27% 23% 25%

EBIDTA Margin (%) 2% 8% -52% -14% -3% 16% 23% 19% 11% 17%

EBIT Margin (%) 1% 6% -80% -27% -17% 12% 22% 18% 11% 17%

WTG Sales (MW) 1,521 1,583 252 722 454 14 120 198 330 578

- India 955 1,161 415 403 442 14 120 198 330 578

Realization (INRM/MW) 56 58 85 59 76 54 53 50

Revenues (INR M) 84,650 91,570 21,430 42,720 34,290 6,107 9,485 13,730 24,772

Installed (MW) 11,541 13,124 13,376 14,098 14,552 164 318 468 742

O&M Revenues (INR M) 7,100 8,460 10,850 13,550 14,540 33 39 159



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Inox Wind

1 July 2015 19

Risks and concerns

Capital-intensive nature of the industry

The WTG business in India requires high working capital; this is evident from the fact

that setting up a 1MW wind farm typically requires INR40m of working capital.

Change in regulatory policies

In the past, withdrawal of accelerated depreciation (AD) and generation-based

incentives (GBI) led to a sharp decline in wind energy capacity addition. Any such

adverse policy changes in future can impact the business.

Non-availability of grid connectivity

Inadequate grid infrastructure is another key issue that needs to be addressed

urgently. Across most states with significant wind potential, the grid does not have

sufficient spare capacity to evacuate ever-increasing amount of wind power. The

state distribution utilities are, therefore, reluctant to accept more wind power

generation and tend to prefer thermal power generation.

SEBs’ weak financial health might impact wind power demand

State electricity boards (SEBs) and government distribution companies own nearly

95% of the distribution network. According to Power Finance Corporation,

aggregate SEB losses in 2011-12 were around INR63.5b and are projected to reach

INR116b by 2014-15. The cost of generating wind power at Rs3.7-6/kWh is relatively

high compared with predominantly coal-based conventional power (Rs3.5/kWh).

SEBs’ weak financial condition might deter them from purchasing expensive wind

power and thus impact wind power demand in future.

Exhibit 29: Commercial losses up sizably from FY08 (INR b)


Non-availability of land can act as a deterrent for WTG industry

The wind energy business is land intensive—2MW of turbines require 40 acres of

land, of which actual used is 2.5 acres. To achieve annual capacity addition of 4GW,

the industry would require ~80,000 acres of land every year. However, this won’t be

easy as land availability for wind farms is a contentious issue in most states. Even for

the available privately-owned land, change of land use status from agricultural tonon-agricultural is time-consuming. Further, one needs clearances from authorities

if the land is in proximity to a protected area or forest; this is again time-consuming.

4 6

5 1

6 1

8 8

1 1 3

1 4 0

2 0 0

2 3 0

2 6 4

2 2 5

2 7 1

2 1 1

2 0 6

2 2 1

2 2 6

2 3 9

3 1 9 5

3 7

6 4 5

7 5 2 1

, 0 2 4

1 , 0 5 1

F Y 9 2

F Y 9 3

F Y 9 4

F Y 9 5

F Y 9 6

F Y 9 7

F Y 9 8

F Y 9 9

F Y 0 0

F Y 0 1

F Y 0 2

F Y 0 3

F Y 0 4

F Y 0 5

F Y 0 6

F Y 0 7

F Y 0 8

F Y 0 9

F Y 1 0

F Y 1 1

F Y 1 2

F Y 1 3


20/28

Inox Wind

1 July 2015 20

Competitive intensity

The WISE Report estimates the aggregate WTG manufacturing capacity in India at

12GW as of August 2014 and expects the Indian wind power market to witness

annual installations of 3-5GW over the coming years. There exists intense

competition in the WTG segment. In the last few months, Suzlon has taken several

steps to put its house in order by selling stakes in non-core business, inducting a

strategic partner and refocusing on the Indian market. Suzlon has historically been

the market leader with ~50% market share. Post its recent restructuring and

liquidity infusion, it will again attempt to achieve its earlier market share.

Exhibit 30:

Top Five players command 87% of market in FY15


RPO compliance might remain weak

Under the Renewable Purchase Obligation (RPO), state electricity regulatory

commissions (SERCs) are obligated by law to buy a certain percentage of electricity

from renewable energy sources. The guidelines issued in 2010 by Central Electricity

Regulatory Commission (CERC) recommended a standardized RPO target of 5% in

every state, with linear increase of 1% annually till 2020 to achieve the NAPCC targetof 15%. However, many SEBs are actually not complying with the renewable

portfolio obligations—given their poor financial health—and a few SERCs have also

lowered the non-solar RPO obligation owing to the difficulty of the states in meeting

the earlier targets. SERCs specify targets for respective states based on the

renewable energy potential.

Exhibit 31: State-wise RPO Compliance data

RPO Target Achieved

FY13 FY14 FY15

TN 9.0% 9.0% 10.0% 17.0%

Karnataka 10.0% 14.0%

Rajasthan 6.4% 7.0% 7.5% 10.0%

Gujarat 7.0% 7.0% 8.0% 7.5%

Maharashtra 7.8% 8.5% 8.5% 8.5%

Andhra Pradesh 4.8% 4.8% 4.8% 5.0%

Uttar Pradesh 5.0% 5.5% 2.0%

Madhya Pradesh 3.4% 4.7% 6.0% 3.0%

Punjab 2.8% 3.4% 3.8% 1.5%

Source: MOSL, Industry Data

No provisioning for warranties

INXW provides its customers warranties against defective components and

workmanship during the defect liability period, which is generally two years. For any

failure due to defective supply or workmanship, INXW undertakes free repair or

replacement. Also, claims for damages brought by third parties could be substantial

and could have material adverse effect on the company.

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

Vestas RRB Wind World Suzlon Regen Inox Others Gamesa


21/28

Inox Wind

1 July 2015 21

Company background

Inox Wind (INXW), an Inox Group company, is India’s fourth-largest wind turbine

generator (WTG) manufacturer, with a market share of 7% in FY14. INXW

commenced operations in March 2010, and manufactures key components of WTGs

– nacelles, hubs, rotor blade sets, and towers. It provides turnkey solutions for wind

farm projects through its wholly-owned subsidiaries, and has a project site pipeline

of 4GW. Order book as at December 2014 stood at 1,258MW, and cumulative

installations/supplies stood at 1,044MW (including 312MW yet to be erected).

INXW manufactures two different WTG models with 2MW rating:

n Rotor diameter of 93 meters with hub height of 80 meters

n

Rotor diameter of 100 meters with hub height of 80 / 92 meters

INXW has a 100% subsidiary, Inox Wind Infrastructure Services, which does project

development in respect of wind power projects, including wind studies, energy

assessments, land acquisition, site infrastructure development, power evacuation,

statutory approvals, erection and commissioning, and long-term operation and

maintenance (O&M) of wind farms.

About Inox Group: The Inox Group commenced operations in 1923 and currently

operates in industrial gases, engineering plastics, refrigerants, chemicals, cryogenic

engineering, renewable energy and entertainment sectors. The Group has two

publicly-listed companies – Gujarat Fluorochemicals and Inox Leisure. The Group

employs over 8,000 people at more than 100 business units in India.

Exhibit 32: Existing and upcoming manufacturing facilities of Inox wind



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Inox Wind

1 July 2015 22

Board of directors

Mr Deepak Asher, Non-Executive Director

Mr Deepak Asher, aged 56 years, is a Non-Executive Director. He has a bachelor’s

degree in Commerce and a bachelor’s degree in Law from Maharaja Sayajirao

University, Baroda. He is a fellow member of the Institute of Chartered Accountants

of India and is also an associate member of the Institute of Cost and Works

Accountants of India. He has been associated with the Inox Group for over 25 years.

He is the founder President of the Multiplex Association of India and was awarded

the Theatre World Newsmaker of the Year Award in the year 2002 for his

contribution to the cinema exhibition industry. He has been instrumental in Inox

Group’s diversification into the cinema, CDM and wind energy businesses.

Mr Devansh Jain, Whole time Director

Mr Devansh Jain, aged 28 years, is a Whole time Director. He has completed a

double major degree in Economics and Business Administration from Carnegie

Mellon University, Pittsburgh, USA. He has over six years of work experience in

various management positions. He has been spearheading Inox Group’s foray into

the wind energy sector. He is on the National Council of Indian Wind Power

Association and is Honorary Secretary of Indian Wind Turbine Manufacturers

Association. Mr Jain has been instrumental in setting up manufacturing plants in

Himachal Pradesh and in Gujarat, with technology sourced from AMSC. He has been

awarded the “Wind Power Man of the Year 2012-13” for development of integrated

wind power supply chain and project development capacity in the country by

Renewable World.

Mr Siddharth Jain, Non-Executive Director

Mr Siddharth Jain, aged 36 years, is a Non-Executive Director. He has completed his

bachelor’s degree in Mechanical Engineering from the University of Michigan – Ann

Arbor, USA and holds a Master’s degree in Business Administration from INSEAD,

France. He has over ten years of work experience in various management positions

in the Inox Group and is currently looking after new project developments at Inox

Air Products Limited.

Mr Rajeev Gupta, Whole time Director

Mr Rajeev Gupta, aged 56 years, is a Whole time Director. He holds a bachelor’s

degree in Chemical Engineering from the Indian Institute of Technology, Delhi and

has over 32 years’ experience in corporate planning, business and project

development, project management, sales, procurement and operations in

international and domestic industries. He was involved in setting up GFL’s chemical

complex at Dahej and production plants for Aditya Birla group, TOA Group of

Companies, a Thai group and Lurgi India Private Limited, subsidiary of Lurgi AG, a

German engineering company. He has more than five years’ experience in the wind

industry in various capacities.


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Inox Wind

1 July 2015 23

Mr Chandra Prakash Jain, Independent Director

Mr Chandra Prakash Jain, aged 69 years, is an Independent Director. He holds a

bachelor’s degree in Commerce from Rajasthan University and a bachelor’s degree

in Law from Agra University. He is a fellow member of the Institute of Chartered

Accountants of India. He is former Chairman and Managing Director of NTPC

Limited. He was also the Chairman of the Standing Conference of Public Enterprises(SCOPE) for the period 2003-05. He has been a past member of the Standing

Technical Advisory Committee of the Reserve Bank of India, Audit Advisory Board of

the Comptroller & Auditor General of India. He has headed the CII’s ‘National

Committee on Energy’. Presently, he is also an Independent Director on the boards

of IL&FS Energy Development Company Limited, Adani Power Limited and PCI

Limited. He is also a Member on the Advisory Board of Axis Infrastructure Fund.

Mr Shanti Prashad Jain, Independent Director

Mr Shanti Prasad Jain, aged 75 years, is an Independent Director. He is a fellow

member of the Institute of Chartered Accountants of India and has more than fourdecades of experience as a Chartered Accountant and Direct Tax Consultant. Mr Jain

Senior Partner at Shanti Prashad & Co., Chartered Accountants, New Delhi.

Dr S Rama Iyer, Independent Director

Dr S Rama Iyer aged 75 years, is an Independent Director. He is a Chemical Engineer

from Jadhavpur University and received a master’s degree and his PhD from Indian

Institute of Technology, Mumbai. He has also participated in the Senior Executive

Program of London Business School, United Kingdom. He has over five decades of

experience in Design Engineering, Project and Enterprise management in the

Chemicals, Petrochemicals and Oil & Gas industries as a member of the IndianInstitute of Chemical Engineers. He received the ‘Distinguished Alumnus Award’

from Indian Institute of Technology, Mumbai in 1996. He has been awarded the

‘Achiever of the Year Award’ by the Chemtech Foundation in the year 2003 and the

‘Business Leader of the Year Award’ by the Chemtech Foundation in the year 2005.

Ms Bindu Saxena, Independent Director

Ms Bindu Saxena aged 56 years, is an Independent Director. She is an Advocate and

a Partner at the law firm, Swarup & Company, Advocates, New Delhi. She has

completed her bachelor’s in Commerce and in Law from Lucknow University. She

has over 25 years of experience as Corporate Attorney, with experience ofcommercial transactions and projects in India and overseas.


24/28

Inox Wind

1 July 2015 24

Operating metrics

INR m FY13 FY14 FY15 FY16E FY17E

Closing order book (MW) 370 1,178 1,384 1,622

Y-o-Y growth 218.4% 17.5% 17.2%

Order inflow (MW) 198 630 1,162 1,031 1,188

Y-o-Y growth 218.2% 84.4% -11.3% 15.2%Execution (MW) 198 330 578 825 950

Y-o-Y growth 66.7% 75.2% 42.7% 15.2%

Realizations (INR M/MW)

WTG 48 42 43 45 48

OMS 7 12 8 11 12

Cumulative Installed (MW) 318 468 742 1,516 2,428

Revenues 10,589 15,668 26,940 46,098 56,352

WTG 9,485 13,730 24,772 37,130 45,125Sale of services 1,010 1,756 2,093 8,883 11,133

other operating income 94 182 75 85 94

Revenues, % YoY 48.0% 71.9% 71.1% 22.2%

WTG 44.8% 80.4% 49.9% 21.5%

Sale of services 73.8% 19.2% 324.3% 25.3%

Other operating income 92.8% -58.8% 13.3% 10.0%

EBIDTA % 18.6% 11.2% 17.0% 18.8% 20.1%

Net Debt (INR m) 2,743 4,469 2,079 4,058 (1,709)

Core NWC (Days) 148 161 196 165 148

Customer Advances 3 3 0 0 0

Reported NWC (Days) 145 158 196 165 148


25/28

Inox Wind

1 July 2015 25

Financials and valuations

Income Statement (INR Million)

Y/E March 2013 2014 2015 2016E 2017E

Total Revenues 10,589 15,668 27,099 46,098 56,352

Change (%) 48.0 73.0 70.1 22.2

Raw Materials 7,731 12,131 20,347 33,651 40,573

Staff Cost 250 384 549 791 1,044

Other Expenses 644 1,407 1,629 2,996 3,381

EBITDA 1,965 1,745 4,574 8,659 11,354

% of Total Revenues 18.6 11.1 16.9 18.8 20.1

Other Income 48 91 143 157 173

Depreciation 89 116 204 280 350

Interest 388 460 623 575 613

Exceptional Items - 15 0 - -

PBT 1,536 1,245 3,891 7,962 10,564

Tax 33 - 45 927 1,911 2,535

Rate (%) 2.1 -3.6 23.8 24.0 24.0

Adjusted PAT 1,503 1,290 2,964 6,051 8,029

Reported PAT 1,503 1,290 2,964 6,051 8,029

Change (%) (14.2) 129.9 104.1 32.7

Adj. Consolidated PAT 1,503 1,322 2,964 6,051 8,029

Change (%) (12.0) 124.2 104.1 32.7

Balance Sheet (INR Million)

Y/E March 2013 2014 2015 2016E 2017E

Share Capital 400 2000 2219 2219 2219

Reserves 2,555 2,278 12,151 18,078 26,107

Net Worth 2,955 4,278 14,370 20,297 28,326

Minority Interest - - - - -

Loans 3,769 5,582 9,200 5,750 6,500

Deferred Tax Liability 195 151 209 209 209

Capital Employed 6,919 10,011 23,779 26,257 35,035

Gross Fixed Assets 1,772 2,040 2,294 4,044 4,544

Less: Depreciation 206 317 423 608 816

Net Fixed Assets 1,566 1,722 1,872 3,437 3,728

Capital WIP 41 255 202 300 300

Investments 0.02 450.02 0.50 - -

Goodwill - 16 0 - -

Curr. Assets 7,895 12,354 28,667 34,301 46,154

Inventory 795 2,707 1,265 1,894 2,316Debtors 5,002 7,096 13,210 18,944 21,614

Cash & Bank Balance 15 73 7,120 1,692 8,209

Loans & Advances 1,964 2,030 6,720 11,367 13,586

Other Current Assets 119 449 352 404 429

Current Liab. & Prov. 2,582 4,788 6,962 11,781 15,147

Creditors 2,278 4,217 5,662 10,104 13,123

Other Liabilities 304 571 1,300 1,677 2,024

Net Current Assets 5,313 7,567 21,704 22,520 31,007

Application of Funds 6,919 10,011 23,779 26,257 35,035


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Inox Wind

1 July 2015 26

Financials and valuations

Ratios

Y/E March 2013 2014 2015 2016E 2017E

Basic (INR)

Adj EPS 37.6 6.6 13.4 27.3 36.2

Cash EPS 39.8 7.2 14.3 28.5 37.8

Book Value 73.9 21.4 64.8 91.5 127.6

Valuation (x)

P/E 11.3 64.2 31.8 15.6 11.7

EV/EBITDA 10.6 51.3 21.1 11.4 8.2

EV/Sales 2.0 5.8 3.6 2.1 1.6

Price/Book Value 5.7 19.9 6.6 4.6 3.3

Profitability Ratios (%)

RoE 50.9 30.9 20.6 29.8 28.3

RoCE 28.6 17.6 19.2 32.8 32.1

Turnover Ratios

Debtors (Days) 172 165 178 150 140

Inventory (Days) 27 63 17 15 15

Creditors. (Days) 79 98 76 80 85

Asset Turnover (x) 1.5 1.6 1.1 1.8 1.6

Leverage Ratio

Debt/Equity (x) 1.3 1.3 0.6 0.3 0.2

Cash Flow Statement (INR Million)

Y/E March 2013 2014 2015 2016E 2017E

PBT before EO Items 1,536 1,293 3,891 7,962 10,564

Add : Depreciation 89 116 204 280 350

Interest 314 460 623 575 613

Less : Direct Taxes Paid 287 334 927 1,911 2,535

(Inc)/Dec in WC (2,862) (2,389) (7,091) (6,244) (1,970)

CF from Operations (1,210) (854) - 3,300 662 7,021

EO Income - 15 0 - -

CF from Oper. Incl. EO Items (1,210) (870) (3,300) 662 7,021

(Inc)/Dec in FA (1,358) (498) (186) (1,848) (500)

Investment in liquid assets (0) 64 450 1 -

CF from Investments (1,358) (434) 264 (1,847) (500)

(Inc)/Dec in Debt 2,565 1,789 10,635 (3,450) 750

Less : Interest Paid 375 460 623 575 613

Dividend Paid 0 0 - - -

CF from Fin. Activity 2,193 1,361 10,084 (4,243) (5)

Inc/Dec of Cash (375) 58 7,047 (5,428) 6,517

Add: Beginning Balance 390 15 73 7,120 1,692

Closing Balance 15 73 7,120 1,692 8,208


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