IPO Size: Rs. 740 cr IPO

• Rs. 370 cr fresh issue for debt repayment (Rs.910 cr debt as of 30.6.22)
• Rs. 370 cr offer for sale (OFS) by listed promoter Inox Wind (94% stake to drop to 56%), to trim its own standalone net debt of Rs 450 cr. IPO thus aims to cut parent leverage as well.

Price band: Rs. 61-65 per share

• Only 10% retail, as company has been loss making since FY21

M cap: Rs. 1,900 cr, implying 39% dilution

IPO Date: Fri 11^th Nov to Tue 15^th Nov 2022, Listing Wed 23^rd Nov 2022

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

O&M for Wind Energy

Company undertakes operations and maintenance (O&M) contracts for all wind turbine generators (WTG) sold by parent Inox Wind, enjoying this exclusive benefit in-built with the sale agreement, leading to 2,800 MW wind farm capacity under its O&M portfolio currently, with average life of 20 years.

Potential opportunity of 12,000 MW O&M contracts to be tapped under inorganic route, currently being served by the unorganized sector, as many players have exited, due to tariff regime change in wind energy.

Fortunes Tied to Parent Inox Wind

Parent Inox Wind is still incurring operating losses, even on quarterly topline of Rs. 170 cr, reducing the sheen from its order book of 964 MW, as of 30.6.22, which may have otherwise spelt optimism for Inox Green Energy Services.

Also, Inox Green Energy’s capacity under O&M contract have grown at just 3% CAGR between FY20 to Q1FY23, implying that even on a large industry opportunity, company’s ability to tap the same is yet to be proven.

High EBITDA margin, but interest and depreciation play spoilt sport

Company’s topline remained stagnant at Rs. 170 cr between FY20-22, but rose to Rs. 62 cr in Q1FY23. Quarterly interest and depreciation of Rs. 18 cr and Rs. 17 cr respectively, led to net loss of Rs. 12 cr in Q1FY23, up from FY22’s net loss of Rs. 5 cr.

Considering normalized EBITDA margin of 50%, estimated EBITDA for FY23E stands at Rs. 120 cr. But steep interest and depreciation expenses may just about lead to PAT breakeven in FY23.

Fully Valued for Now  

Approximately Rs. 330 cr debt will be repaid from IPO proceeds, and further debt reduction is planned from sale of one last SPV of 50 MW for an estimated Rs. 300 cr (3 SPVs sold to Adani Green for Rs. 1 lakh each and 1 SPV to Torrent Power for Rs. 33 cr). With this, company aims to become net debt-free. If this materializes, in the most optimistic scenario, FY24E PAT may be about Rs. 60 cr, which leads to a PE multiple of 31x, making the issue fully priced, on a one year forward basis, as RoE will still remain in mid-single digit. Taking a call for FY25E and beyond will be quite superficial at this stage.

Wealth Destruction by Parent Inox Wind

Inox Wind IPO has not rewarded shareholders, with market cap eroding 45% in the past 7.5 years. At the time of IPO in Mar 2015, m cap was at Rs. 7,200 cr, which has now reduced to Rs. 3,900 cr, indicating dismal returns, when nearly 17 GW wind generation capacity was added in the country.