INOX India Ltd: For medium to long-term horizon

The company is engaged in cryogenic solutions to global customers and its major client is ISRO. There is no domestic player in this business and therefore the company has no competition in the domestic industry

Offer For Sale

• Completed allocation to anchor investors
• It allotted 66,33,285 shares to 41 entities
• Of these, 50.86% of shares were allotted to 12 MFs via 28 schemes
• It’ll raise Rs1,385 cr to Rs1,460 cr via OFS

INOX India Ltd is tapping the capital markets with its offer for sale (OFS) of 2,21,10,955 equity shares. The issue opened on Thursday (December 14) and would close on Monday (December 18). The price band is Rs627-660. The issue would garner between Rs1,385 crores at the lower end of the price band to Rs1,460 crores at the top end of the band.

The company had completed its allocation to anchor investors on Thursday where it allotted 66,33,285 shares to 41 schemes or entities. Of these, half or 50.86 per cent of the shares were allotted to 12 mutual funds through 28 schemes. The allocation is widespread with the highest allocation being done at 5.48 per cent of the anchor allocation. While 4-5 entities were allotted this quantity in one name many of the mutual funds were allotted the same number through multiple schemes.

The company is in the business of manufacturing and supplying customized cryogenic solutions to global customers across the clean energy space including industrial gases, LNG, Hydrogen and cryo-scientific applications. They have doing this for over three decades. In terms of business SBUs, they have three broad verticals which are Industrial Gas, LNG and Cryo Scientific which contribute a revenue mix of 71 per cent, 25 per cent and just over four per cent respectively. In the Cryo Scientific space, the key client is ISRO, which is a matter of pride not only for the company but the entire nation. The company has a healthy order book and is at a slightly higher number than its annual sales revenue.

The company had clocked revenues of Rs984 crore in FY23, against which its order book is Rs1,036 crore. There is no domestic player in this business and therefore the company has no competition in the domestic industry. The large construction and EPC players in the country outsource such equipment from INOX India. One other interesting and important part of the business is the logistics where the finished products have to be transported to different places and installed at customers premises.

This ensures that finished tanks have to be transported as this kind of equipment can’t be assembled at site in a semi-finished condition. INOX India is an exporter of its products and depending on supply of products in a particular year the export to domestic mix varies from 40/60 to 60/40. Suffice to say that exports are a significant portion of the business and the facility at the port is a big help in saving logistics.

Covid saw the company rendering tremendous human service to people and the nation with supply of liquid oxygen tankers to the length and breadth of the country and many challenging ways of transportation were used as per the need of the hour. Going forward the opportunity is tremendous. LNG offers enough opportunities in the near term over the next five years and more. This would be in the form of CNG dispensing stations, fuel tanks on trucks, transport tanks for carrying bulk LNG, tanks at storage points and creating the entire infrastructure to handle this cryogenic material among others.

The opportunity in the future would be hydrogen. However, technology for hydrogen for mass consumption is at the moment work in progress and there would be many turns and twists before commercial hydrogen as we would understand is finalized. Till then the company INOX India would have more than its hands full with LNG itself.

Coming to the financial numbers, the company reported revenues of Rs984.19 crore for the year ended March 23 and Rs579.99 crore for the half year ended September 23. The profit after tax (PAT) was Rs151.16 crore for the full year and Rs103.24 crore for the half year respectively. On a fully diluted basis the EPS was Rs16.83 for the full year and Rs11.39 for the half year. Based on the full year’s earnings the PE multiple is 37.25-39.22.

There was a family separation among the promoters and the group which has been given the INOX brand or trademark is entitled to a royalty of the use of trademark which amount to 0.25 per cent of the companies’ revenues. This amount would be applicable once the trademark is registered which has since happened. Based on the current revenues, this would entail an expenditure of Rs2.5 crore on a turnover of Rs1,000 increasing progressively as the turnover rises.

The business is interesting and the opportunity going forward enormous. There are multiple entry barriers in the business and the company INOX India has a multi-year head start from any competitor. Even in a crowded market where we have more IPOs opening than the number of working days in a week, investment in the company is warranted. While there would be listing gains, people with a medium to long term horizon must invest as the opportunity the company offers in terms of product and capabilities is for the future.

Interestingly, the companies tag line is ‘Historically futuristic’.

(The author is the founder of Kejriwal Research and Investment Services,

an advisory firm)