Inox Green Ltd IPO – Possibility of returns in long run

The issue from Inox Green Energy Services Limited opened on Friday the 11th of November and would close on Tuesday the 15th of November. The price band of the issue is Rs 61-65. The issue size is of Rs 740 crore with a fresh issue component of Rs 370 crores and an offer for sale component of Rs 370 crores. Earlier, the company had completed allocation to anchor investors. The company allotted 5,12,30,769 shares to 27 entities. The highest allocation was made jointly to Volrado Venture Partners Fund and ICICI Mutual fund who were allotted 9.01 per cent of the anchor book each. Three mutual funds through five schemes were allotted 15.01 per cent of the anchor book.

Inox Green Energy Services Limited is part of the GFL group and historically with the INOX GFL group. The company is a subsidiary of the listed entity, Inox Wind Limited. Inox Wind Limited is a manufacturer of wind turbine generators and provides turnkey solutions by supplying and erecting WTGs (wind turbine generators). The company manufactures key components at its plants located at Gujarat, Madhya Pradesh and Himachal Pradesh. Blades and tubular towers are manufactured in Gujarat and Madhya Pradesh and hubs and nacelles are manufactured in the plant at Himachal Pradesh.

The company doing public services and maintains the WTG which are made by Inox Wind. This does not mean that the company will not maintain or enter into O&M contracts for WTG made by others. The contract for O&M is a long-term contract and is all inclusive in that it includes maintaining the turbine, the evacuation of power through the transmission lines and also the substation. Services where specified also include raising of invoices to the State electricity board and collection of payment thereof. The nature of business is an asset light model as it is all service in nature. The company offers both types of service contracts which are for comprehensive O&M contracts and also common infrastructure O&M contracts. Typically, these contracts are of a five year to 20-year duration. The company has changed its strategy for maintenance by being technology focussed. They use predictive maintenance instead of reactive maintenance. This increases uptime significantly.

The parent Inox Wind has an order book of 1,488.7 MW of WTGs. This becomes a healthy pipeline of future orders. To this is the comfort of already servicing 2,792 MW of WTGs. The company is present in eight wind rich states of the country. In terms of manpower and technology, it is fully equipped and also has the backing of the parent for supply of timely spares. While there is opportunity and work available today, the pipeline going forward would be even stronger as the government is committed to increasing incremental wind power and renewable energy generation going forward. The parent has developed and successfully launched an efficient 3.3 MW WTG, which will help in generating higher electricity at more affordable rates.

The portfolio has been growing consistently and has grown at a CAGR of 40 per cent. This ensures high revenue visibility and decent operations on all fronts. The company has warranties from suppliers for major parts and also has an industrial all risk policy for each WTG.

In the past the company made substantial investments in developing common infrastructure facilities such as pooling substations and transmission lines.It has now reduced investments into its subsidiaries for this activity and only does the O&M part. This reduces investments and ensures higher EBITDA and profit margins. There is also a huge opportunity of getting O&M contracts of turbine manufacturers who have become inactive over the years. They have a large population of such assets and are about 26-27 per cent of the total population. This becomes a possible area of inorganic growth for Inox and as well as other O&M players.

The objects of the fresh issue include a repayment of debentures of Rs 260 crore. This would bring down the debt and because of interest saving, help the company earn profits at the net level. In terms of revenues, the company reported revenues of Rs 172.16 crore for the year ended March 22 and EBITDA of Rs 100.26 crore. In the first quarter of June 22, revenues were Rs 61.78 crore and EBITDA was Rs 18.93 crore. The company has not made a net profit, hence there is no EPS and also no PE ratio.

The prospects for the company are good in the long run. There is every possibility that in the run-up to profitability, the share may be available at a price lower than the issue price. Look to buy at prices lower than the issue price for profits in the long run.

(The author is the founder of

Kejriwal Research and Investment Services, an advisory firm)