In the past year alone, Inox Wind has continued to deliver multibagger returns, with a remarkable surge of 256 percent. However, in 2024 year-to-date (YTD), the stock has experienced periods of correction and volatility, registering a modest gain of 13.5 percent.
The stock has also witnessed a decline of 3.5 percent in June, extending losses from a 6.3 percent fall in May. Despite the recent correction, domestic brokerage house Axis Securities has initiated coverage on the wind energy stock with a ‘buy’ call and a target price of ₹182, implying a potential upside of over 28 percent.
“With the interest-bearing debt coming down to zero, robust order book, technological readiness, and execution capability along with the government’s renewed focus on wind capacity additions, we assign a target P/E multiple of 30x on our FY26 EPS estimate. We further adjust it for the promoter’s fund infusion and a minority stake in the Inox Green Energy Services Ltd. to arrive at our TP of ₹185/share and initiate the coverage with a BUY rating,” said the brokerage.
Inox Wind is a fully integrated wind energy solutions provider. The company is engaged in the business of manufacturing and selling wind turbine generators (WTGs). It also provides erection, procurement, and commissioning (EPC), operations and maintenance (O&M), and common infrastructure facilities services for WTGs and wind farm development services.
According to Axis, following the promoter infusion, Inox Wind Limited (IWL) has successfully eliminated its interest-bearing debt entirely. This financial strengthening positions the company favorably to capitalise on the expanding wind sector in India. Key factors contributing to its strong market position include a robust order book totaling 2.7 GW across a diversified customer base, it said. Additionally, its operational and maintenance arm, Inox Green Energy Services Ltd., boasts robust margins exceeding 45 percent, added the brokerage.
Moreover, Axis also pointed out that India’s ambitious plans to increase wind power capacity by approximately 75 GW by FY32, up from the current 46 GW, further bolster Inox Wind’s growth prospects. The company has also adapted technologically by transitioning from 2 MW to 3-3.3 MW turbines and developing the 4.X MW WTG platform, positioning itself for advancements in the wind energy sector over the next decade, it noted.
Investment Rationale
Order Book: Axis informed that as of March 31, 2024, Inox Wind maintains a robust order book totaling 2.7 GW, which is slated for sale over the next 2.5 years. This order book is diversified across various customer segments, including Public Sector Undertakings (PSUs), Independent Power Producers (IPPs), Commercial and Industrial (C&I) markets, and retail markets. It encompasses a healthy blend of turnkey projects and equipment supplies, reflecting the company’s strategic approach to market diversification and project execution.
Ramp-up in Execution: In FY24, Inox Wind achieved an impressive execution of 376 MW, marking a significant 262 percent year-on-year increase from 104 MW in FY23. With a substantial order book in place, the company anticipates further growth in order execution starting from FY25 onwards, with projected figures of 800 MW to 1,200 MW for FY25 and FY26 respectively. Looking ahead, IWL aims to achieve an annual execution target of 2 GW in the medium term, leveraging its enhanced capability and robust supply chain readiness. Notably, in FY16, during the peak of the wind sector, Inox Wind commissioned 786 MW, highlighting its historical capacity and experience in delivering large-scale projects, said Axis.
Technological Advancement: Axis further noted that the company has significantly increased the production of its 3 MW wind turbines, successfully transitioning from the previous 2 MW models. Additionally, Inox has secured the license for a 4.X MW wind turbine platform. This new 4.X MW wind turbine, featuring a large rotor diameter specifically designed for low wind sites, is poised to be a revolutionary product in the Indian market. This strategic advancement positions IWL at the forefront of technological innovation in the wind energy sector.
Financial Performance: Axis noted that Inox Wind incurred losses during FY19-24, primarily due to reduced execution linked to lower wind capacity additions. This decline was caused by the abrupt transition to a reverse bidding auction regime starting in FY18 and the additional impact of COVID-19 in FY21-22. However, the brokerage expects the company to return to profitability from FY25 onwards, driven by higher execution supported by its robust order book.
Axis projects a Compound Annual Growth Rate (CAGR) in Revenue/EBITDA of 75 percent over FY24-27E, with Profit After Tax (PAT) expected to surge to ₹1,081 crore in FY27E from a loss of ₹51 crore in FY24. Additionally, it projects an EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin of 15 percent, aligning with the company’s guidance range of 14-15 percent.
Nil Interest-Bearing Debt on the Books: A series of promoter fund infusions, totaling ₹2,940 crore over FY23-25 through stake sales, has resulted in zero interest-bearing debt for Inox Wind, further stated Axis.
While the recent 2 months have been in the red for the stock, one must note that the scrip is just 20 percent away from its peak of ₹177, hit on May 27, 2024. Meanwhile, it has soared 273 percent from its 52-week low of ₹38, hit on July 3, 2023.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 28 Jun 2024, 02:59 PM IST