COMPANY UPDATE

26 SEP 2016

Inox Wind
BUY
INDUSTRY
CAPITAL GOODS
CMP (As on 23 Sep 16)
Rs 206
Target Price
Rs 475
Nifty

8,832

Sensex

28,668

KEY STOCK DATA

Bloomberg

INXW IN

No. of Shares (mn)

222

MCap (Rs bn) / ($ mn)

46/688

6m avg traded value (Rs mn)

129

STOCK PERFORMANCE (%)

52 Week high / low

Rs 412/161

3M

6M

12M

Absolute (%)

(10.8)

(22.8)

(42.2)

Relative (%)

(17.0)

(35.9)

(53.3)

SHAREHOLDING PATTERN (%)

Promoters

85.62

FIs & Local MFs

5.05

FIIs

1.38

Public & Others

7.95

Source : BSE

Pawan Parakh, CFA

pawan.parakh@hdfcsec.com
+91-22-6171-7314
Ashutosh Mehta
ashutosh.mehta@hdfcsec.com
+91-22-3078-8241

Taxiing on the runway

We arranged a few investor meetings with the
management of Inox Wind (IWL) and ended up
confirming our positive stance.
Correction of supply mismatch marred 1QFY17
performance (also a lean quarter seasonally). With
this hurdle cleared, IWL expects a substantial pick
up in volumes and reduction in working capital by
end-1HFY17. With the tariff finalization in Gujarat,
IWL expects volumes to pick up and is confident of
clocking revenues of Rs 50-55bn for FY17E. It
expects net core Wcap (inventory + debtors creditors) to remain flat in absolute terms leading
to zero net-debt status by FY17E -end.
Our optimism on wind power in India remains
intact given the government push and attractive
IRRs for developers (at closer to grid parity tariffs).
Hybrid policy (wind + solar) and competitive bids
provide tailwinds to sector volumes from FY18E
onwards. This, coupled with strong FCF generation,
(Rs 6bn for FY17E) and high RoE (~25%) makes a
strong investment case. Reiterate BUY with a TP of
Rs 475/share (10x FY18E EV/EBITDA).

Key takeaways

Volumes/revenue to be back-ended: For FY17E,

IWL expects to execute ~50% of its volumes in
Gujarat. With finalization of tariffs in Gujarat (Rs
4.19/unit for FY17E) on 30-Aug-16, management

expects execution/order flows to pick up

substantially over H2FY17. Given the seasonal
nature of WTG business, a revenue skew of 30:70
is seen between H1:H2.
Despite a weak 1QFY17, management is
confident of clocking revenues of ~Rs 50-55bn
for FY17E. Key contributing states include
Gujarat, Madhya Pradesh, Andhra Pradesh and
Karnataka.
Regulatory boost coming up: Under the
amendments to the new tariff policy (click here
for the link), interstate transmission charges have
been reduced to zero. IWL expects tenders to be
out for 1GW wind projects, wherein the PPA
would be assured by Renewable Corporation of
India. Power from these projects would then be
sold to non-windy states thereby enabling them
to comply with their non-solar RPO norms.
Financial Summary - Consolidated
(Rs mn)
Net Sales
Adjusted EBITDA
APAT
Diluted EPS (Rs)
P/E (x)
EV / EBITDA (x)
Net D/E (x)
RoE (%)
RoCE (%)

FY14 FY15 FY16 FY17E FY18E

15,668 27,090 44,141 53,568 64,594
1,763 4,249 7,106 8,722 10,888
1,330 2,724 4,654 5,446 6,998
6.7
12.3
21.0
24.5
31.5
31.0
16.8
9.8
8.4
6.5
26.3
11.1
7.7
5.5
4.4
1.2
0.1
0.5
0.1
0.1
36.8
29.9
28.8
25.7
26.5
24.3
19.5
19.1
18.4
21.1

Source: Company, HDFC sec Inst Research

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>

INOX WIND : COMPANY UPDATE

Post Tariff Announcement by

Gujarat, order inflows to pick
up substantially in H2FY17E

OMS contribution to become sizeable soon:

Net cash by FY17E end: IWL ended FY16 with a

With increasing installed base, IWL expects a

substantial jump in O&M revenues, which have
substantially higher margins than products. We
have modelled an increase in O&M revenues at
~Rs 500mn in FY17E, rising to Rs 2bn in FY19E.

net debt of Rs 9.3bn (net D/E of 0.5x). The same

would have been lower had it not been for the
non-core deployment of Rs 2.7bn with Inox
Renewables, a group company. With cash PAT of
~Rs 6bn, recovery of Rs 2.7bn from Inox
Renewables and easing working capital, the
company expects to be a zero net debt company
by end-FY17E.

Annual Volume Trend (MW)

Volumes

MW

Net Debt *
Volumes growth (%)

1,400

180%

1,200

Recovery of ICD amount (Rs

2.7bn from Inox Renewables)
and cash PAT of Rs 6bn will
enable IWL attain net debt
zero position by FY17E end

160%

6,000

140%

5,000

800

120%

4,000

600

100%

3,000

80%
60%

2,000

400

40%
20%

0%
FY14

FY15

FY16

FY17E

Source: Company, HDFC sec Inst Research

FY18E

6,491

7,000

1,000

200

Net Debt

Rs mn

200%

4,487

1,000

49

(196)

(609)

FY17E

FY18E

(1,000)
FY14

FY15

FY16

* Adjusted for ICD of Rs 2.7bn given to Inox Renewables

Source: Company, HDFC sec Inst Research

Page | 2

INOX WIND : COMPANY UPDATE

Revenue Growth
Net Revenue

Rs mn

Increase in O&M revenues

would aid margin
improvement from FY18E
onwards

Margins
Rs mn

Growth YoY [RHS]

70,000

80%

60,000

70%

EBITDA

Margin [RHS]

12,000

18%
16%

10,000

14%

60%

50,000

50%

40,000

40%

30,000

30%

20,000

8,000

12%
10%

6,000

8%

4,000

6%

20%

10,000

10%

0%
FY14

FY15

FY16

FY17E

4%

2,000

2%

FY18E

0%
FY14

Source: Company, HDFC sec Inst Research

FY15

FY16

FY17E

FY18E

Source: Company, HDFC sec Inst Research

Key Assumptions & Estimates - Consolidated

Rs mn

Trading attractively at 6.6x

FY18E EPS for an asset-light
business yielding ~27% ROE.
Maintain BUY

FY14

FY15

FY16

FY17E

FY18E

330
46.8
15,447
43
15,668

578
46.7
26,980
47
27,090

826
53.1
43,835
230
44,141

1,050
50.4
52,971
506
53,568

1,250
50.8
63,500
993
64,594

Gross Profit
GPM (%)

3,483
22.2

6,743
24.9

11,362
25.7

13,852
25.9

16,980
26.3

EBITDA
EBITDA Margin (%)

1,763
11.3

4,249
15.7

7,106
16.1

8,722
16.3

10,888
16.9

Capex
Net debt/ (cash)

498
5,076

730
1,647

3,931
9,271

600
2,585

600
2,172

Volume (MW)
Realisation (Rs mn/MW)
WTG Revenue
OMS Revenue
Net Revenue (incl other op income)

Source: Company, HDFC sec Inst Research

Page | 3

INOX WIND : COMPANY UPDATE

Peer Valuations
Company

MCap
(Rs bn)

CMP
(Rs)

Rating

TP
(Rs)

Carborundum Universal
Crompton Greaves
Cummins India
Inox Wind
Kalpataru Power *
KEC International
L&T
Suzlon Energy
Techno Electric
Thermax
Triveni Turbine
Voltas

52
50
249
46
41
33
1,394
95
35
102
40
127

276
80
898
206
266
127
1,497
16
303
860
122
385

BUY
NEU
BUY
BUY
BUY
BUY
NEU
BUY
NEU
SELL
BUY
NEU

391
76
940
475
330
160
1,461
28
677
686
128
325

Adj EPS (Rs/sh)

FY16 FY17E FY18E
10.7
13.0
15.6
1.9
3.2
4.3
27.1
28.3
31.4
21.0
24.5
31.5
13.0
15.5
17.5
7.4
9.8
10.6
52.1
60.4
70.3
-0.3
1.0
2.0
12.3
15.6
18.9
23.1
26.4
27.4
3.3
3.7
4.3
10.8
13.2
15.2

FY16
25.9
41.7
33.1
9.8
20.4
17.0
28.7
-46.5
24.5
37.2
37.5
35.7

P/E (x)
FY17E
21.2
25.1
31.7
8.4
17.2
13.0
24.8
15.7
19.4
32.5
33.1
29.2

FY18E
17.6
18.8
28.6
6.5
15.2
12.0
21.3
7.9
16.0
31.4
28.7
25.3

EV/EBITDA (x)
FY16 FY17E FY18E
13.3
11.1
9.5
14.9
10.3
9.1
32.3
29.8
26.2
7.7
5.5
4.4
9.7
9.0
8.0
8.1
7.0
6.6
13.1
12.5
11.3
14.5
9.9
7.2
16.6
11.7
9.9
21.4
20.2
17.9
23.4
20.2
17.2
27.8
22.4
18.9

FY16
15.8
2.7
24.8
28.8
9.2
13.5
11.4
2.4
13.0
12.2
41.3
15.9

ROE (%)
FY17E FY18E
16.8
17.4
4.3
5.6
23.5
23.6
25.7
26.5
10.0
10.3
15.5
14.7
12.2
13.0
-9.1 -21.3
16.8
17.6
12.8
12.2
36.9
33.9
17.1
17.4

*Note - represent SA numbers

Source: HDFC sec Inst Research

Page | 4

INOX WIND : COMPANY UPDATE

Income Statement - Consolidated

Balance Sheet - Consolidated

(Rs mn)
FY14
FY15
FY16 FY17E FY18E
Net Revenues
15,668 27,090 44,141 53,568 64,594
Growth (%)
48.0
72.9
62.9
21.4
20.6
Material Expenses
12,185 20,347 32,779 39,716 47,614
Employee Expenses
384
549
920 1,196 1,435
SG&A Expenses
1,336 1,945 3,336 3,934 4,658
Total Expenses
13,905 22,841 37,035 44,846 53,706
EBITDA
1,763 4,249 7,106 8,722 10,888
EBITDA Margin (%)
11.3
15.7
16.1
16.3
16.9
EBITDA Growth (%)
(10.3) 141.1
67.2
22.7
24.8
Depreciation
116
204
350
509
567
EBIT
1,647 4,046 6,756 8,213 10,321
Other Income (Including EO Items)
(93)
468
478
445
468
Interest
460
622
960 1,095 1,069
PBT
1,094 3,892 6,274 7,563 9,720
Tax (Incl Deferred)
(45)
927 1,755 2,118 2,722
RPAT
1,139 2,964 4,519 5,446 6,998
EO (Loss) / Profit (Net Of Tax)
(192)
240 (135)
APAT
1,330 2,724 4,654 5,446 6,998
APAT Growth (%)
(11.5) 104.8
70.8
17.0
28.5
Adjusted EPS (Rs)
6.7
12.3
21.0
24.5
31.5
EPS Growth (%)
(82.3)
84.5
70.8
17.0
28.5

(Rs mn)
SOURCES OF FUNDS
Share Capital
Reserves
Total Shareholders Funds
Long Term Debt
Short Term Debt
Total Debt
Net Deferred Taxes
Long Term Provisions & Others
TOTAL SOURCES OF FUNDS
APPLICATION OF FUNDS
Net Block
CWIP
Investments
LT Loans & Advances
Total Non-current Assets
Inventories
Debtors
Other Current Assets
Cash & equivalents
Total Current Assets
Creditors
Other Current Liabilities & Provns
Total Current Liabilities
Net Current Assets
TOTAL APPLICATION OF FUNDS

Source: Company, HDFC sec Inst Research

FY14

FY15

FY16

FY17E

FY18E

2,000
2,278
4,278
550
5,017
5,567
151
38
10,033

2,219
11,700
13,919
779
7,964
8,743
(15)
49
22,697

2,219
16,219
18,438
509
14,172
14,681
101
74
33,293

2,219
21,664
23,883
254
10,172
10,427
101
147
34,558

2,219
26,615
28,835
254
9,672
9,927
101
177
39,039

1,739
255
0
1,018
3,011
2,707
7,096
1,493
490
11,786
4,728
37
4,764
7,022
10,033

2,028
491
0
1,128
3,647
4,238
14,322
2,646
7,096
28,302
8,728
523
9,252
19,050
22,697

5,690
427
1,777
7,893
5,416
24,143
4,432
5,410
39,402
13,562
440
14,002
25,400
33,293

5,607
600
2,153
8,360
10,256
26,372
5,023
7,842
49,493
21,977
1,319
23,295
26,198
34,558

5,640
600
2,424
8,664
12,369
31,805
5,657
7,755
57,585
25,621
1,590
27,211
30,375
39,039

Source: Company, HDFC Sec Inst Research

Page | 5

INOX WIND : COMPANY UPDATE

Cash Flow Statement - Consolidated

(Rs mn)
Reported PBT
Non-operating & EO items
Interest Expenses
Depreciation
Working capital change
Tax Paid
Other operating items
OPERATING CASH FLOW (a)
Capex
Free Cash Flow
Investments
Non-operating Income
INVESTING CASH FLOW (b)
Debt Issuance/(Repaid)
Interest
FCFE
Share Capital Issuance
Dividend
FINANCING CASH FLOW (c)
NET CASH FLOW (a+b+c)
Closing Cash & Equivalents

FY14
1,094
93
460
116
(2,228)
45
293
(128)
(498)
(626)
(87)
(93)
(677)
1,812
(460)
726
(72)
1,279
475
490

Source: Company, HDFC sec Inst Research

Key Ratios - Consolidated

FY15
3,892
(468)
622
204
(5,521)
(927)
132
(2,066)
(730)
(2,797)
(544)
468
(806)
3,177
(622)
(242)
6,923
9,477
6,606
7,096

FY16
6,274
(478)
960
350
(8,661)
(1,755)
721
(2,590)
(3,931)
(6,520)
(622)
478
(4,075)
5,938
(960)
(1,542)
4,978
(1,686)
5,410

FY17E
7,563
(445)
1,095
509
1,332
(2,118)
7,936
(600)
7,336
445
(155)
(4,254)
(1,095)
1,987
(5,349)
2,433
7,842

FY18E
9,720
(468)
1,069
567
(4,506)
(2,722)
3,661
(600)
3,061
468
(132)
(500)
(1,069)
1,492
(2,047)
(3,616)
(87)
7,755

PROFITABILITY %
GPM
EBITDA margin
APAT margin
RoE
Core RoCE
RoCE
EFFICIENCY
Tax Rate (%)
Fixed Asset Turnover (x)
Inventory (days)
Debtors (days)
Other Current Assets (days)
Payables (days)
Other Current Liab & Provns (days)
Cash Conversion Cycle (days)
Debt/EBITDA (x)
Net D/E (x)
Interest Coverage (x)
PER SHARE DATA (Rs)
EPS
CEPS
Dividend
Book Value
VALUATION
P/E (x)
P/BV (x)
EV/EBITDA (x)
EV/Revenues (x)
OCF/EV (%)
FCF/EV (%)
FCFE/Mkt Cap (%)
Dividend Yield (%)

FY14

FY15

FY16

FY17E

FY18E

22.2
11.3
8.5
36.8
20.8
24.3

24.9
15.7
10.1
29.9
24.5
19.5

25.7
16.1
10.5
28.8
22.4
19.1

25.9
16.3
10.2
25.7
21.7
18.4

26.3
16.9
10.8
26.5
25.6
21.1

(4.1)
7.9
63.1
165.3
34.8
110.1
0.9
152.2
3.2
1.2
3.6

23.8
10.8
57.1
193.0
35.6
117.6
7.1
161.1
2.1
0.1
6.5

28.0
7.2
44.8
199.6
36.6
112.1
3.6
165.3
2.1
0.5
7.0

28.0
8.6
69.9
179.7
34.2
149.7
9.0
125.1
1.2
0.1
7.5

28.0
10.4
69.9
179.7
32.0
144.8
9.0
127.8
0.9
0.1
9.7

6.7
7.2
21.4

12.3
13.2
62.7

21.0
22.5
83.1

24.5
26.8
107.6

31.5
34.1
7.9
129.9

31.0
9.6
26.3
3.0
(0.3)
(1.4)
1.8
-

16.8
3.3
11.1
1.7
(4.4)
(5.9)
(0.5)
-

9.8
2.5
7.7
1.2
(4.7)
(11.9)
(3.4)
-

8.4
1.9
5.5
0.9
16.4
15.2
4.3
-

6.5
1.6
4.4
0.7
7.6
6.4
3.3
3.8

Source: Company, HDFC sec Inst Research

Page | 6

INOX WIND : COMPANY UPDATE

RECOMMENDATION HISTORY
Inox

Date
23-Feb-16
9-May-16
26-Sep-16

TP

500
450
400

CMP
237
242
206

Reco
BUY
BUY
BUY

Target
475
475
475

350
300
250
200

Rating Definitions

150

Sep-16

Aug-16

Jul-16

Jun-16

May-16

Apr-16

Mar-16

Feb-16

Jan-16

Dec-15

Nov-15

Oct-15

Sep-15

100

BUY

: Where the stock is expected to deliver more than 10% returns over the next 12 month period

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL

: Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 7

INOX WIND : COMPANY UPDATE

Disclosure:
We, Pawan Parakh, CFA & Ashutosh Mehta, CA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No
Disclaimer:
This report has been prepared by HDFC Securities Ltd and is meant for sole use by the recipient and not for circulation. The information and opinions contained herein have been compiled or
arrived at, based upon information obtained in good faith from sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of
warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. This document is for
information purposes only. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this document is not, and should not be
construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments.
This report is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity who is a citizen or resident or located in any
locality, state, country or other jurisdiction where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject HDFC
Securities Ltd or its affiliates to any registration or licensing requirement within such jurisdiction.
If this report is inadvertently send or has reached any individual in such country, especially, USA, the same may be ignored and brought to the attention of the sender. This document may
not be reproduced, distributed or published for any purposes without prior written approval of HDFC Securities Ltd .
Foreign currencies denominated securities, wherever mentioned, are subject to exchange rate fluctuations, which could have an adverse effect on their value or price, or the income derived
from them. In addition, investors in securities such as ADRs, the values of which are influenced by foreign currencies effectively assume currency risk.
It should not be considered to be taken as an offer to sell or a solicitation to buy any security. HDFC Securities Ltd may from time to time solicit from, or perform broking, or other services
for, any company mentioned in this mail and/or its attachments.
HDFC Securities and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies)
mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the
company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and
other related information and opinions.
HDFC Securities Ltd, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any
action taken on basis of this report, including but not restricted to, fluctuation in the prices of shares and bonds, changes in the currency rates, diminution in the NAVs, reduction in the
dividend or income, etc.
HDFC Securities Ltd and other group companies, its directors, associates, employees may have various positions in any of the stocks, securities and financial instruments dealt in the report,
or may make sell or purchase or other deals in these securities from time to time or may deal in other securities of the companies / organizations described in this report.
HDFC Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any
other assignment in the past twelve months.
HDFC Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report
for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or
specific transaction in the normal course of business.
HDFC Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research
report. Accordingly, neither HDFC Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. Compensation of our Research Analysts is
not based on any specific merchant banking, investment banking or brokerage service transactions. HDFC Securities may have issued other reports that are inconsistent with and reach
different conclusion from the information presented in this report. Research entity has not been engaged in market making activity for the subject company. Research analyst has not served
as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research
Report. HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel,
Mumbai - 400 013
Board : +91-22-6171 7330
www.hdfcsec.com
Page | 8