Recommend subscribing to Inox Wind IPO: Motilal Oswal

We recommend subscribing to Inox Wind’s initial public offering (IPO). We expect the company’s wind turbine generator…

We recommend subscribing to Inox Wind’s initial public offering (IPO). We expect the company’s wind turbine generator (WTG) sales to increase from 330 MW in FY14 to ~600 MW in FY15 and 1-1.2 GW in FY16.

Inox is India’s fourth-largest WTG manufacturer and provides turnkey solutions for wind farm projects. Contribution of group companies to revenue has declined from 100% in FY12 to 15% in FY14. Group companies now contribute just 4% to the order book. The company has relationships with several large utilities including Tata Power, Continuum Wind, Clean Wind Power (Hero Group), and ReNew Power; and bagged several large sized orders in FY15. Order book as at December 2014 stood at 1,258 MW, and cumulative installations / supplies stood at 1,044 MW.

Expansion at MP, coupled with capacity augmentation at Gujarat, will lead to near-doubling of capacity to 1.6 GW by end FY16. Project site pipeline currently stands at 4 GW and R200 crore is being invested to set up the power evacuation infrastructure at these facilities. We believe this provides a robust foundation to accelerate growth.

The O&M business provides interesting opportunities, given that the supplier retains O&M on nearly 100% of the projects, and gross margins are remunerative at ~50%. Going forward, the contribution will increase meaningfully, as the installed base increases. In the WTG business, gross margins are likely to sustain at 26%.

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