Inox Wind Limited IPO – Should you invest?

Inox Wind Limited IPOInox Wind Limited IPO – Should you invest?

Noida based, Inox Wind Limited IPO would hit market on 18th March, 2015. Inox Wind Limited is leading wind power solutions company and subsidiary of Gujarath Fluoro Chemicals Ltd (listd on BSE/NSE). Inox Wind Limited has generated 10% margins in 9 months ended Dec-2014. Should you subscribe to Inox Wind IPO? What are the risk factors to be considered if you want to invest in Inox Wind Limited IPO?

About Inox Wind Limited

Inox Wind Limited is one of India’s leading wind power solutions providers. They  manufacture wind turbine generators, or WTGs, and provide turnkey solutions by supplying WTGs and offering services including wind resource assessment, site acquisition, infrastructure development, erection and commissioning, and also long term operations and maintenance of wind power projects.

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Issue details of Inox Wind IPO

  • IPO opens: 18-March-2015
  • IPO closes: 20-March-2015
  • Face Value: Rs 10 per share
  • Issue price band: Rs 315 to Rs 325 per share.
  • Minimum Shares to apply: 45 shares and in multiples of 45 shares thereon.
  • Issue size: Rs 700 Crores
  • Lead Managers: Axis Capital Ltd, BoFA Merrill Lynch, Edelweiss Financial Services Ltd
  • Listing: BSE / NSE
  • Download Inox Wind IPO Prospectus here

Purpose of the IPO

The funds would be used for the following purposes.

  • Company will not receive any proceeds from the Offer for Sale by the Selling Shareholder and the proceeds received from the Offer for Sale will not form part of the Net Proceeds.
  • Expansion and upgradation of existing manufacturing facilities;
  • Long term working capital requirements.
  • Investment in its Subsidiary, IWISL, for the purpose of development of power evacuation infrastructure and other infrastructure development and
  • General Corporate Purposes.

Company Financials

  • Company generated revenue of Rs 10,636.76 Millions for the year ended Mar-13 and Rs 15,763.42 Millions for the year ended Mar-14.  It earned revenue of Rs  17,950 Millions for the 9 months ended Dec-14.
  • Company posted a profit of Rs 1,504.22 Millions for the year ended Mar-13 and a profit of Rs 1,314.6 Millions for the year ended Mar-2014. Its profits are Rs  1,793.14 Million for the 9 months ended Dec-2014.
  • Diluted EPS for FY2014 is Rs 6.92 and last 3 years average is Rs 7.21

Inox Wind Limited IPO - Financials

Reasons to invest Inox Wind IPO

  • Good revenue growth in last 2.5 years.
  • Good profits of 10% for 9 months ended Dec-2014

Reasons not to invest in Inox Wind IPO

  • It has limited operating history, which may make it difficult to evaluate  past performance and prospects.
  • Company Promoter, two of  Directors and certain Group Companies are involved in certain legal proceedings, which, if determined against the above entities could have an adverse impact on the business and financial results of  the Company.
  • Projects included in  order book may not ultimately be confirmed, may be modified or cancelled, or there may be delays in execution, which could have a material adverse effect on  cash flow position, financial conditions, cash flows and results of operations.
  • Its acquisition of Project Sites and/ or Wind Sites Under Acquisition, as the case may be, and  ability to fulfill  contractual obligations in respect of facilitating the transfer of rights over Project Sites and/ or Wind Sites Under Acquisition, may be subject to legal uncertainties and defects.
  • Demand for  products and services depends on the activity and new capital expenditure levels in the wind power sector.
  • Group Companies and Promoter accounted for 15%, 34%, 100%, 100% and 100% of  revenue in the years ended March 31, 2014, 2013, 2012, 2011 and 2010, respectively. While  Group Companies and Promoter did not account for any of  revenue in the nine months ended December 31, 2014, they accounted for 4% of  order book as of December 31, 2014. This company do not have an agreement to share revenues derived from wind farms that we develop for Group Companies or  Promoter
  • The company intends to apply approximately 18.79% of the proceeds of the Fresh Issue to make an unsecured loan to  subsidiary, IWISL.
  • Its Operations are dependent on the timely supply of quality raw materials and components at commercially acceptable prices and we are dependent on a limited number of suppliers for key raw materials and components.
  • AMSC, which is  technology licensor and the subsidiary company of  exclusive supplier of ECS, has experienced financial difficulties
  • Its top five customers contributed over 85% of  total income for the nine months ended December 31, 2014. They are dependent on a small number of customers and  business is dependent on  continuing relationships with  customers, with whom they have not entered into long term arrangements.
  • Complete risk factors can be read from “Risk Factors” section of the IPO prospectus from page no. 18 onwards.

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Recommendation / Investment strategy

  • With the diluted EPS of Rs 6.92 for the year ended Mar-2014 and on the issue price of Rs 315 (lower price band), P/E Ratio works out to be 45. If we take 3 years average EPS of Rs 7.21 and on the issue price of Rs 315, P/E Ratio would be 43.7. If we take EPS of Rs 9.88 for the 9 months ended Dec-2014 and on the issue price of Rs 315, P/E Ratio would be approx 31.9. Since there is no listed company in this similar business, we cannot ascertain whether the issue price is priced correct or not  .
  • Inox Wind IPO has positive as well as negative factors. Good revenue growth, high margins, promising future outlook etc., are some of the positive factors. Limited operating history, high dependency on top 5 customers, etc., are some of the major negative factors.
  • IPO’s have not been performing well in recent months. Many IPO’s are trading below its issue price. Though it looks good revenue growth story, one need to wait and watch for the long term performance and further improvement of margins. If such stocks are available at discounted prices, one can look for investment. High risk investors who are willing to take risks can invest in this IPO by applying at lower price band of Rs 315 per share.

Disclaimer: I would not be investing in this IPO nor any intention to invest in the near future. Investment in stocks / IPO’s carry high risk and can vanish your investments. You should review them carefully before investing.

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Inox Wind Limited IPO – Should you invest

Suresh KP


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