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CD Equisearch Pvt Ltd Feb 29, 2016

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Inox Wind Ltd.

No. of shares (m) 221.92

Mkt cap (Rs crs/$m) 4853/706

Current price (Rs/$) 218.7/3.2

Price target (Rs/$) 320/4.7

52 W H/L (Rs.) 494/216

Book Value (Rs/$) 73.6/1.1

Beta 1.21

Daily volume (avg. monthly) 260830

P/BV (FY16e/17e) 2.7/2.1

EV/EBITDA (FY16e/17e) 8.4/6.5

P/E (FY16e/17e) 12.5/9.6

EPS growth (FY15/16e/17e) 124.1/18.1/30.4

OPM (FY15/16e/17e) 15.7/14.8/15

ROE (FY15/16e/17e) 32.6/24.5/24.9

ROCE(FY15/16e/17e) 21.2/17.6/18.1

D/E ratio (FY15/16e/17e) .6/.6/.6

BSE Code 539083

NSE Code INOXWIND

Bloomberg INXW IN

Reuters INWN.BO

Shareholding pattern %

Promoters 85.6 MFs / Banks / FIs 4.5

Foreign 3.1

Govt. Holding -

Non-Promoter Corp. -

Total Public 6.8

Total 100.0

As on Dec 31, 2015

Recommendation

BUY

Phone: + 91 (33) 4488 0043

E- mail: [email protected]

Consolidated (Rs crs)

FY13

FY14

FY15

FY16e

FY17e

Income from operations 1058.91 1566.81 2709.93 4045.84 5235.11

Other Income 4.76 9.14 45.86 56.49 62.13

EBITDA (other income included) 201.23 185.40 471.74 653.46 847.40

PAT

150.32

132.27 296.43 388.35 506.44

EPS(Rs) 7.52* 6.61 14.82 17.50 22.82 EPS growth (%) - -12.0 124.1 18.1 30.4

*adjusted for bonus issue

Company Brief IWL, one of the largest integrated wind power solution providers in India,

manufactures wind turbine generators and provides complete turnkey

solutions such as supply of WTG, land acquisition, infrastructure development,

power evacuation and operation & maintenance services. It manufactures

major components of WTGs, including nacelles, hubs, rotor blade sets and

towers, at its in-house facilities at Una (H.P.), Barwani district (M. P.) and

Rohika, near Ahmedabad.

Highlights • IWL has entered into two strategic, long-term agreements with its

technology partner AMSC (American Superconductor) whereby it has

secured exclusive and perpetual license and knowhow for manufacturing

the ECS (electrical conversion system) for the 2 MW turbines and to

collaborate on the development of a 3 MW turbine suitable for the Indian

conditions.

• The commissioning of the power evacuation and infrastructure facilities

will ensure increased synchronization between supply and commissioning,

thus reducing the commissioning backlog and improving financial

performance and working capital management.

• The total order book as of Dec 31, 2015 was about 1146 MW which

represents roughly 12 to 15 months of project execution time. A very

robust order inflow visibility of roughly 1200 MW is in the advanced stage

of discussion.

• IWL continues to be amongst the largest land bank owners in this sector.

They have land banks in Gujarat, Rajasthan and M.P. and in each of these

states it is the largest land bank owner. It is focused on increasing land

bank in South India and has acquired multiple sites at low cost in Andhra

Pradesh, for example. It has, at this point of time, sufficient land bank to

see installation of about 4500 MW of wind power projects.

• The stock trades at 12.5x FY16e EPS of Rs 17.50 and 9.6x FY17e EPS of Rs

22.82. Robust investments in Indian renewable energy space, particularly

wind energy, would buoy flow of orders for wind turbines and other

related components (1200 mw order inflow expected). Sturdy earnings

growth (30.4% next fiscal), top-flight return on capital and healthy leverage

ratios further support our propitious outlook. The stock therefore merits a

buy rating with target of Rs 320 based on 14x FY17 earnings (peg ratio: 0.6)

over a period of 9-12 months.

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CD Equisearch Pvt Ltd


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Company profile The Inox (Industrial Oxygen Co. Ltd.) group with its diverse business interests has over 100 businesses units across India and a

distribution network which is spread in more than 50 countries around the world. The Inox Group includes three listed companies

(Gujarat Fluorochemicals Limited, Inox Wind Limited and Inox Leisure Limited) and a joint venture (Inox Air Products Limited)

with a global giant, Air Products & Chemicals Inc- a Fortune 500 company. This group occupies market leadership positions in

various sectors like industrial gases, engineering plastics, refrigerants, chemicals, cryogenic engineering, renewable energy and

entertainment.

IWL, which was incorporated in the year April, 2009 but began its operations in March 2010, caters to the Indian market for wind

energy products and associated services. It operates and maintains three integrated manufacturing units in various parts of the

nation. IWL, with its state of the art facilities, is a fully integrated player in the wind energy market. It was ranked at 167th

position in Business Today's list of 500 most valuable companies in India in 2015. It caters to clients such as Tata Power, Ostro

Energy, Continuum Wind, CESC, GMDC etc. Inox Wind Limited has obtained ISO 9001:2008, ISO 14001:2004, OHSAS 18001 and

ISO 3834 certification for its management systems pertaining to manufacturing, installation, commissioning and O&M of wind

turbines.

Inox’s WTGs (wind turbine generators) are based on AMSC technology. It has a perpetual license from AMSC, a leading wind

energy technology company based in Austria, to manufacture 2 MW WTGs in India based on AMSC’s proprietary technology.

IWL’s products have significant raw materials requirements, including steel, epoxy and glass fabrics, and it outsources a variety of

components for the manufacture of wind turbines, including gearboxes, generators and electronic controls systems. Inox’s WTG

are equipped with DFIG technology (based on AMSC technology) which is one of the most advanced technologies being used

globally. WTGs are specifically developed keeping in mind India’s wind conditions and grid requirements. It sets up wind farms

and provides end to end solutions, including wind studies, energy assessments, land acquisition, site infrastructure development,

power evacuation, statutory approvals, supply of WTGs, erection and commissioning long term operations and maintenance

support to its clients, often for 20 years and beyond.

Wind is generally intermittent and variable with the season, type of terrain, time of day and height above the ground. Therefore,

wind resource evaluation and accurate forecasting of wind power density is a critical element in planning and operations of wind

farms and projecting wind turbine performance at a given site especially in low wind resource locations such as those in India.

Inaccurate data can affect project viability and stability of the grid. In addition to cost competitiveness, energy security concerns

and climate change issue continues to play key roles in shaping the future growth of renewable including wind energy.

Source: Inox Wind

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Product Profile Inox Wind's product is the 2 MW DFIG (Double Fed Induction Generator). The company currently manufactures two

variants of the 2 MW WTG- the 93.3 meter rotor diameter and the 100 meter rotor diameter and is planning to include a

third variant soon i.e., a 113 meter rotor diameter. A wind turbine comprises of a tower, a nacelle supported by the tower,

one or more rotor blades attached to the hub, a rotatable shaft, a gearbox, a DFIG and a partial power converter. All

electrical components are sourced from reputed global suppliers to ensure high effectiveness and dependability of

turbines.

Nacelles and Hubs

These are manufactured in their plant located in the Una district of Himachal Pradesh. To ensure uninterrupted

production this plant has arrangements for both grid and captive power supply. A nacelle consists of all the generating

components of a wind turbine including the generator, the gearbox, drive train and the brake assembly.

The manufacturing process for nacelles commences with assembly of the lateral support and preparation of the terminal

box, cable, yaw control device and yaw motor assembly. Hub manufacturing commences with hub preparation, which

consists of casting, cleaning and re-tapping the hub. The hub is placed on the front face of the nacelle which holds the set

of blades together. The nacelles and hubs have to undergo more than 100 quality checks during different stages of

production to ensure removal of any potential defects.

Rotor Blade Sets

The rotor blade manufacturing plant is located in the Ahmedabad district of Gujarat. IWL has its own test bench facility

to check the performance of the rotor blade sets. It makes IWL one of the very few manufacturers in India with their own

test bench facility. The rotor blade sets are manufactured pursuant to a custom design by WINDnovation (world’s

leading designer of rotor blades for wind turbines). Its process commences with cutting glass fabric, balsa wood and SAN

(Styrene acrylonitrile) foam to the required size using various tools. A set comprises of 3 blades which capture kinetic

energy of wind and the same is converted into electrical energy with the help of a shaft, gearbox and generator.

Towers

The towers are basically a conical steel tube tower consisting of internally welded flange. The towers are manufactured in

the same plant as the rotor blades and include a weld shop as well. High precision rolling mills, which are imported from

Italy are used in the production of towers. Independent contractors are engaged for fabrication and painting of towers.

Inside the tower is a ladder for accessing the nacelle, which is outfitted with a climbing protection system. The tower

contains working platforms at the flange connections in each tower section and is equipped with lighting systems.

Source: Inox Wind Source: michellehenry.com

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Others

The components which are not manufactured in-house, including gearboxes, ECS and generators, are sourced either on a

purchase order basis or as per supply agreements with the suppliers. However, ECS for WTGs are sourced exclusively from

AMSC and others like Emerson Industrial Automation Electric Power Generation, ABB, Dalian Huarui Heavy Industry

International and Wikov Industry.

Service profile

Inox Wind through its subsidiaries provides integrated solutions for wind farming in India which covers the entire value chain

starting from identifying suitable sites and planning of wind farms right up to their implementation and operation and

maintenance. These services include wind resource assessment, site acquisition, project development, erection and

commissioning, and also long term operations and maintenance of wind power projects. It appoints independent contractors for

infrastructure development at wind sites, including construction of group and unit sub-stations, transmission lines, roads,

foundations of turbines, electrical work at site and tower erection, including crane services.

SCADA (supervisory control and data acquisition), the ongoing maintenance service, which includes complete power plant

monitoring is the follow up service offered after the stabilization period. Each customer is sent a daily generation report with a

snapshot description of daily, monthly and year-to-date performance.

Source: Inox Wind

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Investment Thesis

New frontiers

For the new government renewable energy is one of the focus areas with a vision to multiply the capacity of the renewable

energy sector. Under the National Action Plan on Climate Change (NAPCC), the Government of India has set a target of

total installed base of approximately 175GW (gigawatts) of renewable energy generation capacity by 2022 implying 15%

renewable energy in the total electricity generation mix. It can be concluded that the government plans to increase the wind

energy sector capacity to almost 60 GW in the next Five Year Plan of FY2017-2022, which will give the sector a run rate of

4000 MW as compared to the current rate of 2000 MW.

IWL’s ready pipeline of projects

Source: Inox Wind Source: Inox Wind What drives the growth of renewable energy especially wind energy in India?

• Increase in conventional fuel cost: With the prices of crude oil and coal expected to sustain at higher levels over

medium to long term, it is likely that the requirement for renewable energy projects will increase.

• Demand-supply gap: India is likely to face an energy shortage of 2.1 per cent and a peak shortage of 2.6 per cent, in

2015-16. Power Grid Corporation’s former Chairman and Managing Director R P Singh told Business Standard: “'These

are all suppressed demand as 33 per cent of the population is still without power.”

• Low conception period: Wind power projects can be set up within a relatively short time frame of 6 to 9 months and

these have practically no adverse social impact.

• Energy security: For a developing country like India, energy security is the foremost concern as it is of vital importance

for the long term development of the nation. The import energy bill of India is expected to rise to reach $300 billion

dollars by 2030 from $150 billion dollars currently because of the increasing nation’s energy demand which is on its way

to double itself by that time. The consumption will increase from less than 700 million tons of oil equivalent to around

1500 million tons of oil equivalent. Sustainable development of renewable energy resources is the key to tackling the

energy deficit and providing national and economic energy security.

• Regulatory and Policies Support: The Ministry of New and Renewable Energy (MNRE) aims to increase the share of

energy generation from renewable sources significantly in comparison to growth in power generation from

conventional sources. MNRE is targeting renewable energy capacity of 175,000 MW by FY2022, including 60,000 MW of

wind power capacity. MNRE has also introduced the National Renewable Energy Act, 2015 to promote renewable

energy.

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• Reintroduction of accelerated depreciation: In order to incentivize investment in wind power and to attract small corporate

and HNIs to invest in wind power projects, the government re-introduced the scheme of accelerated depreciation in 2014.

They serve as a tax saving financial product.

• Reintroduction of Generation- based incentive (GBI): GBI is a way to encourage development of more efficient wind farms.

GBIs broaden the investor base by facilitating the entry of independent power producers (IPPs), thus attracting more FDI in

wind power sector. It provides level playing field between various classes of investors. It will incentivize higher efficiencies

and provide a framework for transitioning from investment based incentive to output based incentive.

• Corporate social responsibility (CSR) policy: As per the Companies Act, 2013, certain companies have to incur 2% of their

average net profits for CSR activity. A recent policy decision qualifies investments in wind power as a CSR activity. Energy

projects have been included as qualified under CSR activity under Companies Act, 2013, and hence, investments in this will

help companies discharge their CSR obligations. This is helping to increase the investment in wind energy sector.

• Green Corridor: In India, green energy corridor will facilitate the flow of renewable energy into its grid electricity. Doubling

of the National Clean Energy Cess will lead to more funds being available for renewable energy projects.

• Renewable Energy Law: Additional demand will be created by the introduction of the Renewable Energy Law. The

government has also gone ahead for amending (a) the Electricity Act 2003, which is lying with the Parliament for approval

and (b) national tariff policy. The proposed amendments will lead to two distinct things as under:

i) Renewable Generation Obligation (RGO), which will be applicable to greenfield conventional power capacities in the

future, where in they will have to procure certain percentage of off-take from renewable energy as a function of their

installed capacity;

ii) Stricter enforcement of renewables purchase obligation (RPO) as specified by various State Electricity Regulatory

Commissions (SERCs)

• Priority Sector Lending: As per RBI’s notification released on April 23, 2015, bank loans up to Rs. 150 million per borrower

for installation of wind mills will be classified under Priority Sector Lending. This will lead more HNIs and Small Corporates

to invest in Renewable Energy.

Source: CD Equisearch

The long term future for wind is underpinned mainly by its order of efficiency

and cost effectiveness in relationship with other conventional fossil fuels. New

products are being introduced with a significantly improved yield curve and

also to harness wind energy from low wind sites. Today India only gets 2.7% of

its power from wind energy. Thus, there exists an incredible prospect for

growth of wind turbine industry in India. The long term outlook of wind

market continues to remain strong with levelized cost (read: electricity

generation cost only and not cost of electricity supply such as grid connection or

balancing cost) of wind energy becoming competitive in comparison with new

fossil fuel plants in key markets. Wind market is likely to undergo a transition

to market mechanism from 2017 to 2020 responding to regulatory reforms

underway in key wind markets. According to the Indian Wind Energy

Association, with the current level of technology, the ‘on-shore’ potential for

utilization of wind energy for electricity generation is of the order of 302 GW.

The growth of the wind energy sector in India for the years to come will be

sustained by the unexploited resource availability.

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The wind energy business in India is now seeing investments from government companies and independent power

producers. A large part of the payments are received as per milestone linked payment schedule during the project

implementation phase and only a small residual portion, usually not exceeding 5-10% of the project cost remains as receivable

after the project completion and hand over of the wind turbine generator to the customers. Therefore credit risks are rather

limited in the project business.

Source: Inox Wind

Source: Inox Wind

Source: Inox Wind

Product Launches

To boost its product range, IWL endeavors to roll out a new 113

meter rotor diameter WTG with a hub height of 100m and 120m in

this financial year. It has commissioned its 800 MW blade facility at

its manufacturing unit at Barwani district in Madhya Pradesh. The

unit - which will have an annual production capacity of 400 rotor

blade sets and eventually also have an annual manufacturing

capacity of 400 nacelles and hubs and 300 towers - will double Inox

Wind’s production capacity to 1,600 MW (see chart).

The mechanized plant, which will be among the largest in Asia

and the largest in India, will drive investments and economic

growth in Madhya Pradesh and provide direct and indirect

employment to 5,000 people in the state. The new manufacturing

facility will enhance production of the company’s 100 meter rotor

diameter product and enable manufacturing of its revolutionary

113 meter rotor diameter product. The Madhya Pradesh plant has

started manufacturing blades and will soon start with towers and

nacelles.

Technical collaborations

IWL has a perpetual exclusive license from AMSC to

manufacture 2 MW WTGs, using its proprietary know-how.

Under the authorized agreement, IWL is required to purchase

all ECS from AMSC. There are more than 7,000 turbines with

an aggregate capacity of more than 15,000 MW successfully

operating across the globe based on AMSC technology. IWL’s

WTGs are equipped with DFIG technology. IWL has entered

into two strategic long term technological agreements with

AMSC. One of the new agreements with AMSC allows the

manufacture of ECS for the wind turbines. This will now

reduce long term dependency and create long term security

incase AMSC is unable to supply to IWL.

This alliance has helped in not only reducing the R&D expenditure but also gives it a technological advancement edge.

Enhanced supply chain management coupled with cost saving due to indigenization will help in reducing the foreign

exchange exposure of IWL (if IWL chooses to manufacture in future). Association for the development of 3MW WTG for India

will improve efficiency at a lower cost of generation providing it with cutting edge WTG technology. IWL also has a license

from Romax Technology, UK, which is a global provider of integrated software and services, for their gear box designs.

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The facility will also aid in well-organized transportation of equipment to several wind rich sites in the country. IWL is

focused on land development and has acquired large land banks in Andhra Pradesh at a low cost. The 100 meter rotor

diameter WTG is 25% more efficient than the 93.3 meter rotor diameter WTG and accounts for almost 70% of the sales. The 113

meter rotor diameter WTG will be 20% more efficient and will lead to superior margins and returns for investors due to its

low cost of production, more efficient power curves and higher market share.

Financials and valuations

The two strategic agreements with the AMSC will not only lead to an increase in IWL’s control of the supply chain but also

lead to significant cost savings due to indigenization of the ECS and help in reducing foreign exchange exposure as well.

IWL has common infrastructure commissioned for about 600 MW which is expected to see a significant pickup in project

execution in the coming months. It has commissioned a 400 MW 220 KVA substation and a transmission line at Rojmal,

Gurjarat in December, 2015 and this would cater to the requirements of clients such as Sembcorp Green Infra, Tata Power and

GACL. It has also commissioned a 200 MW 220 KVA substation and transmission line at Nipaniya, Madhya Pradesh. This will

help in meeting the requirements of customers such as ReNew Power, Mytrah Energy and CESC. Common Power Evacuation

Infrastructure of another 200 MW has been commissioned at Lahori, Madhya Pradesh.

Various steps are being taken to control working capital requirement such as enhancing manufacturing capacity to remove the

mismatches between the manufacturing capacity of nacelles, hubs, blades and towers and reduce the lag between supply and

commissioning which will lead to significant lower working capital days.

This shows that the company is highly resolute to increase control on its existing products. Its new capex plans, which the

company is determined to complete by FY17, will allow it to expand its product portfolio resourcefully as the new launches

are the derivatives of the existing products. Subsequently, the benefit of economies of scale will kick in, which will help it to

achieve higher margins going further.

In Q3FY16, an order of 40 turbines could not be shipped because some components suffered a procedural delay due to custom

clearance and could not reach the site on time. Although this will be recorded in the last quarter of FY16, the margins of

Q3FY16 suffered as a result.

Source: CD Equisearch; IWL Source: CD Equisearch; IWL Source: CD Equisearch; IWL

Multi-year tariff policies which have been prevailing for the past three years in the states like Gujarat, Madhya Pradesh and

Rajasthan is coming to an end. What has changed is over the past few months is that, a lot of more clarity has emerged around

the tariff expected in Madhya Pradesh and Gujarat and now the industry, in general is seeing a lot of momentum in terms of

people, in terms of customers moving forward and closing orders. A significant bump up in terms of order book and order

inflows is visible as it moves forward. At this point in time, the only state which is being firing in terms of orders is Andhra

Pradesh because that was the state which opened up over the course of this year with a promising tariff policy.

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Steel prices have gone down significantly to the extent of almost 20% to 25% (terms of the weighted average products for the

inventory that IWL carries) which is leading to saving in raw material pricing. The increase in price of the products together with

the new products coming out in the market is leading to incremental margins for IWL as it moves forward. The debt- equity ratio

is estimated to stabilize at 0.6 while the current ratio is expected to hover around 1.6. At this point of time, Inox has got 30% to

35% market share and in terms of incremental orders inflow, the share is expected to remain the same.

With the emergence of clarity around the tariff policy, a lot of momentum can be expected as far as negotiations and closures of

order books are concerned. This will result in a revenue growth of 49.3% and 29.4% in FY16e and FY17e respectively. The two big

things- new negotiated prices and the savings due to the steel prices going down, is estimated to play out during the next year

leading to robust margins. Imposition of minimum input price (MIP) on steel will not have much effect on the raw material

prices because Inox procured 70%-80% of its steel domestically.

The stock trades at 12.5x FY16e EPS of Rs 17.50 and 9.6x FY17e EPS of Rs 22.82. Robust investments in Indian renewable energy

space, particularly wind energy, would buoy flow of orders for wind turbines and other related components (1200 mw order

inflow expected). Sturdy earnings growth (30.4% next fiscal), envious return on capital and healthy leverage ratios further

support our propitious outlook. The stock therefore merits a buy rating with target of Rs 320 based on 14x FY17 earnings (peg

ratio: 0.6) over a period of 9-12 months.


Risks and concerns

Competitive Landscaping

Competition for IWL arises in the form of many multinationals, Indian and Asian players like Suzlon Energy, Gamesa Wind

Turbine, Vestas and Wind World (India), Regen Powertech. Competition is based on the performance of WTGs, price, site

selection (including wind resource and energy production assessments), reliability, product quality, technology, and the scope

and quality of services, including operations and maintenance services, training offered to customers and technical factors

including industry experience, technical ability, past performance, reputation for quality, safety record and the size of previous

contracts executed for similar projects. Additionally, while these are important considerations, price is a major factor in most

tender awards and negotiated contracts. In fact, the ability of the company to pass on increased costs to customers is ruled by the

market prices of the WTGs and services offered by their competitors and this in turn has an impact on the profitability.

Dependence on customers

As such there can be no guarantee that the orders will be confirmed and executed, and that binding contacts will not be cancelled

or reduced and that payment will be received as per the mentioned terms in the orders. Adverse conditions in the global

financial markets, any delay or failure to obtain the necessary permits, authorizations, permissions or other factors beyond

control or the control of customers may cause customers to postpone or cancel a project. Cancellations and changes can occur in

any order. Customers can even change the size of the order once the project has commenced. These coupled with payment

postponement, payment default, execution difficulty and disputes with customers will affect the results of the operations. IWL

may not be successful in winning significant business each year from existing as well as future clients which could affect the cash

flows adversely and materially year to year depending on their ability to win contracts. Inability to commission the project on

time can lead to payment of liquidated damages and loss of reputation.

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Regulatory changes

The development of power sector has previously been inhibited by the lack of funds. Changes in the government

policies and support for the infrastructure sector, especially the renewable energy sector, affects the growth prospects

and results of the operations. The reduction in policy incentives such as accelerated depreciation and generation based

incentives together with hike in duties and taxes can have an adverse impact on the manufacturers and wind

installations.

Forex Fluctuation

Fluctuation in the value of the rupee against foreign currencies may have an adverse effect on the Company’s results of

operations. Un-hedged trade and financial exposure thus creates potential to adversely impact projects and overall

profitability. Foreign exchange risks arising from imports and exports relating to IWL’s operating cycle are attempted to

be hedged progressively at various stages of project life cycle, depending upon the nature of the transactions and in

accordance with the hedging policy and strategy of the company.

Others

The cost of raw materials and components that are outsourced from third parties constitutes a significant part of the

operating expenses. The timely and cost-effective production of the final goods and services is dependent on the

adequate and timely supply of key materials, in addition to components. A new plant has been recently commissioned

in Madhya Pradesh. The experience which has been gained from the completed projects in Rajasthan, Maharashtra and

Gujarat may not be fully relevant or applicable to the development of future wind energy projects in Madhya Pradesh.

Its limited experience in Madhya Pradesh may give rise to unexpected difficulties in the project implementation

process, which could lead to delays and inefficiencies that could adversely impact the business, financial condition and

results of operations.

Inox Wind’s business snapshot

Source: Wikipedia Source: Inox Wind

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Cross Sectional Analysis

Company Equity* CMP mcap Sales* Profit*

OPM

(%)

NPM

(%)

Int

cov.

ROE

(%) DER

Mcap/s

ales P/BV P/E

Suzlon 1004 13 6702 11217 -7491 -52.9 -66.8 -4.3 - -1.5 0.6 -0.9 -

Inox Wind 222 219 4853 3516 361 14.7 10.3 0.2 35.4 0.7 1.4 3.0 13.5

*figures in crores; calculations on ttm basis


Financials

Quarterly Results - Consolidated Figures in Rs crs

Q3FY16 Q3FY15 % chg 9MFY16 9MFY15 % chg

Income From Operations 941.44 932.39 1.0 2585.49 1779.89 45.3

Other Income 14.99 2.76 443.1 46.35 10.45 343.5

Total Income 956.43 935.15 2.3 2631.84 1790.34 47.0

Total Expenditure 786.91 779.32 1.0 2207.57 1492.83 47.9

EBITDA (other income included) 169.52 155.83 8.8 424.27 297.51 42.6

Interest 20.07 16.18 24.0 70.54 46.41 52.0

Depreciation 8.60 5.55 55.0 22.76 14.73 54.5

PBT 140.85 134.10 5.0 330.97 236.37 40.0

Tax 37.84 33.53 12.9 88.34 57.83 52.8

PAT 103.01 100.57 2.4 242.63 178.54 35.9

Extraordinary Item - - - - - -

Adjusted Net Profit 103.01 100.57 2.4 242.63 178.54 35.9

EPS(Rs) 4.64 5.03 -7.7 10.93 8.93 22.5

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Consolidated Income Statement Figures in crs

FY13 FY14 FY15 FY16e FY17e

Income From Operations 1058.91 1566.81 2709.93 4045.84 5235.11

Growth (%) 48.0 73.0 49.3 29.4

Other Income 4.76 9.14 45.86 56.49 62.13

Total Income 1063.67 1575.95 2755.80 4102.33 5297.25

Total Expenditure 862.44 1390.54 2284.05 3448.86 4449.85

EBITDA (other income included) 201.23 185.40 471.74 653.46 847.40

Interest 38.76 46.00 62.25 90.01 108.72

Depreciation 8.90 11.61 20.35 31.46 44.92

PBT 153.58 127.79 389.14 531.99 693.76

Tax 3.25 -4.48 92.71 143.64 187.32

PAT 150.32 132.27 296.43 388.35 506.44

Extraordinary Item - - - - -

Adjusted Net Profit 150.32 132.27 296.43 388.35 506.44

EPS (Rs) 7.52 6.61 14.82 17.50 22.82

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Consolidated Balance Sheet Figures in Rs crs

FY13 FY14 FY15 FY16e FY17e

Sources of Funds

Share Capital 40.00 200.00 221.92 221.92 221.92

Reserves 255.51 227.79 1169.99 1558.34 2064.79

Total Shareholders Funds 295.51 427.79 1391.91 1780.26 2286.71

Long Term Debt 131.25 55.00 77.92 56.00 70.00

Total Liabilities 426.76 482.79 1469.83 1836.26 2356.71

Application of Funds

Gross Block 177.23 205.62 255.01 444.12 554.12

Less: Accumulated Depreciation 20.64 31.75 52.21 83.67 128.59

Net Block 156.59 173.86 202.80 360.45 425.53

Capital Work in Progress 4.07 25.46 49.11 50.00 20.00

Investments 0.00 45.00 - - -

Current Assets, Loans & Advances

Inventory 79.45 270.68 423.82 550.97 688.71

Trade Receivables 500.22 709.58 1432.18 2076.66 2491.99

Cash and Bank 1.52 4.02 709.61 510.24 753.18

Short term loans 133.88 111.65 235.53 281.73 316.68

Other Assets 11.90 37.70 29.03 24.93 24.93

Total CA 726.97 1133.62 2830.17 3444.52 4275.49

Current Liabilities 497.95 974.40 1669.23 2092.18 2432.48

Provisions-Short term 2.66 3.68 52.34 63.74 69.15

Total Current Liabilities 500.62 978.08 1721.56 2155.92 2501.63

Net Current Assets 226.35 155.54 1108.61 1288.60 1773.87

Net Deferred Tax -19.54 -15.11 1.45 29.04 29.04

Net long term assets ( net of liabilities) 59.28 98.04 107.87 108.17 108.27

Total Assets 426.76 482.79 1469.83 1836.26 2356.71

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Key Financial Ratios

FY14 FY15 FY16e FY17e

Growth Ratios(%)

Revenue 48.0 73.0 49.3 29.4

EBITDA -7.9 154.4 38.5 29.7

Net Profit -12.0 124.1 31.0 30.4

EPS -12.0 124.1 18.1 30.4

Margins (%)

Operating Profit Margin 11.2 15.7 14.8 15.0

Gross profit Margin 8.9 15.1 13.9 14.1

Net Profit Margin 8.4 10.9 9.6 9.7

Return (%)

ROCE 21 21 18 18

RONW 37 33 24 25

Valuations

Market Cap/ Sales - - 1.2 0.9

EV/EBITDA - - 8.4 6.5

P/E - - 12.5 9.6

P/BV - - 2.7 2.1

Other Ratios

Interest Coverage 3.8 7.3 6.9 7.4

Debt Equity 1.3 0.6 0.6 0.6

Current Ratio 1.2 1.6 1.6 1.7

Turnover Ratios

Fixed Asset Turnover 9.5 14.4 14.4 13.3

Total Asset Turnover 3.4 2.8 2.4 2.5

Debtors Turnover 2.6 2.5 2.3 2.3

Inventory Turnover 7.9 6.6 7.1 7.2

Creditor Turnover 4.3 4.0 4.3 4.5

WC Ratios

Debtor Days 140.9 144.2 158.3 159.3

Inventory Days 46.0 55.5 51.6 50.8

Creditor Days 85.2 91.3 85.8 81.3

Cash Conversion Cycle 101.6 108.4 124.0 128.8

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Financial Summary – US dollar denominated

million $ FY13 FY14 FY15 FY16e FY17e

Equity capital 7.4 33.3 35.5 32.3 32.3

Shareholders funds 54.3 71.2 222.4 258.8 332.5

Total debt 69.0 92.6 139.7 163.7 187.6

Net fixed assets (incl CWIP) 29.5 33.2 40.2 59.7 64.8

Investments 0.0 7.5 0.0 0.0 0.0

Net current assets 41.6 25.9 177.1 187.4 257.9

Total assets 78.5 80.3 234.8 267.0 342.7

Revenues 194.5 259.0 443.2 588.2 761.2

EBITDA 37.0 30.6 77.1 95.0 123.2

EBDT 29.8 23.0 67.0 81.9 107.4

PBT 28.2 21.1 63.6 77.3 100.9

PAT 27.6 21.9 48.5 56.5 73.6

EPS($) 0.14 0.11 0.24 0.25 0.33

Book value ($) 0.27 0.36 1.00 1.17 1.50

income statement figures translated at average rates; balance sheet and cash flow at year end rates; projections at current rates. All dollar denominated figures are adjusted for extraordinary items.

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Recommendation Wind energy has been the fastest growing renewable energy sector in India due to the substantial increase in country’s

generation capacity. Wind energy policies by the Indian government are becoming increasingly investor friendly and offer

regulations that provide healthy growth to this sector. Under the National Action Plan on Climate Change (NAPCC), the

Government of India has set a target of total installed base of approximately 175GW (gigawatts) of renewable energy

generation capacity by 2022 implying 15% renewable energy in the total electricity generation mix. It plans to increase the

wind energy sector capacity to almost 60 GW in the next Five Year Plan of FY2017-2022, which will give the sector a run rate

of 4000 MW as compared to the current rate of 2000 MW.

Considering the high initial cost, the government has decided to dole out incentives to boost investments. Incentives like

income tax holiday, accelerated depreciation provision of borrowing at low interest cost are proving to be persuasive. Some

states have also set minimum prices for wind power to be sold to the electricity distribution companies. A recent addition to

this basket of incentives is a rule by the Companies’ Act, 2013 which mandates certain companies to spend 2% of their average

net profits for corporate social responsibilities (CSR). The government wants to increase investment in this sector by qualifying

wind sector investment as a CSR activity.

The wind energy sector in India has seen a shift in the past couple of years from a manufacturer focused industry to one led by

bulk power developers; however, the country’s low capacity utilization factor (CUF) for wind power has been an area of

concern. Against the worldwide average of 25%–35% CUF, Indian CUF averages around 17%. India aims to achieve their

target of 60 GW in the wind energy sector by 2020 instead of 2022.

Ten out of the 29 Indian states have now implemented quotas for a renewable energy share of up to 10% and have introduced

privileged tariffs for electricity produced from renewable sources. Over the past few years, both the government and the wind

power industry have succeeded in injecting greater permanence into the Indian market.

IWL’s perpetual and exclusive license with AMSC to manufacture WTGs together with the two new strategic and long term

agreements (read: manufacture ECS and 3 MW WTGS) it has entered into with it, has proved to be a major technological edge.

IWL plans to launch a new 113 meter rotor diameter WTG with a hub height of 100m and 120m in this financial year. New

launches will help IWL in achieving improved economies of scale which in turn will lead to higher returns on capital. IWL

endeavors to roll out a new 113 meter rotor diameter WTG with a hub height of 100m and 120m in this financial year. It has

commissioned its 800 MW blade facility at its manufacturing unit at Barwani district in Madhya Pradesh.

With the increase in its market share across IPPs, PSUs, utilities, corporate and retail customers, Inox’s business is gaining

momentum. With an order book of 1146 MW in the pipeline and discussions for another 1200 MW which are in advanced

stages, the future of IWL looks promising. Its order book became more diversified when they bagged PTC India as well as

GIPCL’s orders.

However, the risks associated with IWL cannot be ignored. Increasing competition, regulatory changes and forex fluctuations

are some of the risks affecting the company. The biggest and the most important risk, however, is the risk arising from its

customers. Due to the sheer size of the order, postponement of payment, default and execution difficulty maybe a usual

occurrence for the company. Securing significant amount of business each year can prove to be challenging as well.

The stock trades at 12.5x FY16e EPS of Rs 17.50 and 9.6x FY17e EPS of Rs 22.82. Robust investments in Indian renewable

energy space, particularly wind energy, would buoy flow of orders for wind turbines and other related components (1200 mw

order inflow expected). Sturdy earnings growth (30.4% next fiscal), top-flight return on capital and healthy leverage ratios

further support our propitious outlook. The stock therefore merits a buy rating with target of Rs 320 based on 14x FY17

earnings (peg ratio: 0.6) over a period of 9-12 months.

17

17



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