Indowind Energy is open for subscription with initial public offering (IPO) of Rs 81.25 crore. The issue closes on August 24. The 100-per cent book-building process IPO would offer 1.25 crore equity shares of Rs 10 in the price band of Rs 55-65. The net issue would constitute 25 per cent of the fully diluted post issue paid-up capital of the company.

Niche Brokerage report on Indowind Energy IPO

Business

Indowind Energy (IEL) started developing wind farms in a small way by installing a 225 KW Wind Electric Generator, in September 1995. Since then the Company has been expanding its wind farm capacity every year to reach the present capacity of 16.825MW owned by the company and 17.915 MW for others whose Operations and Maintenance is with the Company.

The Company is currently in the process of implementing additional 9MW capacity in Karnataka. The current scope of operations of the Company includes; Wind Power Generation, Turnkey operations for windmill projects and Operations & Maintenance of WEG’s. Plant Load Factor (PLF)stands at 23.6% which is better than industry average and the company targets to achieve more than 30% PLF in the years to come.

Investment Rationale

Industry Leader as an IPP (Independent Power Producer)

IEL pioneered the concept of “Green Power Developer ” in the Indian wind power map. Over a period of 12 years, the operational experience and expertise of running Wind Electric Generators have culminated to become the most successful IPP. Innovative financial structuring, extensive operational experience and dedicated O & M team have provided the phenomenal growth over the past decade. This has helped to achieve a sizeable market share in India for sale of “Green Power”.

Cost Effective source of Energy

It is cost effective to generate & supply renewable energy, as the efficiency in power generation through wind energy are increasing and costs are decreasing, while the costof conventional power is increasing. This is an advantage to the companies operating in this sector.

Achievements

The Company has presently installed & commissioned 34.74 MW Wind Turbines Capacity across two states of Tamilnadu (29.74 MW), Karnataka (5MW) and plans to increase its annual installations gradually to become a major player in the industry. The company has become the first Wind Energy company from India to get the Carbon Credits (Certified Emission Reductions) issued by UNFCCC for its recently commissioned 12.3 MW projects in Tamilnadu under the Clean Development Mechanism for the “Green Power” generated from the windmill operations.

Setting up 9 MW Wind farm project

The company is raising around Rs 81.25 crore from this IPO. Out of the IPO proceeds, the company plans to invest Rs 49.5 crore to set up a wind farm of 9 MW Capacity in Pallavanahalli Village, Hiryur Taluk, Chitradurga District, Karnataka to harness thewind energy potential on commercial terms. As the wheeling charges under the new policy are very exorbitant, the company has decided to sell power generated from this wind farm to BESCOM (KPTCL) under power purchase agreement, where realization per unit is higher as compared to sale to private corporate clients under the current guidelines.

Concerns

• The majority of company’s business income is derived from sale of power to TNEB. The loss of TNEB as our customer would have a material impact on the company’s financials.
• The Plant Load Factor (PLF) of the project will get affected by grid failure and unplanned breakdown.
• The company’s corporate promoter, Subuthi Finance (listed in the stock market), has a track record of non-compliance with certain listing requirements. It has also received notices from the RBI for certain irregularities.

Outlook & Valuations

At the offer price of Rs 55 - Rs 65 Indowind Energy’s PE multiple works out to 49x at the upperprice band and 41x at lower price band which is expensive when compared to the valuation of other companies in the industry. We recommend investors to buy into the stock at lower levels post IPO. At the current price we do not recommend to Subscribe to the stock.