The initial public offer (IPO) of Inox Green Energy Services is set to open for public bidding today. Analysts have a largely favourable view on the issue with some of them citing rich valuations as a hindrance.
The company is one of the major wind power operation and maintenance (O&M) service providers within India. It’s a subsidiary of Inox Wind, which is already listed on exchanges.
Analysts believe the company has a strong and diverse portfolio base, proven track record, favourable national policy support, visibility for future growth, reliable cash flow and efficient supply chain in place, which make for an investment case.
Abhishek Jain, analyst at Arihant Capital, underlined that Inox Green has 7 percent market share in O&M portfolios and has opportunity in inorganic growth through acquisitions of inactive players. The O&M contracts are long-term contracts with price clauses which provide long-term revenue visibility, he added.
“At the upper band of Rs 65, the issue is valued at a EV/EBITDA of 22 times based on FY22 EBITDA. We are recommending ‘subscribe for long term’ for this issue,” said Jain.
Inox Green is engaged in providing long-term O&M services for wind farm projects, specifically O&M services for wind turbine generators (WTGs). The company offers exclusive O&M services for all WTGs sold by Inox Wind Limited (IWL) through the entry of long-term O&M contracts between the WTG purchaser and terms that typically range from five to 20 years.
In its IPO prospectus, it said, as of June 30, 2022, IWL had entered into binding contracts for the supply of 2 MW capacity WTGs with an aggregate capacity of 964 MW. Further, IWL had also received non-binding letters of intent for its new 3.3 MW capacity WTGs with aggregate capacity of 524.7 MW.
As of June 30, 2022, its O&M services portfolio consisted of an aggregate 2,792 MW of wind farm capacity and 1,396 WTGs.
The company plans to raise Rs 740 crore, including fresh issues worth Rs 370 crore and rest being an offer-for-sale by the promoter group. From the fresh issue proceeds, the company will use Rs 260 crore to repay debts, which is likely to reduce interest costs for the company. The price band for the offer is Rs 61-65 per share.
“Dependence on the parent company for most O&M contracts may lead to muted growth in future order inflows,” said Chirag Shah, analyst at ICICIdirect. “Total debt on the books was at Rs 900 crore; though the management expects to become net debt free in the coming period through (IPO proceeds and selling a SPV), we see uncertainty on this and future profitability.”
However, Shah is one of the few sceptics. Others see some value.
The company raised Rs 333 crore from 27 anchor investors ahead of its maiden public issue. Marquee investors participated in the anchor book were Volrado Ventures, Morgan Stanley, Nomura, Authum Investment, Saint Capital Fund, Eriska Investment Fund, Cohesion MK Best Ideas, Coeus Global Opportunities Fund, Citigroup, Dovetail India Fund, AG Dynamic, ICICI Prudential, HDFC Trustee, Aditya Birla Sun Life, Edelweiss, and JM Financial.
“While the company recorded losses in the last two fiscals, the government’s thrust on green energy will aid in the company’s growth,” said Arafat Saiyed, an analyst at Reliance Securities. “The strong and diverse portfolio, favourable national policy support, visibility for future growth, support of long-term O&M contracts and backing by parent company Inox Wind are key positives, while valuation seems pricey based on current financial position.”
Vikrant Kashyap of KR Choksey also has a 'subscribe' rating on the issue.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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