IDFC Securities - Inox Wind (INOXWIND) Inox Winds Q2FY20 results (Underperformer) - Industry continues to be plagued by uncertainty

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IDFC Securities

Shirish Rane

Inox Wind's Q2FY20 results (Underperformer) - Industry continues to be plagued by uncertainty

Q2FY20 result highlights

Delay of grid infrastructure and land policy in Gujarat has continued to impact execution under SECI 1 and SECI 2 orders, resulting in disappointment in revenues for the wind OEM’s. However, we believe the grid infrastructure is ready and should result in improved execution over the next 2 quarters, but the volumes for FY20 are likely to be below expectation (2-3GW).
The transition from feed in tariff has adversely impacted FY18, FY19 and continues to adversely impact the FY20E. The expected recovery in the industry at the beginning of the year has not materialised resulting in lower volumes so far. Note that prolonged monsoon has impacted the execution in Q2FY20.
As a result, INOX reported sales of Rs1.4bn in Q2FY20, negative EBITDA of Rs10m. Consequently, INOX reported a loss of Rs455m in Q2FY20 (est of profit of Rs402m).
Total order book at end of Q2FY20 stands at 1269MW (order value of Rs72bn). Out of 1269MW, 500MW is in form of letter of intent from Adani Green Energy. Management expects increase in execution in coming quarters on commissioning of common power evacuation facilities in the State of Gujarat.

Key positives: Commissioning of common evacuation facilities to evacuate 500MW.

Key negatives: Continued disappointment in execution for industry led by grid issues; muted participation in new wind auction in last 6 months.

Impact on financials: Downgrade our earnings estimates for FY20E/FY21E to Rs0.2/Rs3.4 on account for delayed execution.

Valuations & view

INOX Wind (INOX) had a disappointing execution in last 30 months as industry wind power installations fell 40% yoy to 1.8GW in FY18 and 1.5GW in FY19 and . We believe the transition from Feed in Tariff (FiT) to auction regime continues to impact volumes in FY20 and will turn the tide in the wind power industry favour from H2FY2oE onwards. However, continued delay in execution on the order book of 1.2GW and consequently, the risk of cancellation of existing order book is rising for the company. Given the uncertainty, we have reduced our volumes estimates for FY20E/FY21E from 450/500MW to 300MW/500MW and expect company to report an EPS of Rs0.2/Rs3.4. We maintain our Underperformer rating on the stock with a revised target price of Rs27/share (10x FY21E P/E) on delay in execution of existing order book and uncertainty on the future

19/11/2019 5 EN

Underlying

Inox Wind

Inox Wind Ltd. Inox Wind Limited is an integrated wind energy solutions provider. The Company is engaged in the manufacture of Wind Turbine Generators (WTGs). The Company provides Engineering, Procurement and Commissioning (EPC); Operations and Maintenance (O and M), and Common Infrastructure Facilities services for WTGs. The Company offers various products, which include Inox DF 93.3, Inox DF 100 and Inox DF 113. The Company offers various services, which include infrastructure support and capabilities, operations and maintenance, and customer relationship management (CRM). The Company offers wind energy solutions and provides servicing to independent power producer (IPPs), Utilities, Public Sector Undertaking (PSUs), Corporates and Retail Investors. The Company also manufactures Blades and Tubular Towers, and Hubs and Nacelles. The Company has over three manufacturing plants located in Gujarat, Himachal Pradesh and Madhya Pradesh.

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INE066P01011 National Stock Exchange of India India

Provider

IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

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Analysts

Shirish Rane

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Inox Wind's Q2FY20 results (Underperformer) - Industry continues to be plagued by uncertainty

Inox Wind Ltd: 1 director

An unfavourable environment weighs on INOX WIND, which sees a downgrade to Slightly Negative

Inox Wind's Q3FY20 results (Underperformer) - Execution continues to be sluggish

GMR Infrastructure's Q3FY20 results (Outperformer) - Air traffic growth improved at the airports; deleveraging process gains momentum

Ambuja Cement's Q4CY19 results (Outperformer) - In line; cost efficiencies at play

Event update: Aurobindo Pharma (Outperformer) - Unit IV receives EIR; positive outcome

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