Inox Green Energy Services Ltd
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About
the Company:
Inox Green Energy Services Ltd (IGESL) was incorporated on
May 11, 2012. IGESL, a subsidiary of Inox Wind Limited (IWL), a listed company
is one of the major wind power operation and maintenance (O&M) service
providers within India. The Company is engaged in the business of providing
long-term O&M services for wind farm projects, specifically the provision
of O&M services for wind turbine generators (“WTGs”) and the common
infrastructure facilities on the wind farm which support the evacuation of
power from such WTGs.
The company enjoys synergistic benefits as a subsidiary of
IWL, which is principally engaged in the business of manufacturing WTGs and
providing turnkey solutions by supplying WTGs and offering a variety of
services including wind resource assessment, site acquisition, infrastructure
development, EPC of WTGs.
Pursuant to an exclusivity agreement between IWL and our
Company, we provide exclusive O&M services for all WTGs sold by IWL through
the entry of long-term O&M contracts between the WTG purchaser and
ourselves for terms which typically range between five to 20 years.
Issue
Details:
Price Band |
Rs. 61 to Rs.
65 per share |
Issue Open
Date |
Nov 11, 2022 |
Issue Close
Date |
Nov 15, 2022 |
Minimum Bid
Lot |
230 shares |
Approx IPO
Size |
Rs. 740
crores |
IPO Proceeds |
Fresh Issue
and Offer for Sale |
IPO Proceeds
Utilisation |
Repayment of
borrowings and General Corporate Purposes |
Key
Strengths:
Strong and diverse existing portfolio base:
The company’s portfolio of O&M contracts (consisting of
both comprehensive O&M contracts and common infrastructure O&M
contracts) covered an aggregate of 2,792 MW of wind projects spread across
eight wind-resource rich states in India with an average remaining project life
of more than 20 years. The counterparties to the O&M contracts feature a
mix of independent power producers (IPP) (approximately 72%), public sector
undertakings (PSU) (approximately 14%) and corporates (approximately 14%), as
on June 30, 2022.
Established track record:
IGESL has an established track record in the wind energy
O&M industry of more than nine years due to the synergistic relationship it
shares with its parent company, IWL, which commenced operations in the wind
energy space in the financial year ended March 31, 2010. The operating
portfolio of O&M contracts (both comprehensive O&M contracts and common
infrastructure O&M contracts) has grown at a compound annual growth rate of
approximately 40.16% in the past nine years since the company’s commencement of
operations.
Favourable national policy support and visibility for
future growth:
According to the International Energy Agency (IEA), India is
the third largest energy consuming country in the world and has become one of
the largest sources of energy demand growth globally. In its recent India
Energy Outlook 2021 report published in February 2021, the IEA predicts that by
2040, India could add 900 GW of wind and solar capacity. IWL’s wind energy
extraction technology and access to wind sites coupled with strong industry
growth prospects enables the company, through its exclusive arrangement with
IWL, to provide O&M services for the WTGs they manufacture and to forecast
a steady growth in its O&M business over the coming years.
Reliable cash flow supported by long-term O&M
contracts with high credit quality counterparties:
The company enters into long-term O&M contracts with its
customers ranging from 5 to 20 years with a renewal option. These contracts
feature a built-in fixed price escalation formula of approximately 5% p.a. and
provide the company full revenue visibility. The customers of IGESL include
Gujarat Fluorochemicals Limited, Continuum Power Trading (TN) Private Limited,
Gujarat Industries Power Company Limited, Torrent Power Limited, Shree Cement
Ltd., Integrum Energy, Sri KPR Infra & Projects Limited to name a few.
Established supply chain in place:
IGESL has an established relationship with the suppliers for the parts, components and tools in the provision of O&M services. As part of its synergistic relationship with IWL, the company is able to obtain proprietary components and spare parts for the IWL manufactured WTGs directly from IWL and for the other tools and parts, the company has an established network of external suppliers.
Key
Risks:
Dependency on IWL:
The company is entirely dependent on IWL for its business
and if IWL chooses another service provider for operation and maintenance
services of their wind turbine generators, IGESL’s business, financial
condition and prospects may be adversely affected. Furthermore, the
deterioration of the financial condition or business prospects of Inox Wind
Limited could reduce the requirement of O&M services and result in a
significant decrease in the company’s revenues.
Highly Competitive Industry:
The wind energy industry is intensely competitive. Important competitive factors in the industry affecting the company include performance of WTGs, reliability, product quality, technology, price, scope and quality of services, and training offered to customers. According to CRISIL, since equipment providers offering bundled O&M services charge a service cost which increases the overall operating cost of the generation plant resulting in higher levelized cost of electricity, renewable energy developers may shift to third party O&M service providers post warranty to save costs or reduce the dependency on equipment providers.
Decrease in Comprehensive O&M contracts in future:
IGESL provides O&M services primarily through two types
of contracts namely, comprehensive O&M contracts and common infrastructure
O&M contracts.
The former entails the provision of O&M services to both
the WTGs on a particular wind farm as well as the common infrastructure
facilities which support the wind farm such as electrical substations and
transmission lines. The latter only relates to O&M services in respect of
the common infrastructure facilities.
In the past few years, there have been certain large
independent power producers (“IPPs”) who have opted to bring the O&M of
their WTGs in-house and have thus either not renewed or terminated their
comprehensive O&M contracts with the company. If more of the customers
internalize the O&M of their WTGs, the business and results of operations
may be materially and adversely impacted.
Particulars
(Rs. In Cr.) |
Three
months period ended June 30, 2022 |
Year ended
March 31, 2022 |
Year ended
March 31, 2021 |
Year ended
March 31, 2020 |
Revenue
from Operations |
62 |
172 |
172 |
165 |
EBITDA |
18 |
82 |
82 |
88 |
EBITDA (%) |
28.4 |
47.7 |
47.7 |
53.5 |
PAT |
(12) |
(5) |
(28) |
2 |
PAT (%) |
-18.7 |
-2.9 |
-16.1 |
1 |
Revenue
per MW of average capacity under management (Rs million / MW) |
0.22 |
0.63 |
0.65 |
0.63 |
Normalized
EBITDA per MW of average capacity under management (Rs million / MW) |
0.07 |
0.35 |
0.36 |
0.34 |
Net Debt
to Equity Ratio |
1.09 |
0.99 |
0.67 |
0.73 |
Conclusion:
The government’s initiative to achieve 50% of India’s power
generated by renewable energy by 2030 bodes well for IGESL. The wind sector
currently contributes 25% of India’s renewable energy space and is expected to
grow at a healthy rate over the next decade aiding IGESL.
However, as reported by the company in its RHP, the
non-renewal of certain large independent power producers (IPPs) for
comprehensive O&M contracts and deciding to do such O&M in-house have
dented its revenue. On the financials front, the revenue has been more or less
stable. The company has turned loss making in the last two fiscals, while
EBITDA and PAT margins have also drastically fallen. Given a very heavy
debt-laden company, we advise the investors to AVOID the IPO.