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Inox Green Energy Services Provides O&M services to wind power generators Strong O&M contract portfolio and strong parent to support growth Inox Green Energy Services (formerly Inox Wind Infrastructure Services), a subsidiary of Inox Wind (IWL) and part of the Inox GFL Group,is one of the major wind power operation and maintenance (O&M) service providers within India. It 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. It 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, and, through the company,
providing long-term O&M services for wind power projects. Subsidiaries of the company are
engaged in the business of power generation through renewable sources of energy
with Nani Virani Wind Energy being the
only subsidiary which has commenced power generation as of today. Pursuant to an exclusivity
agreement between IWL and the company, it provides exclusive O&M services
for all WTGs sold by IWL through the entry of long-term O&M contracts
between the WTG purchaser and the company for terms which typically range
between five to 20 years. Due to this exclusivity agreement, IWL’s order book
is an important indicator of future revenue and growth of the company. IWL as
of June 30, 2022,had entered binding contracts for the supply of 2 MW capacity
WTGs with an aggregate capacity of 964 MW. Further, IWL had also received
letters of intent, which are non-binding, and which therefore may not lead to
execution of any form of binding contract, for its new 3.3 MW capacity WTGs
with an aggregate capacity of 524.7 MW. O&M services portfolio of
the company as of June 30, 2022,consisted of an aggregate 2,792 MW of wind farm
capacity and 1,396 WTGs. Of the 2,792 MW
capacity, 1,964 MW was attributable to its contracts for comprehensive O&M
services and 828 MW was attributable to its common infrastructure O&M
contracts The 2792 MW O&M service
portfolio of the company is well spread across the country and includes a total capacity of 1,220 MW for
various customers in Mahidad, Rojmal, Sadla, Savarkundla, Rajkot and Dayapar in
Gujarat; a total capacity of 632 MW for various customers in Kukru, Nipaniya,
Jaora and Lahori in Madhya Pradesh; a total capacity of 560 MW for various
customers in Dangri, Rajasthan; and a total capacity of 196 MW for various
customers in Vaspet, Bhendewade and South Budh in Maharashtra. In general, the comprehensive
O&M contracts cover the provision of O&M services to both WTGs
installed on a wind farm and the common infrastructure facilities, such as
electrical substations and transmission lines, which support the wind farm; its
common infrastructure O&M contracts relate only to the provision of O&M
services on the common infrastructure facilities. Under its current business
model, the company develops common infrastructure facilities such as pooling
substations and transmission lines and has incurred significant capital
expenditure in doing so. This was partly due to successful project bids which
required the company to develop such infrastructure prior to securing investors
to establish wind farms on a plug-and-play basis. While most of its common
infrastructure capacity is currently utilized by such investors, there still
exists some unutilized capacity for the installation of WTGs as of June 30,
2022, which the company intends to fill. While such capital expenditure
is expected to continue in the short-term due to ongoing prior commitments, the
company intend to transition to an asset light model with minimal capital
expenditure by, among others, reducing such project bids and investments into
the wind power assets of its subsidiaries. Moreover, there is a gradual
increase in large wind players such as IPPs bidding for wind projects and
taking on the responsibility of developing the common infrastructure facilities
thereby reducing the need for O&M contractors to do so or compete in this
space. To concentrate on the provision
of O&M services, on December 31, 2021, the company has divested its
erection and commissioning services of WTGs (EPC Business) to one of the
subsidiaries of its Promoter, Resco Global Wind Services Private Limited (Resco)
as a going concern on a slump sale basis for an aggregate consideration of Rs
4.698 crore. The issue The issue comprises both fresh
issue of equity shares by the company and offer for sale by promoter selling
shareholders. Fresh issue involves issue of equity shares aggregating upto Rs
370 crore. Offer for sale involves selling of equity shares aggregating upto Rs
370 crore by Inox Wind, the promoter selling shareholder. On post issue expanded equity,
the holding of promoter selling shareholders will decline to 56.04% from about 93.84%
in pre issue equity capital. Object of the Issue Of the net proceeds from the
fresh issue, about Rs 260 crore will be used for repayment/pre-payment of debt
in full or part of certain borrowings availed by the company including
redemption of secured NCDs in full. Balance of net proceeds will be used for
general corporate purposes. Consolidated borrowings
outstanding as on September 30, 2022, amounted Rs 720.474 crore and the company
proposes to utilize an estimated amount of Rs 180 crore from the net proceeds
towards full or part repayment or partial repayment or prepayment of certain
borrowings (excluding secured NCDs) from lenders of the company. Similarly, out
of the net proceeds, it is to use Rs 80 crore towards the scheduled redemption
of secured NCDs. Strength Established track record in the
wind energy O&M industry of more than nine years due in large part to the
synergistic relationship it shares with IWL, the parent company. Strong diverse portfolio of
O&M contracts interms of locations, clients, and contract tenure. About 72% of the contracts are from IPPs, 14%
from PSUs and 14% from corporate. Longterm nature of O&M contracts with
renewal option with high credit quality counterparties provides stable annual
income and reliable cash flow. Weakness The company is significantly or
entirely dependent on IWL as large part of revenues of the company come from
O&M services offered to WTGs supplied by Inox Wind. Hence any delay in
execution of orders by IWL or inability to bag fresh orders by IWL may impact
incremental O&M contracts and growth of the company. However, the company plan to
expand its portfolio to also provide O&M services for WTGs which are not
manufactured by IWL and success of it needs to be seen. Customers can either terminate
the contract or may move from comprehensive O&M contracts to common
infrastructure O&M contracts as to internalize their O&M contract. This
may result in loss of business or decrease in renewal rates impacting the
performance of the company. Change in regulation/policy
relating to renewable energy will impact the investment in wind energy capacity
addition and that will have adverse impact on the business of the company. An
action by regulatory or statutory authorities against Promoter or Group
Companies in relation to their wind power projects or pooling sub-stations
could have an adverse impact on operation and maintenance (O&M) services
provided by the Company for the relevant wind power project and in turn on its
business, revenue from operations and financial condition. Additionally weak
financial conditions of state electricity authority continue to put pressure on
the power sector. The company along with certain
entities have provided security in form of pari-passu charge on its movable
fixed assets, guarantees and a shortfall undertaking against the term loan
facilities availed by Resco Global Wind Services Private Limited (Resco), and
failure by Resco to repay such loan facilities, could have an adverse effect on
the business of the company. The wind energy industry is
highly competitive, which could limit the ability of it to grow. Contingent liability as end of
June 30, 2022, stood at Rs 236.848 crore and of which claims by customers,
contractors and vendors were Rs 121.02 crore, Rs 43.54 crore and Rs 10.30 crore,respectively. Company entered into a
trademarks and copyrights license agreement with Gujarat Fluorochemicals
Limited, the group company on February 2, 2022, relating to use of the Inox and
Inox GFL trademarks and based on this arrangement, the company will commence
royalty payments from December 31, 2022. Valuation Consolidated sales for FY2022
stood flat (up 0%) at Rs 172.17 crore. Similarly, with the OPM standing flat at
47.7%, the operating profit too was flat at Rs 82.19 crore. After accounting
for higher other income, lower interest, and higher depreciation, the PBT was a
loss of Rs 4.71 crore against a loss of Rs 13.35 crore in the corresponding
previous period. Eventually, the PAT of continuing business was a loss of Rs
4.95 crore against a loss of Rs 27.73 crore.
For the quarter ended June 2022,
consolidated sales were Rs 61.79 crore, and the operating profit was RS 17.56
crore with OPM stand at 28.4%. Eventually, the net profit of continuing
business was a loss of Rs 11.58 crore. Loss after tax of for the period was primarily
on account of O&M and common infrastructure facility expenses and finance
costs incurred during this period. At upper price band
the company quotes at a price to book value of 1.63. The offer at upper
price band is made at 16 times of its EV/sales. There are no listed companies in
India that are comparable in all aspects of business and services of the
company.
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