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.