PGCIL ruling against bay squatting is an improvement
Receivables have come down by 1000 Cr for Inox Wind. This is good for the sector as the receivables were piling up post good FY17.
Inox Wind has reduced debt and NWC has improved as well
Overall the balance sheet looks quite good. Other risks still remain with execution but I suspect its all in the price at this point.
950 MW order book but it remains to be seen how much they can execute in Q1, FY18 - I don’t think it will be much considering SECI-I might get executed only in Q2. And in all of FY19, they may not execute more than this 300MW (FY18 was 172MW so its still a good improvement) if they cannot execute SECI-2 order as well in FY19. Another negative PAT quarter could do some more harm to the share price but valuing INOX Wind by just their assets,
EV - 3500 Cr
Inventory - 929 Cr
Cash - 45 Cr
Bank Balance - 81 Cr
Property, Plant and Equipment - 955 Cr
Overall about 2000 Cr of solid assets
Add receivables - 1338 Cr (This was 2300 Cr last year and formed over 60% of book value)
Total = 3350 Cr out of EV of 3500 Cr which isn’t bad.
Concerns - This company has never generated FCF in its lifetime.
OFS was successful at Rs.116 and the promoter was able to sell his stake to bring down holding from 85% to 75% which is a positive since it shows investors’ interest.
I think there are more positives now than there have been in the last several quarters. However the company may not be out of the woods yet completely. These are just my random thoughts on the company and I think it could make a good asset/turnaround play.
Pls speak to people in wind industry before investing in Inox. Investors are not too comfortable with their technology. Few of their turbines were damaged last year.
So far they have been able to only tie up 50 MW of their auction win with Adani. Do find out if any of their old IPP clients are willing to place repeat orders? Winning capacities under auction means nothing if you are not able to sell these onwards to IPPs or raise debt and equity finance. Debt finance is anyways difficult now with PSU banks not lending proactively and Pvt banks nor having much interest in project finance + renewable financing.
I am part of renewable energy sector and have been speaking to wind industry professionals. Happy to receive views from other esteemed. Members who get to speak to wind energy professionals (other than Inox)
Disc: Studying the opportunity in renewables and not invested
Came across interesting info in results of Sanghvi Movers. They have an order book from Suzlon, Vestas, GE, Gamesa. Interestingly they have not mentioned INOX. When everyone else is placing orders for cranes with SML, why is Inox not doing the same. Either, they have other crane suppliers (possible but strange as everyone else has placed orders with SML and it is the largest) or SML forgot to add their name or they do not have projects to implement (just auctioned capacity waiting for tie-ups with IPP investors)
The another way to look at same information is why auidtor is not having time only for “Inox wind” when it is fine work with other companies in the group? The reason cited “Time constraint” can easily be met by hiring new resources from auditor side.
Having said, just reading too much from auditor resignation is also not correct in my opinion. One need to look business, management and valuation in totality before taking any decision. While Auditor resignation is significant event, it may not necessarily mean problem in company, in my opinion.
@dd1474 Sir. Thank you for the reply. The press release mentions that auditors do not want to continue the audit in north part of India. The other 2 group companies are in the western part. I guess it would be due to logistics issues.
‘‘IWL was P&A’s only statutory audit in North India, and hence it was physically and logistically difficult for P&A to continue with this audit’’.
Mr Deepak Asher, Inox Grp Director and Head-Corp Finance, will be on CNBC tomorrow at 815 am, ETNow tomorrow at 830 am and Bloomberg Quint tomorrow at 12 noon, to address the issue of Inox Wind auditor change.
That is a true question that why they have wage arrears? They are claiming that they have reduced their receivables greatly in last one year but other side they have not paid to their employees. I think question on this area should also be asked to management in AGM/Quarterly meetings.
“Things don’t add up. You have management claiming orders for 950 mw and on the other hand, you have wage arrears.” - wages are paid out of cash while order book only implies revenue pipeline (which may materialize only in future and only partially).
Discalimer: above remark is general and not specific to Inox 's balance sheet situation.
I agree with your assessment that wages are paid out of cash. But as per Investor presentation and management concall, receivables level down by Rs.1000 crores, Debt levels reduced drastically with consequent reduction in finance cost. Both are good signs. Company could have used the cash flow to clear the wage arrears and avoided the negative publicity.
exactly that’s what I was trying to say. also if you see the Q-4 2018 result the employee cost per quarter is about 23cr which is very less compare to what receivable they have reduced.
Disclosure: I have invested in Inox wind’s shares.
Likely that INOX Wind’s expansion of business scope (now includes being a developer of wind assets, versus just manufacturing of equipment) is at significant risk. INOX has been touting its reduction in receivables over FY18 but much of this is likely not actual cash collection, but simply reallocation of receivables. A closer look at the annual reports points to this.
Many orders seem to have been cancelled/reversed in FY18 for the standalone entity; amounts to more than half the gross revenue. (source: notes in Annual report).
Related party transactions account for a substantial portion of sales from INOX Wind to a fellow subsidiary - are cancelled orders made to external customers being parked here? This was paid for by holdco and optically reduced INOX wind’s receivables. (source: related party transactions in annual report)
Why have raw materials inventories increased so dramatically over FY18, a year which hardly had build-outs? Highly unlikely that in such an uncertain environment, the co would have bought substantial raw material in anticipation. The concept of ‘goods in transit’ in inventories points towards cancelled/reversed orders and reallocating receivables towards inventories?
INOX management has been very clear about not investing in auction wins (rather using that to fuel its manufacturing order book) and selling the subsidiaries to IPPs. But a) equity investments have been made after FY18 by the subsidiary of INOX Wind which has won such orders, b) regulations demand 10% of equity required to be brought in by promoters (in this case, INOX), c) CERC order has allowed sale of equity stake only after 12 months after the ‘last’ SPV has started supply of power - as expected INOX has challenged this order. [If there is one takeaway, it should be this]. There are plenty more regulatory hoops.
INOX has hardly tied up any capacity from the substantial order wins (at very aggressive pricing) - it is very uncertain who will purchase these SPVs (especially from second, third and fourth auction tranches which are at even lower pricing than the first). Discoms would be pleased with these rates, but would the developer make any ROI? a rational power generator will be loathe to purchase such assets? [key risk].
Even in FY18, a year with barely any business operations (sales had dipped 90% YoY), there have been delays in execution (read SJVN annual report; SJVN is INOX’s customer; there are also other cases). Creditors, too, have recently filed cases against the developer. Am not even bothering about the auditor resignation (this had spooked the market) since, in the context of all else, that is a rather small issue.
Other manufacturers (Suzlon etc) have not participated in these auctions - the new promoters are aggressive, but generally financially savvy - they probably don’t see how such rates can render the business profitable?
The optical reduction in receivables seems to have been reported to placate the rating agency which was monitoring this one variable closely, and has upgraded the outlook (twice!), turning a blind eye to the specious accounting, industry problems and regulatory issues.
There are so many existing risks that the 90% fall from highs offers NO margin of safety for a business whose operations itself are at substantial risk. I would be VERY wary of this stock.
Promoters holding is 75 perc with annual capacity of around 1500 mw manufacturing capacity of wind turbine (capacity to generate annual revenue of around 9000 cr per annum). Number one indian player Suzlon balance sheet is already damaged beyond hope of repair . Also with rupee depreciation against dollar by 15 perc no MNC players like gamesa etc are likely to supply wind turbine at low prices as their cost structure and return expectation is in dollar .Whole wind energy ecosystem is under considerable stress since last 2 years due to change in auction regime and worst of the sector is behind us and situation likely to improve going forward for all players. At current valuation level worst seem to be priced in as current worth is less than replacement cost of manufacturing plant and slight improvement is operating performance can support the price. Key risk is only if wind energy expected target of 60000 mw from current 35000 mw is not realised by 2022. Also current higher prices of crude likely to support renewal energy in medium term.
