This stock had the potential to do well but concerns on receivables and negative free cash flows is the reason why it has grossly under performed the benchmark indices. Inox Wind has underperformed the Sensex by 54% as the stock has declined 37% in the last one year. The S&P BSE Sensex rose 17% in the same time period. The stock has declined 20% year to date and underperformed the Sensex by 40% in the same time period. Why has the stock declined when the Government has focused on promotion and implementation of Renewable Energy.
What does the Company do?
Inox Wind is a fully integrated player in the wind energy market with state-of-the-art manufacturing plants at Una (Himachal Pradesh) for Hubs and Nacelles and Rohika, near Ahmedabad (Gujarat) for Blades and Tubular Towers. Inox Wind manufactures the key components of the Wind Turbine Generator (WTG) to ensure high quality based on the most advanced technology, reliability of performance, and cost competitiveness. Inox WTGs are designed for low wind speed sites such as those in India.
This Company came out with an initial public offer in the month of March 2015 and got listed on the bourses with a 32% gain on the first day of trading. The stock reached all time high levels of Rs.495 in the month of April 2015 but since then it has been trending down to all time low levels.
Decline in Yearly and Quarterly Revenue and Profitability
The revenue and net profit growth for the Company since FY 2012-13 till FY 2016-17 was reported at a CAGR of 34% and 21% respectively but revenues declined in the FY 2016-17. The consolidated revenue for the fourth quarter of FY 2016-7 came in at Rs. 10190 million, registering a 44.6% yoy decline. EBITDA for the quarter fell by 26.5% yoy to Rs. 2300 million. The PAT for the quarter came in at Rs. 1280 million, yoy decline of 36.6%. This was due to 62.2% yoy jump in finance cost. Looking at full year numbers, the revenue for FY17 declined by 23.3% yoy to Rs. 34150 million and EBITDA for the period fell 21.5% yoy to Rs. 5600 million. Also, company’s net profit plunged by 34.2% yoy to Rs. 3030 million.
Negative Cashflows and Rising Debt
The cashflows from operations have been consistently negative despite rise in revenues and net profit by double digit CAGR since the last 4 years. The operating cashflow has been negative due to the fact that the positive cashflow from profit before tax is not able to cover the rising amount of trade receivables. Also the amount of debt has been consistently rising for the Company even though the net debt to equity ratio remains comfortable at 0.35.
Non Payment for Services Rendered
Recently the Company was in news due to a supplier filing non payment for the services rendered. A vendor named Jeena & Co moved a petition citing non-payment for services provided to Inox Wind for clearance of import shipments worth Rs.5.7 million. The case was resolved after Inox Wind paid the necessary dues to the Company.
Policy Concerns for Wind Energy
There are other concerns for the Company as well. The wind energy sector which enjoyed ‘feed-in tariff ’, a policy mechanism used to encourage investment in renewable energy by tying pricing to costs of production, is now faced with auction based tariff where it is faced with competition from solar energy which has seen tariff nose dive. Under this situation Inox Winds’ conventional order book loses its relevance because a lot of those contracts will either get renegotiated or will become academic for all practical purposes and the order book will be built as they go along through the auctioning system.
Tariff Comparison for Solar and Wind Energy
A sharp drop in solar tariff to Rs 2.97 per unit and wind power tariff drop to a record low of Rs 3.46 per unit was reported in an auction of 1,000 MW capacity conducted by Solar Energy Corporation of India (SECI).
Competition from solar power is surging for Wind energy. Solar power is seeing significant reduction in cost of production as the major benefit is accruing due to a sharp reduction in raw material costs, primarily of silicon, which are used to manufacture solar panels.
Two months back, Inox Wind sold off its portfolio of 260 MW of operational wind power projects and decided to exit the wind farming business. The move was meant to help the parent company pare its debt. Inox Wind kept the wind turbine manufacturing business for itself.
Due to the changing industry dynamics, the earnings visibility has been reduced and on top of that working capital management continues to remain a challenge for Inox Wind with rising amount of trade receivables. Headwinds would continue to remain for this stock in the near future.