Inox Green Energy IPO review (May apply)

•    IGESL has good parentage and enjoys backing from them.
•    Based on its current financial data, the issue is priced at a negative P/E.
•    Wind Energy segment is poised for bright prospects ahead and augurs well for the company.
•    Well-informed investors may consider parking funds for medium to long-term rewards.

ABOUT COMPANY:
Inox Green Energy Services Ltd. (IGESL) - {erstwhile known as Inox Wind Infrastructure Services Ltd.}  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 supports the evacuation of power from such WTGs. The company has a stable annual income owing to the long-term O&M contracts that enter into with customers. IGESL is a subsidiary of Inox Wind Limited ("IWL"), a company that is listed on the National Stock Exchange of India Limited and BSE Limited, and part of the Inox GFL group of companies ("Inox GFL Group").

IGESL 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 IGESL providing long-term O&M services for wind power projects. Pursuant to an exclusivity agreement between IWL and the Company, IGESL 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 that typically range between 5 to 20 years. Due to this exclusivity agreement, IWL's order book is an important indicator of future revenue and growth for IGESL. As of June 30, 2022, IWL had entered into 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 the execution of any form of a binding contract, for its new 3.3 MW capacity WTGs with an aggregate capacity of 524.7 MW.

As of June 30, 2022, IGESL's O&M services portfolio consisted of an aggregate of 2792 MW of wind farm capacity and 1396 WTGs. This included 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. Of the 2792 MW capacity, 1964 MW was attributable to IGESL's contracts for comprehensive O&M services and 828 MW was attributable to its common infrastructure O&M contracts.

In general, IGESL's 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. As of June 30, 2022, it had a workforce of 401 full-time employees and also employ contract employees from time to time and based on requirements. For the three months ended June 30, 2022, and Fiscals 2022, 2021 and 2020, the average number of contract workers was 230, 231, 242, and 293, respectively.

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.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for prepayment/repayment of certain borrowings in full or part (Rs. 260.00 cr.), and for general corporate purposes, IGESL is coming out with a maiden IPO of a combo issue consisting of a fresh equity issue worth Rs. 370 cr., and an Offer for Sale (OFS) of Rs. 370 cr. making an overall size of the issue worth Rs. 740 cr. It has announced a price band of Rs. 61 - Rs. 65 per share of Rs. 10 each.  The issue is opening on November 11, 2022, and closing on November 15, 2022. A minimum application is to be made for 230 shares and in multiples thereon, thereafter. The company will be issuing 56923160 fresh equity shares as well as a similar quantity as an OFS. Overall it will issue 113846320 shares at the upper price band. The issue constitutes 39% of the post-issue paid-up equity capital of the company. Post allotment, shares will be listed on BSE and NSE. The company has allocated 75% for QIBs, 15% for HNIs, and 10% for Retail investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are Edelweiss Financial Services Ltd., DAM Capital Advisors Ltd., Equirus Capital Pvt. Ltd., IDBI Capital Markets & Securities Ltd., and Systematix Corporate Services Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue 

Post-IPO, IGESL's current paid-up equity capital of Rs. 235.02 cr. will stand enhanced to Rs. 291.94 cr. Based on the upper cap of IPO pricing, the company is looking for a market cap of Rs. 1897.61 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, IGESL has posted a turnover/net profit (loss) of Rs. 172.16 cr. / Rs. 1.68 cr. (FY20), Rs. 186.29 cr. / Rs. - (27.73) cr. (FY21), and Rs. 190.23 cr. / Rs. - (4.95) cr. (FY22). For the Q1 of FY23, it reported a loss of Rs. - (11.58) cr. on a turnover of Rs. 63.16 cr. Thus due to losses posted for the last 27 months, its issue is at a negative P/E. 

For the last three fiscals, IGESL has posted an average negative EPS of Rs. - (0.86) and an average negative RoNW of - (21.53%). The issue is priced at a P/BV of 1.92 based on its NAV of Rs. 33.83 as of June 30, 2022, and at a P/BV of 1.63 based on its post-IPO NAV of Rs. 39.91 (at the upper cap). 

The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 47.72 per share. As clarified by the management, it has posted losses at net levels on account of interest burden and amortization provisions, but it has been reporting EBITDA margins of above 50% on average for all these years. Once IPO funding is received, it will have major savings on interest costs, and rising trends for O & M contracts will result in improved margins.  

DIVIDEND POLICY:
The company has not declared any dividend for the reported periods of the offer documents. It will adopt a prudent dividend policy post-listing based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, IGESL has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORDS:
The five BRLMs associated with the offer have handled 39 public issues in the past three years, out of which 10 issues closed below the offer price on the listing date.