Friday, January 13, 2017

Inox wind : Gone with the wind

About 2 years ago Inox Wind Ltd hit the primary market at a price of Rs 325.The BRLMs were Axis Capital Limited, DSP Merrill Lynch Limited ,Edelweiss Financial Services Limited and YES Bank .

While analysing the IPO we observed the following:

                a. The company experienced negative cash flows in the immediate past.

b. Inox has limited operating history, which makes it difficult to evaluate the past performance and prospects.

c.  Operates in a very competitive industry.

d.  Top five customers contributed over 85% of the total income for the nine months ended December 31, 2014.

e.  If wind patterns at sites that we have previously identified as suitable for wind farm projects change, the business, financial condition / operations of the company could be adversely affected.

f.  Most of the company’s experience implementing projects is derived from projects which have implemented in the states of Rajasthan, Maharashtra and Gujarat.

g.  The company has high working capital requirements.

h. Debtors outstanding as of December 31, 2014, are at Rs 755 crores, which accounts for 42% of revenue for the same period.

i. Clash of interest - Promoter and the affiliates have certain interests that are similar to the company’s business.

j. The company is yet to place orders for majority of the items that they intend to purchase using the Net Proceeds of the Issue and the actual cost of such items may exceed the estimates.

l.  The Net Asset Value per Equity Share was Rs 20.99 and Rs 29.88.

 m. The cost of acquisition per Equity Share by our Promoter is just Rs 2.

 n. On June 12, 2013, the short-term rating for the banking facilities and commercial paper was downgraded by CRISIL Ratings from “CRISIL A1” to “CRISIL A2+”. In the “Rating Rationale” with respect to the downgrade, CRISIL cited deterioration in the liquidity over the past year because of an increase in the working capital requirements resulting from a large inflow of orders and CRISIL noted that our debtor days increased to 172 days as of March 31, 2013 from 43 days as of March 31, 2012. 

The offer is made around 30 PE, based on the latest EPS, which is exorbitant for a company which has very limited operational history and operates in an uncertain business segment.  The company will have Rs 200 crore plus equity, post IPO, the serving of such huge equity is next to impossible.

The average cost of acquisition of shares by promoters is just Rs 2, whereas the public offer is made at Rs 315-325, which reminds us the loot-maar IPOs of 2011. 

 Avoid the IPO.

From Rs 325, the stock price has come down to Rs 183.  Rs 142 has gone with the wind.

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