Expansion Into LNG And Cryogenic Technologies Will Unlock Future Growth Opportunities

Key Takeaways

• Strategic expansion in cryogenic, LNG, and industrial gas sectors positions INOX India for revenue and earnings growth through new contracts and infrastructure projects.
  
• Government backing and transformative energy initiatives offer potential boosts to revenues and margins through increased economic activity and energy sector alignment.
  
• The company's growth is vulnerable to geopolitical and economic disruptions, project execution risks, competitive pressures, and potential slowdowns in capital expenditure.

Catalysts

Manufactures and supplies cryogenic liquid storage and transport tanks for gas companies and other customers online in India and internationally.

• Anticipated private sector capital expenditure growth, supported by favorable interest rate policies and substantial infrastructure investments, is expected to bolster corporate credit growth, which could drive up INOX India's revenues.
  
• Government initiatives to stimulate demand through tax relief and reinforce public infrastructure investments create a foundation for increased revenues and potentially higher net margins as these measures could bolster overall economic activity.
  
• The company's involvement in transformative energy initiatives, such as cryogenic storage, hydrogen handling, and advanced cooling technologies, aligns with the government's commitment to energy security and presents opportunities for revenue and earnings growth as this sector expands.
  
• Significant new contracts and repeat orders, such as those from Highview Power in the UK and ITER France, along with large-scale projects like the mini LNG terminal in The Bahamas, are expected to drive future revenue growth and potentially increase net margins due to economies of scale.
  
• Expansion into key growth areas such as the liquefied natural gas (LNG) segment, industrial gas solutions for the steel industry, and cryo-scientific divisions alongside capacity enhancements are poised to elevate revenues and potentially improve operating earnings as market demand grows.

INOX India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming INOX India's revenue will grow by 20.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.9% today to 17.8% in 3 years time.
• Analysts expect earnings to reach ₹3.7 billion (and earnings per share of ₹41.0) by about February 2028, up from ₹2.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 47.4x on those 2028 earnings, up from 40.1x today. This future PE is greater than the current PE for the IN Machinery industry at 32.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.1%, as per the Simply Wall St company report.

INOX India Future Earnings Per Share Growth

Risks

• The company's growth is tied to geopolitical stability and economic conditions in various regions, which could impact revenue adversely if unexpected disruptions occur.
  
• Dependence on executing large-scale projects like LNG terminals, which are complex and have long gestation periods, could impact revenue and net margins if there are delays or cost overruns.
  
• Intense competition from international players, particularly from U.S. and Chinese manufacturers, may pressure margins if price wars ensue, impacting earnings.
  
• Heavy reliance on infrastructure and industrial gas projects means any slowdown in government or private sector capital expenditure could hinder revenue growth.
  
• The introduction and adoption of new technologies, such as innovative energy solutions, entail execution risks, which might affect long-term revenue and profit projections if they do not meet expected demand.

Valuation

• The analysts have a consensus price target of ₹1325.0 for INOX India based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹20.9 billion, earnings will come to ₹3.7 billion, and it would be trading on a PE ratio of 47.4x, assuming you use a discount rate of 14.1%.
  
• Given the current share price of ₹903.05, the analyst price target of ₹1325.0 is 31.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.