International LNG And Energy Storage Projects Will Drive Future Success

Key Takeaways

• Strategic focus on clean energy solutions and international market expansion positions INOX India for significant future revenue and margin enhancement.
  
• Capacity expansions in LNG and cryogenic divisions aim to boost operational efficiencies, aiding in revenue growth and market share increase.
  
• Geopolitical uncertainties, high entry barriers, project reliance, and currency fluctuations pose risks to INOX India's revenue and growth in a competitive cryogenic market.

Catalysts

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

• The robust order flow in all business segments, especially the large contracts in the LNG sector such as the mini LNG terminal in The Bahamas and liquid air energy storage project in the UK, positions INOX India for a strong revenue trajectory. This growth in LNG and cryogenic solutions is likely to drive significant future revenues.
  
• The strategic focus on new age energy solutions like small modular reactors and liquid air energy storage, supported by government policy shifts towards clean energy, presents an opportunity for margin enhancement and increased earnings, given the high technology and premium positioning of these projects.
  
• Expansion into international markets, evidenced by significant contracts in the UK for liquid air energy storage and in The Bahamas for LNG projects, is expected to boost revenue and international revenue share, contributing to a diversified revenue stream.
  
• The anticipated growth in the domestic LNG sector, catalyzed by increasing demand for cleaner energy solutions such as LNG-fueled transport systems, could drive substantial increases in both revenue and market share in India, impacting overall earnings positively.
  
• Capacity expansions, particularly in the LNG and cryogenic divisions, align with the expected increase in demand, suggesting potential for improved operational efficiencies and net margins as the company scales its production capabilities to meet global and domestic market needs.

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 March 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 44.3x today. This future PE is greater than the current PE for the IN Machinery industry at 28.5x.
• 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 14.08%, as per the Simply Wall St company report.

INOX India Future Earnings Per Share Growth

Risks

• The company faces geopolitical uncertainty and tight monetary conditions, which may pose risks to its growth strategy and could potentially impact revenue if these factors disrupt market conditions.
  
• Dependence on large-scale projects with long gestation periods could lead to revenue volatility, as delayed or canceled projects may affect order fulfillment and profitability.
  
• The entry barrier in the cryogenic industry is high, but international competition, especially from the U.S. and China, remains significant. This intense competition could pressure margins if price competition intensifies.
  
• The reliance on favorable government policies for infrastructure and energy sector growth may involve execution risks, which could affect planned investments and consequently, revenue and earnings growth if not realized.
  
• Currency fluctuations, particularly in export markets which make up a significant portion of the order backlog, could impact earnings if adverse movements increase costs or reduce competitive pricing ability.

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 ₹997.55, the analyst price target of ₹1325.0 is 24.7% 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.