Wind Tenders And Solar Ventures Will Boost Operational Efficiency By FY '26

Key Takeaways

• Expansion into solar and ambitious infrastructure plans are anticipated to drive significant revenue growth and open new revenue streams.
  
• Improved credit ratings are expected to lower financing costs, enhancing net earnings and financial stability.
  
• Challenges in land acquisition, grid connectivity, and project approvals may delay revenue, while competitive and scaling risks threaten profitability and financial predictability.

Catalysts

Engages in the manufacture and sale of wind turbine generators and components for independent power producers, utilities, public sector undertakings, businesses, and private investors in India.

• The commissioning of Inox Wind's nacelle manufacturing unit, operationalization of cranes, and commencement of transformer manufacturing lines within Q4 FY '25 are expected to enhance operational efficiency and reduce costs, potentially leading to improved net margins.
  
• Inox Wind's focus on expanding its project infrastructure for ambitious execution plans is anticipated to significantly accelerate revenue growth starting in FY '26.
  
• The synergistic venture into solar manufacturing through Inox Solar, allowing for comprehensive hybrid contracts, is likely to open new revenue streams and potentially improve overall earnings.
  
• India's awarding of 15.5 gigawatts of wind-related tenders and the growth in the C&I segment present substantial future demand, which can markedly increase Inox Wind's order book and revenues.
  
• The recent upgrades in Inox Wind's credit ratings for both short-term and long-term facilities are expected to reduce financing costs, thereby positively impacting net earnings and financial stability.

Inox Wind Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Inox Wind's revenue will grow by 72.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.9% today to 12.0% in 3 years time.
• Analysts expect earnings to reach ₹17.2 billion (and earnings per share of ₹11.67) by about March 2028, up from ₹3.1 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 27.6x on those 2028 earnings, down from 71.8x today. This future PE is lower than the current PE for the IN Electrical industry at 33.6x.
• Analysts expect the number of shares outstanding to grow by 1.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.54%, as per the Simply Wall St company report.

Inox Wind Future Earnings Per Share Growth

Risks

• Challenges related to on-ground project execution, such as land acquisition and grid connectivity issues, could impact Inox Wind's ability to meet its output goals, potentially affecting revenue and delaying project completion.
  
• Dependence on receiving the necessary approvals for commissioning turbines, with 200 MW awaiting such permissions, could delay revenue recognition and impact cash flows.
  
• As competitors, including MNCs and Chinese companies, operate in the market with potentially different dynamics and cost structures, Inox Wind's competitive position and margin sustainability might be challenged, affecting profitability.
  
• Execution risks associated with rapidly scaling new manufacturing initiatives like crane and transformer manufacturing could affect profit margins and cost structures if inefficiently managed, influencing net margins.
  
• Variability in order intake from both external markets and affiliated group companies adds uncertainty to future revenue projections, which may impact financial predictability and investor confidence.

Valuation

• The analysts have a consensus price target of ₹228.0 for Inox Wind 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 ₹143.3 billion, earnings will come to ₹17.2 billion, and it would be trading on a PE ratio of 27.6x, assuming you use a discount rate of 15.5%.
• Given the current share price of ₹168.67, the analyst price target of ₹228.0 is 26.0% 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.