INOXWIND — earnings call
The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.
Prepared remarks
INOXGFL GROUP · MR. KAILASH TARACHANDANI – CHIEF EXECUTIVE
MR. KAILASH TARACHANDANI – CHIEF EXECUTIVE
Moderator · Conference Operator
MR. MOHIT KUMAR – ICICI SECURITIES Inox Wind Limited October 27, 2023
Ladies and gentlemen, good day and welcome to Inox Wind Limited Q2 FY24 Earnings Conference Call hosted by ICICI Securities.
As a reminder, all participants’ lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.
Should you need assistance during the conference call, please signal an operator by pressing “*” then “0” on your touch- tone phone.
Please note that this conference is being recorded.
I now hand the conference over to Mr. Mohit Kumar from ICICI Securities.
Over to you, Mr. Kumar.
Mohit Kumar
Good evening.
On behalf of ICICI Securities, I would like to thank you for joining us today for the Q2 FY24 Earnings Call of Inox Wind Limited.
Today, we have with us Mr. Devansh Jain – Executive Director, INOXGFL Group; Mr. Kailash Tarachandani – Chief Executive Officer, Inox Wind Limited; and other senior members of the management.
Without much delay, I will now hand over the call to the management to start with the opening remarks.
And after that, we will open the call for Q&A.
Over to you, sir.
Moderator · Conference Operator
The next question is from the line of Deepak Arora from Kiran Investment Firm.
Please go ahead.
The next question is from the line of Nikhil Abhyankar from ICICI Securities.
Please go ahead, sir.
Nikhil Abhyankar
My first question is on working capital.
Our inventories and trade receivables seem a bit high as compared to our execution currently.
When do we expect this to normalize?
Moderator · Conference Operator
The next question is from the line of Koushik Mohan from Ashika Institutional Equities.
Please go ahead.
Koushik Mohan
Sir, I just wanted to understand one simple thing.
How long are we going to take for our merger?
Moderator · Conference Operator
The next question is from the line of Bharani Vijay Kumar from Spark Capital.
Please go ahead.
Bharani Vijay Kumar
I was trying to understand how a technical contract with your customer works.
For example, if you have a 1-megawatt order worth Rs.
6 crores is it that all the Rs.
6 crores that you get?
Or some participant asked what is the cost pass-through kind of mechanism that is built in in this.
What if the prices of components escalated in this period?
How is it taken care of?
How is this contract hedging you from price risk between the time you get the order through the delivery of the order?
Moderator · Conference Operator
The next question is from the line of Prit Nagarsheth from Wealth Finvisor.
Please go ahead.
Prit Nagarsheth
Just a couple of follow-up questions.
One is, should I assume that the 2-megawatt platform is going for around Rs.
5 crores per megawatt while the 3.3-megawatt platform will go around, say Rs.
7 crores?
Is that a fair assumption on my end?
Devansh Jain
It depends whether you are talking equipment supply or you are talking turnkey.
Prit Nagarsheth
Sir, you suggest.
Devansh Jain
Okay, let’s say on a turnkey basis, you typically sell a 2-megawatt turbine at about Rs.
6 crores to Rs.
6.5 crores.
And you sell a 3-megawatt platform at about Rs.
7.5 crores to Rs.
8 crores.
That’s how you sell a turnkey project.
Prit Nagarsheth
And the other option that you suggested?
Inox Wind Limited October 27, 2023
Devansh Jain
On an equipment supply, you remove about Rs.
1.5 crores on either side, which is the EPC cost per megawatt.
You remove that and that gives you the equipment supply price on a per megawatt basis.
So, it’ll typically be about Rs.
5 crores and this would be close to about Rs.
6 crores.
Prit Nagarsheth
Sir, the blended rate, what should we assume for the balance of the order that we have?
Devansh Jain
What we said is as we are moving towards 3 megawatts, for example, the next financial year, will all be 3 megawatts.
We are not looking at 2 now.
It’s the new technology, it’s the new model.
From this financial year perspective, we have broadly guided it’s going to be a mix of 2 and 3, obviously, as we bring in 3 and we ramp it up from this quarter, but it’s blended.
This year, you should take a blend and the next year is all 3.
Prit Nagarsheth
I meant between turnkey and equipment supply.
Devansh Jain
I think you should take a blend for the next year; half equipment and half turnkey.
And I think for this year, it should possibly be about 66:33 broadly; 66 turnkey and 33 equipment.
Prit Nagarsheth
The other question is regarding the O&M part.
I am assuming that there is a 2-year free O&M that is given to the customer.
Is it carried out by Inox Wind, or will that be carried out by Inox Green?
Moderator · Conference Operator
The next question is from the line of Akhilesh Bhandari from ICICI Prudential AMC.
Please go ahead.
Akhilesh Bhandari
Sir, you mentioned that the inventory is expected to normalize by the end of FY24. Can we expect a similar thing for receivables as well?
Because currently the operating cash flow is negative for the first half.
Devansh Jain
Actually, broadly yes.
1) What’s going to happen is by end of the financial year, the inventory will reflect the 60 odd days of inventory we carry as well for goods as well as the 60 odd days of project side inventory which we carry because when you see a larger top line, then it will look more meaningful as opposed to selling 100 megawatts and carrying Rs.
500 crores of common infrastructure inventory on the balance sheet.
2) On the receivables side, if I may be very candid, you would expect a big chunk of that normalizing.
But I would say by Q1, this would be completely normalized simply because we have a significant ramp-up happening over Q3 and Q4.
Akhilesh Bhandari
And sir, there is Rs.
18 odd crores of exceptional item.
Any further matter which is pending or this is all done now?
Inox Wind Limited October 27, 2023
Moderator · Conference Operator
The next question is from the line of Rahul Kothari from Grit Equities.
Please go ahead.
Rahul Kothari
Sir, I have a couple of questions.
One of it is that how do we look into the nature of order win?
What kind of order we prefer?
Whether it’s more on the turnkey front or more on the equipment supply considering, as you mentioned, we have land bank also with us?
Also, I just wanted to understand in both of these categories, do we have any competitive edge or differentiating factor that help us make much bigger order win in the domain?
Moderator · Conference Operator
The next question is from the line of Amol Kotak from Techpro Ventures.
Please go ahead.
Amol Kotak
I just had one question.
The SPV which you sold to the promoter company, has that money been received and what would be the utilization of that?
Devansh Jain
It’s going to take us about 3 to 4 months because there have to be connectivity transfers and the debt is lying on Inox Green’s balance sheet at this point in time.
Once we get those approvals over the coming quarter or so, this would get transferred out from the balance sheet.
Plus because it being a related party transaction, we would disclose that in the Inox Green results today and we have got the board approvals.
We need to carry out an AGM which will probably take another 30 days.
Once we get the AGM approval, then we can officially apply for the connectivity transfer and the bank debt transfers.
In the next 3 to 4 months, this transaction should get culminated.
Amol Kotak
So, this entire Rs.
300 crores will be coming by March end?
Devansh Jain
That’s right, yes.
Amol Kotak
And then this will be utilized for reducing the debt?
Devansh Jain
Yes.
Amol Kotak
So, Inox Green’s level will become cash-rich balance sheet when we will have Rs.
300 crores less?
Devansh Jain
I think what’s going to happen is Green will become a net debt free company; of course, cash with accruals, but yes, net debt free.
And I think at the Wind level as Anshuman had taken you through, we are at about Rs.
1,150 odd crores if Rs.
300 crores goes away from that.
And there are some strategic actions which we may initiate as we move forward.
But yes, clearly we are on track and target to achieve our guidance if we want to be net debt free.
We said that in Q1 that over the next 12 to 15 months, we want to be net debt free.
As we have reiterated again, hopefully we should be able to do that before that.
Amol Kotak
This 12 to 15 months’ target of becoming net debt free is from today, right?
Because, earlier we were saying somewhere in June quarter also similar kind of thing.
Devansh Jain
We said 12 to 15 months from Q1. So, 12 months would be Q1 of FY24 or if it’s 15 months, then it would be Q2 of the next financial year.
But, as I also mentioned, that’s the target.
Hopefully, we should be able to do it prior to that.
Amol Kotak
When do we get some details on the strategic actions which you were mentioning?
Devansh Jain
As the board approves and as we decide, we will put that out in the public domain.
Inox Wind Limited October 27, 2023
Moderator · Conference Operator
Our next question is from the line of Dhruwal Shah from Redant Capital.
Please go ahead.
Dhruwal Shah
Sir, with regard to the 3.3-megawatt wind turbine, we were about to start the supplies this quarter.
Are we on track?
Devansh Jain
Yes, we are.
That’s stated in our presentation as well.
Moderator · Conference Operator
The next question is from the line of Shweta Dikshit from Systematix Group.
Please go ahead.
Shweta Dikshit
My first question was on the execution side.
You said it was 65 megawatts this quarter.
And 1H, it was 143 megawatts.
But if I’m not wrong, it was 66 megawatts in the first quarter.
Moderator · Conference Operator
Ladies and gentlemen, due to time constraints, that was the last question for the day.
I would like to hand over the call to Mr. Mohit Kumar from ICICI Securities for the closing comments.
Over to you, sir.
Inox Wind Limited October 27, 2023
Mohit Kumar
I would like to thank the management for giving us an opportunity to host the call.
Thanks everyone for participating in the call.
With this, we will close this call.
Moderator · Conference Operator
On behalf of ICICI Securities, that concludes this conference.
Thank you for joining us.
And you may now disconnect your lines.
Questions and answers
“Inox Wind Limited Q2 FY24 Earnings Conference Call” October 27, 2023
Good evening, everyone.
A very warm welcome to all to the Quarter 2 FY24 Earnings Call of Inox Wind Limited.
The company announced its Quarter 2 and half yearly results at its board meeting held on Friday, 27th October.
The Results, along with the Earnings Presentation, are available on the stock exchanges as well as on our website.
Let me first take you quickly through the Financial Results for Quarter 2 and H1 of FY24 for the Company.
Continuing our ongoing financial turnaround trajectory, I am delighted to announce that we have achieved cash profit in Quarter 2 following its break-even performance at the EBITDA level in quarter 1 of the current fiscal year.
This outstanding performance is noteworthy, especially considering that the second quarter is typically subdued within the industry due to the country- wide impact on the monsoon season.
For the quarter on a consolidated basis, Inox Wind has reported revenue of Rs.
384.4 crores in Quarter 2 FY24 versus Rs.
111.9 crores in Quarter 2 FY23, an increase of 250% year over year.
EBITDA of Rs.
69.7 crores in Quarter 2 FY24 versus EBITDA loss of Rs.
18.7 crores in Quarter 2 FY23. Cash PAT of Rs.
4.7 crores in Quarter 2 FY24 versus loss of Rs.
111.6 crores in Quarter 2 FY23. For the half year ended 30th September on consolidated basis, Inox Wind has reported revenue of Rs.
729.4 crores in H1 FY24 versus Rs.
323.2 crores in H1 FY23. EBITDA of Rs.
104.6 crores in H1 FY24 versus EBITDA loss of Rs.
44.4 crores in H1 FY23. The first half revenue of the current fiscal year has almost matched revenue for financial year ‘23.
I believe that the major increment in earnings will be reflected in the second half of the Inox Wind Limited October 27, 2023 current financial year.
We will have the supplies of our 3.3 mega turbines and complete the action on the strategic front to achieve a net debt free status.
In terms of policy developments, there have been numerous recent announcements at both the central and state levels that will further stimulate investment in the renewable energy sector, with a particular focus on green energy.
Starting from October 2023, the renewable energy policies of Gujarat and Rajasthan have come into effect.
Gujarat anticipates attractive investment worth Rs.
500,000 crores in the renewable sector through this policy.
Meanwhile, Rajasthan has set a target of generating 15 gigawatts from wind and hybrid resources under the same policy.
A case of Gujarat which boasts an estimated wind potential of 143 gigawatts, the new policy removes any capacity restriction for establishing renewable energy projects for captive use or for selling power to third-party consumers.
The earlier policy had imposed a cap at 50% of the contracted demand.
That change has significantly expanded opportunities within the commercial and industrial market, leading to an increased number of enquiries from customers looking to establish such capacities.
Further, the Ministry of Power has proposed the implementation of renewable generation obligation for coal and lignite-fired power plants.
The draft proposal mandates that these power plants generate 6% to 10% of their total power output from renewable sources, with their percentages being based on their respective commercial operations dates.
Most recently, the Ministry introduced guidelines for the uniform green energy tariff.
This development is expected to accelerate the signing of power purchase agreements (PPAs) and boost the addition of renewable energy capacity.
Under this policy, a single rate will be calculated for each category of central pool energy sources such as wind, solar, hydro, hybrid, and real-time pricing on a monthly basis by the implementing agency for distribution companies, i.e., Discoms, for upcoming renewable energy projects.
This change will benefit projects involving power buyers from multiple states.
I will provide an overview of the recent development at Inox Wind.
The past 2 quarters have been incredibly dynamic for us, showcasing notable progress from both operational as well as financial standpoint.
In our pursuit of profitability, Inox Wind has achieved cash profit in Quarter 2 building on our EBITDA positive performance in quarter 1 of the financial year 2024.
I am confident that our financial performance will continue to strengthen in the future supported by several key factors.
The launch of our 3.3-megawatt product supplies, a robust order backlog, clear visibility of order inflows in the near term, a well-capitalized resilient balance sheet, efficient cost management, and favorable market conditions.
In August 2023, Inox Wind Limited successfully raised approximately Rs.
460 crores, net of taxes and fees through a promoter stake sale and subsequent capital injection further fortifying our financial position.
I want to express my sincere gratitude to the investors who have shown their trust in the company’s growth trajectory.
Net order book representing 1,276 megawatts provides us with a solid outlook for the future.
We have actively participated in various public sector tenders which are at different stages of awarding.
In addition, we are engaged in discussion with numerous IPPs (independent power producers) as well as C&I (commercial and industrial) customers regarding potential Inox Wind Limited October 27, 2023 orders.
We are carefully managing our order intake with a focus on 3 key aspects – profitability, reducing supply chain risks, and enhancing our execution capabilities.
On the execution front, we recently completed commissioning of a 50-megawatt wind farm for NTPC in Dayapar in Gujarat.
The execution of the remaining NTPC order is currently in full progress.
Our subsidiary Inox Green, specializing in operation and maintenance, has delivered consistent profit over consecutive quarters.
The company’s portfolio now stands at an impressive over 3.2 gigawatts with cash and cash flow positive business with high EBITDA margin and is well on its way to nearly doubling its wind turbine generator O&M portfolio to 6 gigawatts within the next 3 years.
The merger of Inox Energy Limited, the holding company of Inox Wind, which was announced in quarter 1, is progressing smoothly and we anticipate its completion within the current financial year, subject to the necessary regulatory approval.
With unwavering support from our promoters, strengthened operations, projected robust cash flows, strategic initiatives, and valuable relationship with all our customers, I am confident that Inox Wind is poised to create significant value for all our stakeholders.
With this, I would now like to hand over the floor to Mr. Devansh Jain for his remarks post which we will take the question & answer session.
Devansh Jain
A warm good evening to the ladies and gentlemen.
I would like to express my heartfelt congratulations to the entire team for consistently delivering 2 consecutive quarters of impressive performance.
The achievement of a cash profit in the second quarter, following several years of losses, thanks to the painful transition in the sector, is an immensely encouraging development and it reflects the company’s commitment to meeting the targets outlined in our previous communications.
In the past year, we have undertaken a series of strategic initiatives to rightly position Inox Wind, so as to be able to capitalize on the significant opportunities that lie ahead of us.
We have placed a strong emphasis on reinforcing our balance sheet and working towards achieving a net debt free status.
I am pleased to report that we are well on track to realize our objectives in this regard, hopefully well before the time we have committed.
As previously communicated in our investor calls, we have announced the divestment of Nani Virani, a 50-megawatt SPV, which has led to a substantial reduction in Inox Wind’s debt load and has effectively made its subsidiary, Inox Green, net debt free.
All the essential elements including our supply chain, manufacturing facilities, financial resources, and the execution capabilities of our dedicated management team are primed and ready to facilitate the execution of up to 2 gigawatts, as we progressively march towards that number over the next few years.
Our plan for the 3.3-megawatt turbine supplies remains on schedule with the commencement expected within the current quarter.
These turbines will serve as a cornerstone of our offerings as we enter the next phase of growth beginning in the second half of this fiscal year.
I am confident that Inox Wind’s performance will continue to exhibit significant improvements across all the key aspects in the coming quarters.
Both the macroeconomic and microeconomic factors appear to be aligned in our favor with a promising trajectory in the tendering process, Inox Wind Limited October 27, 2023 high demand from C&I as well as retail customers, favorable cost economics for wind power, and a range of strategic initiatives that we have diligently undertaken over the past year.
These initiatives encompass capital infusion, type certification for our 3.3 megawatts turbine, approval of the merger of IWEL, the holding company with IWL, simplifying the operating structure, execution of our robust order book, and maintaining a strong balance sheet.
IWL is now well positioned to create substantial value for all our stakeholders throughout the fiscal year 2024 and beyond.
Before I conclude, I would like to extend my sincere appreciation to all our stakeholders and the analyst community for their engagement with our company and for placing the trust and confidence in the exciting journey that Inox Wind has embarked upon.
Your support is instrumental to our continued success.
We can now open up the floor for Q&A.
Moderator · Conference Operator
We will now begin the question & answer session.
Ladies and gentlemen, we will wait for a moment while the question queue assembles.
The first question is from the line of Prit Nagarsheth from Wealth Finvisor.
Please go ahead.
Prit Nagarsheth
Sir, I wanted to understand how much megawatts of execution was carried out in Quarter 2.
Devansh Jain
About 65 megawatts.
That’s part of our presentation.
Prit Nagarsheth
Would we say be able to execute the remaining 500 that we are anticipating for the full year, the guidance that was shared?
Is that on track?
Because, over the first half, I think the execution was close to (+100) megawatts, right?
Devansh Jain
In H1, we have done close to 150 megawatts.
Actually, it is 143 megawatts.
That’s part of our presentation.
As you may know and as we stated in our presentation, we have used Q1 to ramp up.
Q2, in spite of being peak monsoon, has been higher than Q1. And I think we are well primed.
Every quarter, as we said earlier, should be better than the previous quarter.
So, I think Q3 and Q4 should be fairly large quarters.
Also, our 3.3-megawatt supplies kick in from Q3. I think we have guided for 500 and God willing, we should be on track for that.
Prit Nagarsheth
Sir, the question that I wanted to better understand is that this year 500 and can we anticipate a much larger execution for next year given that there is an order book of 1,200 megawatt that’s still pending to be executed?
Devansh Jain
Certainly.
I think as the market keeps growing, we will be doing much more.
I think what we set out for ourselves was for the past 5 years, we have really been cleaning up inventory which was stuck on our balance sheet for years when the sector shut down.
We have really been an average 100 megawatt operation for the past 5 years.
So, naturally we are scaling up multiple times, 5x this year.
We will be scaling up significantly next year as well.
More importantly, our Inox Wind Limited October 27, 2023 profitability will scale up substantially next year because we are completely moving towards the 3 megawatt platform.
As we have said, the 2 megawatts, our past orders, which we are completing very select orders because they are not very profitable now since we have not upgraded that technology.
Our 3 megawatt is a very profitable turbine.
Plus, we also mentioned as we become net debt free, we will certainly ramp up supplies and execution at Inox Wind.
Prit Nagarsheth
As a percentage of the balance order book, how much of it would be the 3.3 megawatts turbine?
Devansh Jain
Half of it is 3 megawatts and about half of it is 2 megawatts at this point in time.
But all incremental bids that we have made, and discussions are all for our 3-megawatt product.
Prit Nagarsheth
What’s the turnaround time for execution generally that you have?
Basically, your order to bill ratio, what does that stand at?
Devansh Jain
No, I think it’s not that.
I think once you get an order today because there’s such heavy demand in the market, when we are scaling up, we typically take 6 to 8 months before we start supplies.
We have so many orders at this point in time, but otherwise, manufacturing a turbine would be a one-quarter job.
In terms of commissioning, yes, of course, it depends whether your common infrastructure is ready.
At Inox Wind, we carry almost 1,800 megawatts of common infrastructure which is available for plug and play across Gujarat, across Rajasthan, across the central grid, which I don’t think any other player carries, including the central grid.
So, to that extent, our execution and turnaround time could be quicker.
But we are doing it in a very-very organized manner.
It’s no longer Q3 or Q4 kind of setup.
Everything is happening on a uniform basis.
Prit Nagarsheth
Sir, the last question I had is that I think Adani has recently announced a 5.1 megawatts turbine.
What is the competition that you anticipate and the impact of such on the business that we have?
Devansh Jain
I think the market is too large.
I think there aren’t many players to fulfill current demand.
There are really 3 or 4 players at best in the Indian market today.
Frankly, if the market is going to be a 10-gigawatt market in the next 18 to 24 months, I am just wondering, during our peak days until 17, all of us used to be 600-800 megawatts and used to be very profitable.
We need 10 players to do a gigawatt.
If you look at the US market, there are about 4 players who control 80% of the market.
Same for Europe.
China, of course, you have got 100 players, but I think the top five control about 75% of the market.
I think, broadly, that’s happening in India as well.
So, frankly, whether it’s X or Y or Z, the demand is huge.
I don’t think there are enough suppliers.
Plus, I think we have a very-very strong moat in what we have created given our turnkey execution capabilities which primarily 1 or 2 players in the Indian market offer.
I don’t think we are too worried about any of that.
Moderator · Conference Operator
The next question is from the line of Ketan from Avendus Spark.
Please go ahead.
Inox Wind Limited October 27, 2023
Ketan
Sir, what have been the wind capacity auctions in 1H FY24, and what has been the ordering of wind turbines in the industry and the Inox Wind’s share in it?
Deepak Banga · Research Analyst
Sir, I just want to know whether we can be net debt free by FY24 end?
Devansh Jain
What we stated in Q1 is in the next 12 to 15 months, our aim is to make it a net debt free entity, and I unfortunately cannot give specifics, but I think, God willing, we should be a net debt free entity by that time.
Moderator · Conference Operator
The next question is from the line of Ketan Gandhi from Gandhi Securities.
Please go ahead.
Ketan Gandhi
Devansh, we have downsold our Nani Virani project to, I think, a related party.
What are the contours of that SPV?
Is it a yield-based platform or what is your thought process on that?
Devansh Jain
We are creating a new C&I platform within the group.
There’s a lot of power requirement across companies and across entities in the group.
We don’t intend to set up any CAPEX-heavy investments in any of the operating companies.
That’s being done at the promoter level with certain partners.
We feel there are significant returns.
It’s going to be a mix of selling to third parties, selling to people who take 26% in it, and also to all the group entities.
But we don’t intend to have any CAPEX going forward in any of our group entities for that.
Ketan Gandhi
Basically, it will be given to the group entity so instead of setting up own captive power plant, they can buy power from this?
Devansh Jain
It will be given to the group entities, it will be sold to third parties, and it will be sold on exchanges.
It’s going to be a mix and match of all sorts.
But yes, it will also sell to the group companies because the group companies don’t intend to do any CAPEX on power assets.
Ketan Gandhi
I think that’s a very good move as far as Wind is concerned and the Group Company is concerned.
Great.
Congratulations.
Devansh Jain
Because there is huge savings with zero CAPEX.
As the companies become stronger and stronger and our entire wind vertical is now turned around, we realize that it makes absolute sense to do this.
And we had numerous numbers of people who wanted to partner us on that business.
Moderator · Conference Operator
The next question is from the line of Bhavya Shah who an individual investor is.
Please go ahead.
Bhavya Shah
My question is regarding net debt.
If you can just help me with what is the net debt of the company as on September end?
As per balance sheet, it appears it is Rs.
2,450 crores.
Inox Wind Limited October 27, 2023