Buy Inox Wind Ltd For Target Rs.74 by Motilal Oswal Financial Services Ltd
Margin disappoints; guidance lowered
* Inox Wind’s (IWL) consolidated revenue came in 7% above our estimate at INR13.5b, while EBITDA was 5% below our estimate at INR2.1b. EBITDA margin stood at 15% vs. our estimate of 17%, impacted by commodity/raw material inflation and supply chain cost headwinds. APAT stood at INR0.5b, 46% below our estimate, primarily due to lower-than-expected other income, as WindWorld’s income was not consolidated in 2QFY27, unlike in 1QFY27
* Key things we liked about the result:
1) WindWorld’s acquisition is expected to add ~INR6b annual revenue, with EBITDA margin targeted to expand from 25-30% currently to >40% through cost optimization and value-added services
2) ~3.8GW order book provides over 24 months of execution visibility, supplemented by a healthy ~5GW near-term tender pipeline
3) Recurring opportunities from Inox Clean Energy could drive equipment supply for Inox Wind and O&M opportunities for Inox Green.
* Key monitorables:
1) Management acknowledged that the earlier FY27 guidance of ~75% YoY revenue growth is unlikely to be achieved and has shifted its focus to FY28, with revenue guidance of ~INR75b
2) timely consolidation of WindWorld from 3QFY27 and execution of margin improvement initiatives
3) benefits from the strategic shift toward equipment supply need to translate into lower working capital intensity and improved cash conversion
* Cut FY27/FY28 EBITDA estimates by 21%/14%:
We lower our FY27/FY28 EBITDA estimates by 21%/14%, factoring in lower estimated deliveries and moderated EBITDA margins of 18%/19% (vs. management guidance of 20%).
* Valuation and view:
We reiterate our BUY rating, given attractive valuations, with a revised TP of INR74 per share (based on 20x FY28E EPS).
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