Inox Wind Limited (INOXWIND) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Inox Wind Limited Q2 FY '24 Earnings Conference Call, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Kumar from ICICI Securities. Thank you, and over to you, Mr. Kumar.

Thank you, Joe. Good evening. On behalf of ICICI Securities, I would like to thank you for joining us today for the Q2 FY '24 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'll now hand over the call to the management to start with the opening remarks. And after that, we'll open the call for Q&A. Thank you, and over to you, sir.

Good evening, everyone. Kailash Tarachandani here. A very warm welcome to all to the Quarter 2 FY '24 Earnings Call of Inox Wind Limited. The company announced this 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 FY '24 for the company. Continuing our ongoing financial turnaround trajectory, I'm delighted to announce that we have achieved cash profit in quarter 2, following its breakeven 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 countrywide impact on the monsoon season. For the quarter, on a consolidated basis, Inox Wind has reported revenue of INR 384.4 crores in quarter 2 FY '24 versus INR 111.9 crores in quarter 2 FY '23, an increase of 250% year-over-year. EBITDA of INR 69.7 crores in quarter 2 FY '24 versus EBITDA loss of INR 18.7 crores in quarter 2 FY '23. Cash PAT of INR 4.7 crores quarter 2 FY '24 versus loss of INR 111.6 crores in quarter 2 FY '23. For the half year ended 30th September, on a consolidated basis, Inox Wind has reported revenue of INR 729.46 crores in H1 FY '24 versus INR 323.2 crores in H1 FY '23. EBITDA of INR 104.6 crores H1 FY '24 versus EBITDA loss of INR 44.4 crores in H1 FY '23. The first half of the current fiscal year has almost matched the revenue for financial year '23. I believe that the major increment in earnings will be reflected in the second half of the current financial year. We will have our supplies of our 3.3 megawatt turbine and complete the action on the strategic front to achieve a net debt free status. In terms of policy development, there have been numerous recent announcements at both the central and state level that will further stimulate investment in the renewable energy sector with a particular focus on wind energy. Starting from October 2023, the renewable energy policies of Gujarat and Rajasthan have come into effect. Gujarat anticipates attractive investment worth INR 5 lakh 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 boast an estimated wind potential of 143 gigawatts, the new policy removes any capacity restriction for establishing renewable energy project 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 inquiries from customers looking to establish such capacities. Further, [ the Ministry of Power ] has proposed the implementation of renewable generation obligation for coal and lignite fire power plants. The draft proposal mandates that these power plants generate 6% to 10% of their total power output from renewable sources, with their percentage being based on their respective commercial operation deals. 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 that discounts for upcoming renewable energy projects. This change will benefit project 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, an operational as well as on 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'm 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 supply, a robust order backlog, clear visibility of order inflow 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 INR 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 discussions with numerous IPPs, Independent past producers, as well as C&I customers, commercial industrial customers regarding potential orders. We are carefully managing our order take with a focus on 3 key aspects: profitability, reducing supply chain risks and enhancing our execution capability. On the execution front, we recently completed the commissioning of a 50-megawatt wind farm for NTPC in Dayapar, 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. Our company's portfolio now stands an impressive over 3.2 gigawatts 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 gigawatt within the next 3 years. The merger of Inox Wind 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 promoter, strengthened operation, projected robust cash flows, strategic initiatives and valuable relationship with all our customers, I'm 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 and answers.

Thank you, Kailash. A warm good evening to all 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 plans 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 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. And with a promising trajectory in the tendering process, high demand from C&I as well as retail customers, favorable cost economics for wind power and the range strategic initiatives that we have diligently undertaken over the past year. These initiatives encompass capital infusion, type certification for our 3.3-megawatt 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 their trust and confidence in the exciting journey that Inox Wind has embarked upon. Your support is instrumental to our continued success. Thank you. We can now open up the floor for Q&A.

[Operator Instructions] The first question is from the line of Prit Nagersheth from Wealth Finvisor.

Sir, I wanted to understand how much megawatt of execution was carried out in the quarter 2?

About 65 megawatts, that's part of our presentation.

Okay. And would we add -- 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 I think over half -- first half, I think the execution was close to 100-plus megawatts, right?

So H1, we've done close to 150 megawatts. Actually, it's 143 megawatts. That's part of our presentation. As you may know, and as we've stated in our presentation, we've used Q1 to ramp up. Q2, in spite of the 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, Q4 should be fairly large quarters. Also, our 3.3 megawatt supplies kick in from Q3. So I think we've guided for 500 and God willing, we should be on track for that.

Right. 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?

No, certainly, I think as the market keeps growing, we will be doing much more. I think what we set out for ourselves was -- well, for the past 5 years, we've really been cleaning up inventory, which was stuck on our balance sheet for years when the sector shut down. We've really been average 100-megawatt operation for the past 5 years. So naturally, we're scaling up multiple times, 5x this year. We will be scaling up significantly next year as well. More importantly, our profitability will scale up substantially next year because we are completely moving towards the 3 megawatt platform. As we said, the 2 megawatt, our past orders, which we're completing very select orders because they are not very, very profitable now since we've not upgraded that technology. Our 3 megawatt is a very, very profitable turbine. Plus we also mentioned, as we become net debt free, we will certainly ramp up supplies and execution at Inox Wind.

As a percentage of the balance on the book, how much of it will be at 3 point -- 3 megawatt turbine?

Half of it is 3 megawatt and about half of it is 2 megawatt at this point in time. But all incremental bids that we've made in discussions are all for our 3 megawatt product.

Right. And would you be able to -- what's the turnaround time for executing, generally, that you have? Basically your order to bill ratio, what does that stand at?

No, I think it's not that. I think once you get an order, today because there's such heavy demand in the market, I mean, and we are scaling up. We typically take 6 to 8 months before we start supplies. I mean, there are so many orders at this point in time, but otherwise manufacturing a turbine would be a 1-quarter job. In terms of commissioning, yes, of course, it depends whether you are 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 I think to that extent, our execution turnaround time could be quicker. But we are doing it on a very, very organized manner. It's no longer a Q3, Q4 kind of a sector. Everything is happening on a uniform basis.

Right. So the last question I had is that I think Adani has recently announced 5.1 megawatt turbine. What is the competition that you anticipate and the impact of such on the business at the end?

I think the market is too large. I barely think there are any players to fulfill current demand. There are really 3 or 4 players at best in the Indian market today. Frankly, I mean, if the market is going to be a 10 gigawatt market in the next 18 to 24 months, I'm just wondering, during our peak days until '17, all of us used to be 600, 800 megawatts and used to be very profitable. I mean, we need 10 players to do a gigawatt. If you look at the U.S. market, there are about 4 players who control 80% of the market. Same for Europe. China, of course, you've got 100 players, but I think the top 5 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, I mean there is -- 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've created, given our turnkey execution capabilities, with primarily 1 or 2 players in the Indian market offer. So I don't think we're too worried about any of that.

[Operator Instructions] The next question is from the line of Ketan from Avendus Spark.

Sir, what has been the wind capacity auctions in 1H FY '24? And what has been the ordering of wind turbines in the industry and the Inox Wind's share in it?

So we have given the details in the presentation as well. So if you move to Page #13 of -- the Slide #13 of our presentation, you'll find that over the course of this fiscal year, around 1 gigawatt of pure wind projects have been awarded and around 2.5 gigawatt of hybrid projects in which at least 40% is either of the 2 fuels, solar and wind. So around 2 gigawatt plus of wind projects have already been awarded. And the ordering -- subsequent ordering of turbines related to these projects are done within 3 to 6 months of the LOA. So that is where we stand currently. And if you look at the overall picture currently, so around 3.5 gigawatt of pure wind projects and the tenders related to that are there in the public domain and will be awarded over the course of the next 2, 3 months. And additionally, around 11 gigawatt plus of hybrid and RTC projects are there in the public domain. And we expect more than 7 to 8 gigawatts out of that 11 gigawatt to be awarded within this fiscal year. So overall, we will be somewhere around 8 to 10 gigawatts in terms of wind capacity being awarded over the course of this year.

Any numbers on 1H FY '24, how much was the ordering in the industry?

I think we mentioned right? 1 gigawatt of wind and about 1 gigawatt of hybrid. Now obviously, that's happened in Q1.

That's the awarding -- the ordering.

It takes 3 to 4 months to get your PPAs and get your financial closure, that's when ordering happens. So I don't think we don't have an exact number or we wouldn't know. I don't think anything significant would have happened until now.

Okay. Yes. Okay. My next question is what percentage of your orders will be having cost pass-through clauses or...

I mean, we don't -- barring 1 or 2 components, we don't tie up. We just have 1 or 2 components, steel and ForEx which is passed through after a certain period of time. Obviously, we're not going to disclose that on the call. But other than that, all our components which we buy have fixed price contracts. So we don't have any overruns or cost escalations in any of those components. Steel and ForEx is covered for a year.

Okay. Steel and ForEx is for a year, okay. Also, can -- my last question is, can you explain me how your working capital works? Like is there any retention money clauses? Or how does the working capital work for an order?

We don't have any retention money. I mean the last 5% is linked to commissioning where we're doing turnkey or in equipment supply, it's been commissioned after a point in time. And within that period, we get our money. Yes, we have to give a performance bank guarantee for say 2.5% or 5%, which is an all fund-based facility for us. We don't need to block cash margins. I mean, again, we've not had restructuring. We are a very strong financial group. Even from our wind perspective, we are very, very lean on the debt. So it's all nonfund-based bank guarantee of 2.5% to 5% which we issue to get the last 5% to 7% retention money.

The next question is from the line of Deepak Arora from Kiran Investment Firm.

Am I audible?

Yes.

Sir, I just wanted to ask that if we -- can we debt free by...

We are not able to understand. Your voice is muffled.

Am I audible now?

Yes.

Okay. I just wanted to know that -- firstly, congratulations on a great set of numbers, sir. Secondly, sir, I just want to know whether we can be debt free -- net debt-free by FY '24 end?

Thank you. Look, 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.

The next question is from the line of Ketan Gandhi from Gandhi Securities.

You sold -- down sold our Nani Virani project to, I think, related party. What is the contours of that SPV? Is it a yield-based platform? Or what is your thought process on that?

Ketan, good to hear from you. So basically, I mean, it's been sold to a group -- I mean, we're creating a new C&I platform within the group. There's a lot of power requirement across companies, across entities in the group. We don't intend to set up any CapEx heavy investments in any of the operating companies. So 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.

So basically, it will be given to the group entity. So instead of setting up own captive power plant, they can buy power from this.

It will be given to the group entity. It will be sold to third parties. It will be sold on the 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.

I think that's a very good move as far as wind is concerned and group company is concerned. Great. Great. Congratulation.

Because there's huge savings with 0 CapEx. So as they company has become stronger and stronger and the whole wind -- our entire wind vertical is now turned around, we realized that it makes absolute sense to do this. And we have more than -- numerous number of people who wanted to partner us on that business.

The next question is from the line of [ Bhavya Shah ], who's an Individual Investor.

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? Because for balance sheet it appears it is INR 2,450 crores.

So if you go through our presentation, Page #26, we have given the growth -- net debt breakup in which our gross debt as of September '23 is INR 2,715 crores, which is appearing in the balance sheet. Out of it, we have a cash and bank balance of broadly INR 300-odd crores. We have a promoter debt, which is nothing but a 0.01% preference share capital, which is infused by the promoters of INR 1,245 crores. And after a net interest-bearing debt as of September '23 is broadly INR 1,172 crores. The detailed breakup has been given on Slide 26.

Yes. Got it. And so, in continuation to this, what is our cost of debt to external borrowings because as you explained in the presentation, we'll be having a INR 43 crore quarterly run rate going forward, excluding the onetime bank charges. So INR 43 x 4 divided by this number comes to around 14.5%.

No. So Bhavya, again, I think in finance costs, what you also need to include is banking charge -- non-fund-based charges, you need to include onetime annual reset charges and you need to include the LC/BC charges for the facilities. From a debt perspective, our weighted average debt cost at this point in time would be close to about 10.5%. The remaining are our nonfund-based charges, BG charges, LC opening charges, annual bank charges. If you look at that number, I mean if you do the math, you're looking at, say, 170 run rate. And if you do the math on the debt side of it, that would be close to INR 120 crores. So effectively, you're looking at INR 50-odd crores of BG charges, LC charges, nonfund-based charges, annual charges. We also expect this to come down substantially for us as we move forward because historically, banks were charging us 3% plus onetime charges. Interest cost is to be 18%. We're now down to an average 10.5%. Obviously, as we become debt-free, all the finance costs go away. But to the extent of the nonfund-based charges, these costs should also come down by at least 30% to 40% as we move forward.

The next question is from the line of Nikhil Abhyankar from ICICI Securities.

My first question is on working capital, sir. Our inventories and trade receivables seem quite high as compared to our execution currently. So when do we expect this to normalize?

If you see our inventory level as on 31st March inventory and 30th September inventory level are broadly the same. As we have discussed in the past as well, this is -- if you see the normalized year, the inventory level will be normalized by the FY '24 end. Since this is a quarter -- year of the ramp-up and the operations are getting into the full-fledged -- again in a full-fledged way, you are seeing a higher inventory as compared to the revenue. But if you see on an overall normalized year, the inventory level is more or less what we have guided in the public domain.

Understood. And sir, you mentioned about the -- we've got 2 good order -- government orders, Gujarat. So I wanted to understand basically what kind of C&I pipeline have we got?

No, to be honest, just to reply this. It's not that we are married to any particular C&I customer or anything. The policies are clear in Gujarat, Rajasthan and many of these people are talking. We are also talking to different PSUs, independent power producers as the opportunities comes up. But C&I market is getting bigger and bigger. There is no doubt about this.

And sir, should we expect margins on C&I orders relatively more than the government orders?

No, I don't think so. I think -- to be honest, retail orders are the highest margin orders followed by PSUs, then C&I, and then IPPs. In some sense, the retail markets are much better than the PSUs?

Yes. I think PSUs give a lot of stability. Retail is always welcome as markets open up. C&I gives better returns to investors because they're selling at a higher tariff than SECI. I think we've got a good blend, and we focus on the right products, PSUs, now retail. We have multiple IPP and C&I platform discussion. [ Wind energy ] has a C&I platform in our order book. But frankly, to say that are we married to only IPPs or only PSUs or only C&I, we are supplying across the board. We've got a good mix of retail, PSU, IPPs and C&I.

Understood, sir. Sir, recently, in our newspaper article, we read that government is looking at offshore wind tenders. Maybe in the Q4. So any -- can you just give a brief on that as well? Are there any...

It's a great, very nice forward-looking statement by the government. But frankly speaking, I don't think -- I mean, first, they need to take out bids. Then they're going to have the seabed auction. You're going to collect data for 4, 5 years on the seabed comes in. Frankly speaking, most importantly, I think whatever weather, as we saw the painful transition in the sector, anything which is subsidized, anything which can't stand on its own feet is not scalable. Cost of offshore power, I'm saying cost of energy, not CapEx, cost of offshore power is more than 2x the cost of onshore power. India is very, very well endowed on the onshore side. So frankly, unless and until we get to 300, 400, 500 gigawatts of onshore, I don't see offshore becoming anything significant in the Indian landscape.

[Operator Instructions] The next question is from the line of Koushik Mohan from Ashika Institutional Equities.

Great set of numbers. Congratulations for that. Sir, I just wanted to understand one simple thing. How long are we going to take for our merger?

Look, so we have already guided on this as well that within the next 5 to 6 months. You can take it within FY '24 that we will be...

No, I don't think it's in our control. Frankly speaking, I think the ratios and the public domain, we've got all the banking approvals. We're awaiting the stock exchange approvals. Once we get that we can file the scheme at NCLT. And what I understand from our lawyers is it takes 4 to 5 months at NCLT to get this approval. So we hope we can get this done within March. But again, I mean, everything is in the public domain. We can't control the routine legal process for this merger. But I hope we are done by year-end, otherwise, it may be a quarter more at best, I suppose.

Got it. So currently, that means that NCLT is the only place that we are there. Of course...

We are waiting the BSE, NSE approval. Once that comes in, then we can file our NCLT. The scheme is already in the public domain. And then NCLT needs an administrative 4, 5 months to wrap it up. I mean, we've got all our banking approvals, all the creditors approvals. So frankly, it's really an administrative job, if you ask us.

Got it. Got it. Sir, another question. Like I think then that means that post the merger is happening and the numbers will flow on a consol level. That means that entirely -- we will be converting our entire losses into a profit. I hope so that will be like FY '25, the complete year will be a profitable year, and we will also be a debt -- cash debt net free. Am I right with my assumptions?

But I think if it comes to profitability, I think we have said we've already turned, I mean, cash back level and I think...

Now, cash back repository, yes.

Q3 and Q4, I mean, we should be a profitable company within this financial year. Of course, next year should be a very, very profitable year. From a debt perspective, again, I think we did guide in Q1, in 12 to 15 months, we will be net debt free. We hope to be able to do that way before that target.

Okay. Sir, with -- post the merger, what kind of ROCE numbers that we'll be looking at?

So historically, our ROCE and ROE is broadly in the range of 22%. And post even the merger after the full-fledged year of FY '24, you will see the ROCE or ROE at somewhere around 20% plus levels.

The next question is from the line of Bharanidhar Vijayakumar from Spark Capital.