Indowind Energy Ltd: Buy

CMP: 13.45.

Book Value: Rs.25.74.

Market Cap: Rs.169 crore.

Introduction: 

Indowind Energy Limited (IEL) has been in the business of power generation through wind mills since its inception in July 1995. It is one of the pioneers in the renewable energy sector and is managed by professions with experience in diverse fields.

Shri Bala Venckat Kutti, Indus Finance Limited, and Loyal Credit & Investments Limited are the company's promoters. 

Over the course of 27 years, the company has consistently grown in this sector. The Company set up its first wind Mill in Tamil Nadu having a capacity of 225 MW.

Interestingly, the windmills of the company are situated in the highest wind potential areas in the states of Tamil Nadu and Karnataka. As on date,  Indowind Energy Ltd is having 123 windmills having capacity of 49.645 MW spread across the states of Tamil Nadu and Karnataka (Tamil Nadu: 29.55 MW and Karnataka: 20.095 MW). 

Apart from this another 12.50 MW capacity windmill will be operational within the next 6 - months; the capacity of this windmill will be increased to 50 MW, within a couple of years.

Salient features:

💥 Indowind Energy Ltd is the First Independent Power Producer to commercially exploit wind for generation of Electricity.

💥It has nearly 3 decades of experience in the Wind sector.

💥In has proven track record and technical expertise to generate power from wind.

💥It sells power sales to Electricity Boards and large Corporates. Better realisation is achieved through private sale.

💥It is the 1st Wind Energy Company to get carbon credits from UNFCCC and has registered “Green Power” as its trademark.

Shareholding Pattern: 

The promoters hold 44.76%, while  of the general public holds 55.24% of the shares of the company, respectively. 

Among the general public, the Export Import Bank of India holds 4.46% of the shares of the company. On the corporate side Commendam Investments Pvt Ltd holds 1.59% of the shares of the company. 

Financials:

The company came out with good set of numbers for the December 2022, quarter:

💥Revenue: ₹75.7 million (up 80% from 3Q 2022).

💥Net income: ₹1.43 million (up from ₹2.16m loss in 3Q 2022).

💥Profit margin: 1.9% (up from net loss in 3Q 2022). The move to profitability was driven by higher revenue.

💥EPS: ₹0.01 (up from ₹0.024 loss in 3Q 2022).

Source: Simply Wall.

This positivity is expected to continue in the following quarters (post rights issue), as the interest outgo will decrease substantially. 

Rights Issue: The Company has come with Rights issue of 3,58,96,594 shares of Rs.10 each, at a premium of Rs.2 per share; aggregating to Rs.430.8 million (Rs.43.08 crore). 

Details:

Issue Opened: 27 Jan, 2023

Issue Closes: 10 Feb, 2023

Issue Size (shares): 3,58,96,594

Issue Size (amount): Rs.43.08 crore 

Issue Price: Rs.12/share 

Record Date: 13 Jan, 2023 

The main objective of the Rights Issue is to substantially reduce the secured loans and progress towards making the company, DEBT FREE.

National Company Law Appellate Tribunal (NCLAT) Case: 

Few weeks back, the two prominent stock exchanges, the BSE and the NSE decided to stop trading in the scrip, for a couple of days, due to delay made by the company in sending the notice regarding postponement of the hearing to 20 January, 2023, to them.

It will be pertinent to mention here that, in September, 2020, Exim Bank dragged the company to NCLAT for the settlement of its loan. The settlement amount was pegged at Rs.48 crore out of which the company has already paid Rs.15 crore. The company will pay the remaining Rs.33 crore from the proceeds of the Rs.43.08 crore Rights Issue and become almost DEBT FREE – only a small debt of Rs.5.35 crore from a lender will be left.

Cons: 

💥Selling of “Green Power®” given the nature of its business, concentration of the plants in few States and also the issue of shortage of power, demands special marketing setup to cater to the requirements of clients, since the power generated from its wind farms are sold under Group captive scheme to Corporates. 

💥Though there are not many IPP’s in India, in the wind energy space, selling power to corporates puts IEL in direct competition with the SEB’s.

💥 Closing of Accelerated Depreciation Scheme in 2017, has slowed down the wind energy space.

Upcoming Projects: 

The company is in the process of setting up and acquiring wind farms in Karnataka and Tamil Nadu. The company has already acquired land banks in Tamil Nadu & and Karnataka and completed the Micro sitting and Wind Resource Assessment study. The company has around 300 acres of land bank in Tamil Nadu and Karnataka.

Wind Power Sector: 

While the Indian Power Sector is undergoing significant growth, sustained economic growth continues to drive electricity demand in India. 

The Government of India is focussing on attaining “power for all" and this has accelerated capacity addition in all segments of the sector. India is the third largest producer and second largest consumer of electricity worldwide, with an installed power capacity of 401.01 GW as on 30th April 2022.

Wind Power Policy of the Union Government:

💥Concession on import duty on specified wind turbine components.

💥10 year income tax holiday for wind power generation projects.

💥Concessional custom duty exemption on certain components of wind electric generators

💥100% exemption from excise duty on certain wind turbine components.

💥REC Mechanism.

💥Waiver of Inter State Transmission System (ISTS) charges and losses for inter-state sale of solar and wind power for projects to be commissioned up to March, 2022.

💥Permitting Foreign Direct Investment (FDI) up to 100% under the automatic route.

💥Implementation of Green Energy Corridor project to facilitate grid integration of large-scale renewable energy capacity addition.

💥Technical support including wind resource assessment and identification of potential sites through the National Institute of Wind Energy, Chennai.

💥IREDA finance scheme for wind power projects. Now, getting finance has become quite hassle free.

💥Special incentives provided for promotion of exports from India for various renewable energy technologies under renewable sector specific SEZ.

💥Feed-in-Tariff (FIT) scheme for wind projects upto 25 MW.

💥GBI scheme for grid interactive wind power projects commissioned before 31 March 2017.

Source: Indian Wind Energy Association.

Conclusion: Since IEL sells power under the banner “Green Power®”, many triple “A” rated corporates directly buy from IEL to meet their CSR needs. This gives the company, some sort of stability in its earnings.

Moreover, the company maintains high quality while supplying power. It meets the norms of the Grid code so that the electricity produced is fed into the grid at the desired frequency without affecting the regional Grid operations.

Besides, while selecting the wind turbines, proper screening is done based on site and wind conditions to match the appropriate machine to be installed.

Considering the above points, the investors can take position in the shares of Indowind Energy Ltd near the CMP of Rs.13.45 for medium to long term targets of Rs.25 and Rs.32. SL: Rs.12.60.