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Doubling of marketshare, capacity make Inox Wind stock analysts' favourite

Experts believe Inox Wind should be able to overcome sectoral challenges and deliver growth.

, ET Bureau|
Jun 13, 2016, 07.30 AM IST
Inox Wind, a leading wind energy services provider, doubled its market share to 23% in 2015-16. The company, which boasts of a wide customer base comprising independent power producers, power utilities, corporate and retail consumers, achieved its highest ever annual commissioning of 786 MW in 2015-16—a 187% year-on-year growth.

A 100% increase in market share over the previous year, doubling of capacity, and improved EBITDA margins has made Inox Wind analysts’ top pick.
It has doubled capacity to 1,600 MW to take care of future growth. Thanks to the fall in raw material costs, Inox Wind’s EBITDA (earnings before interest, taxes, depreciation and amortisation) margin also improved to 17.2% in the fourth quarter of 2015-16—an improvement of 174 basis points (bps) y-o-y and 34 bps quarter on quarter.

Despite this, the stock market has reacted negatively to the company’s January-March quarter numbers. Even after a 17% cut in share price on results day—from Rs 291 to Rs 242—the fall has continued. The jump in receivable days—the time taken to collect payments from customers—is the main reason for this fall.

Analysts, however, feel that the market has overreacted. The spike in receivable days was largely on account of the major part of sales in 2015-16 happening in the second half of the year. Collections should stabilise in the coming years. While sales and net profit zoomed in 2015-16, the company’s order book contracted 6% to 1,104 MW contributing to the market’s negative reaction.

Since Madhya Pradesh accounts for 24% of Inox’s order book, the reduction of feed-in tariffs (compensation) for wind power producers in the state could have led to order book contraction. Alternative sources of energies such as solar and wind are environmentally much better compared to thermal power. However, their commercial viability is linked to the prices of crude oil. And, the aggressive growth visible now may taper off if crude oil remains below $50 per barrel for a few more years.

The aggressive bidding for solar projects also raises several cost risks. However, the wind power sector should be able to handle the situation because it is already quite consolidated —the top three players constitute 80% market share. Better technology will also help. For instance, Inox Wind recently launched 113 rotor turbines, which increase energy efficiency by about 20%. In addition to giving additional power, more efficient power curves make these turbines ideal for low wind pockets in particular. There is a general aversion to this sector, because it has seen more failures than successes in the past. However, with a PE of 11, most of these negatives have been priced in.

Selection Methodology: We pick the stock that has shown the maximum increase in ‘consensus analyst rating’ in the past one month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search is restricted to stocks that are covered by at least 10 analysts. You can see similar consensus analyst rating changes during the past week in the ETW 50 table.
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