Nomura Financial Advisory and Securities has recommended 'Buy' on Inox Wind (IWL) with target price of Rs 497 with upside potential of 38%.
Commenting on the investment rationale, the stock broker said, ''Inox Wind is a rapidly rising player in the emerging wind turbine manufacturing industry in India. With India's renewables sector at an inflection point owing to reinstated incentives for the sector and the government's push for 75GW of wind capacity by 2022, IWL appears well placed to benefit. Armed with an almost debt-free balance sheet, IWL aims to ramp up current capacity 2x by FY16F and has an impressive track record of profitable growth with a ~70% revenue CAGR over FY10-15 despite the declining market.
Access to technology, a ~4.5GW pipeline of wind sites in 'renewable friendly' states (providing ~four years of revenue visibility), turnkey capability, and a credible list of IPP customers pave way for IWL's continued success, in our view. We estimate FY15-18F revenue and EBITDA CAGRs of ~34%/37%, with an improving working capital cycle leading to positive FCF by FY16F. IWL offers strong growth visibility, with an order backlog of 1.2GW (~15 months of revenue), a strong pipeline of wind sites, and ROE in the ~30% area.
We value IWL at 12x FY17F EV/EBITDA to arrive at our TP of Rs 497, which implies 38% upside. Our assigned multiple is at a slight premium over regional peers at 10.1x to account for the superior growth and return ratios we expect from IWL over FY15-18F. Among our India wind coverage, we prefer IWL for its profitable growth story and solid and steady track record, and Suzlon Energy (SUEL IN, Buy) for those with a higher risk appetite. Key risks are high import dependence (64% of RM cost) and weak discom finances.''
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