Inox Wind Ltd. (IWL) reported below than expected set of revenue and bottom-line
numbers. IWL reported top-line of `1,828cr, below our expectations. Inox
reported 96.9% yoy top-line increase, reflecting 328MW of Turnkey sale volume.
On the back of strong execution IWL reported 83.3% yoy increase in EBITDA to
Rs312cr. Reported EBITDA is below our expectations. Led by operating leverage,
IWL reported EBITDA margins of 17.1%. On excluding impact of non-recurring
line-items, Inox reported adj. EBITDA margins of 16.4%. IWL reported 17bps yoy
decline in Adj. PAT margins to 10.8%, which is below our expectations. Adj. PAT
of the company grew 67.4% yoy to Rs197cr. High tax rate of 29.4% in 4QFY2016
restricted Adj. PAT growth.
Strong Order Book, gives better revenue visibility: Order book of IWL at
4QFY2016-end stands at 1,104MW (down 6.3% yoy), having an execution of
12-15 months. Company Management has maintained optimism about future
order inflows, on the back of government’s focus on Renewable sector, IWLs strong
market positioning and capex pipeline of Independent Power Producers (IPPs).
Outlook and Valuation: We forecast IWL’s top-line to grow at CAGR of 19.3%
during FY2016-18, on the back of recent capacity expansion, strong order book
of 1,104MW (gives revenue visibility for next 12-15 months), larger project sites.
With addition of more efficient products to portfolio, we expect Adj. EBITDA
margins to improve from 15.4% in FY2016 to 16.4% in FY2018E. Increase in
depreciation expenses, and conservative other income estimates, restrict Adj. PAT
margin expansion during FY2016-18E to 10.6%. Post 17% correction in IWL stock
after 4QFY2016 results were announced, the stock is now trading at FY2017E
and FY2018E, P/E multiple of 9.8x and 8.1x, respectively. Considering the
4QFY2016 Order Book, expected strong order inflow trends and profitability
growth, IWL stock is trading at attractive valuations. On assigning, 9.5x P/E
multiple to our FY2018E, EPS estimate of `30.0, we arrive at price target of `286,
which gives 18% upside from the current levels. Given the upside, we maintain
our BUY rating on the stock.

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