India – Green IPO

Green stocks have not really set the Indian stock market on fire, with most going into bankruptcy (called CDR in India, as there is no good bankruptcy law). This has been the case in most global markets as well, though there are some green success stories out there such as Tesla, SunEdison etc. Most of India’s solar stocks such as Moser Baer, Indosolar etc. are mostly on the deathbed. They have seen a revival (dead cat bounce) due to the government’s announcement of 100 GW of solar energy capacity by 2022. But they are still not profitable and I think that they will turn into deadbeats again, once the scarcity in the domestic made cells and modules goes away with global green giants setting up manufacturing facilities in India.

Wind energy stocks have also not done greatly with Suzlon being the star under performer for a long time, falling over 90% from its peak value. Overambitious expansion and high debt load coupled with strong Chinese competition has made Suzlon another poor performer. However, the equity infusion by India’s second richest man may revive the company once again.

A new company in the green energy space is all set to come out with an IPO specifically. Inox Wind which is a part of the Inox Group with interest in multiplexes, pharma and chemicals will do a Rs 700 crore IPO. The company makes 2 MW wind turbines using technology from AMSC. My blog readers would remember how AMSC is an American technology company which got shafted by Sinovel stealing its technology. Inox Wind has seen good growth in the last few years, selling turbines to its in-house renewable energy development arm as well as the Hero and Tata groups. Growth has been good and net profit margins excellent at 15%. However, the valuation seems expensive at 30x P/E and I can see no differentiation in technology, operations etc. to justify it. On the plus side, the Indian government wants to scale up wind energy from 2-3 GW to 5 GW annually. Inox with around 400 MW of installations can easily go up to 1 GW, if the market goes up. This means decent growth for the company. But with Suzlon getting a new life and global majors like Gamesa focusing on the Indian market, Inox will find it hard to grow. I would look at a much cheaper valuation to put my money here.

However I think Inox should manage a successful IPO, given the good track record of its promoters (they are not thieves like most others). The green energy market is fast growing but also a tough market for companies and investors, given the capex heavy nature and high competition. There are other bigger companies in the wind turbine space available at lower valuation. You can look at Ming Yang (MY) listed in the US stock market.