Inox India Limited (Subscribe)

Highlights

Inox Group company, Inox India Limited (INOXCVA) was incorporated in 1976 is the largest supplier of the cryogenic equipment in India by revenue in FY23 and the first Indian company to manufacture a trailer mounted hydrogen transport tank, which was designed jointly with the Indian Space Research Organisation (ISRO).

The company has 3 decades of experience in offering solutions across design, engineering, manufacturing and installation of equipment and systems for cryogenic conditions. The offerings of the company include (i) standard cryogenic tanks and equipment, (ii) beverage kegs, (iii) bespoke technology, (iv) equipment and solutions as well as large turnkey projects which are used in diverse industries such as industrial gases, liquified natural gas (LNG), green hydrogen, energy, steel, medical and healthcare, chemicals and fertilizers, aviation and aerospace, pharmaceuticals and construction.

The business comprises of three divisions (i) Industrial Gas (ii) LNG (iii) Cyro Scientific. In the six months ended September 30, 2023 and in FY23, FY22 and FY21, they provided their equipment and systems to 1,255 domestic customers and 254 international customers across its three divisions.

The company has produced and shipped a 238kl liquid hydrogen storage tank for a liquid hydrogen plant in South Korea. They also have recently produced and shipped four 311kl liquid hydrogen storage tanks for another customer in South Korea for the construction of 3 liquid hydrogen plants. Inox also provide engineering, procurement, and construction (EPC) services for cryogenic solutions including bulk storage and regasification equipment, typically associated with petrochemical or steel projects.

The company’s products require specialized engineering, industry certification and customer acceptance because of the extremely low cryogenic temperature and volatile nature of the gases that its equipment stores and handles. Due to their engineering expertise, quality product offering and customer service, they have developed a reputed brand, INOXCVA, in the cryogenic equipment industry.

The IPO is complete Offer for Sale of Rs. 14,593 mn and all the IPO proceeds would go towards existing selling shareholders. As the management want to bring visibility of their business by listing it on stock exchanges.

Key Highlights

• The global cryogenic equipment market was valued at $11.5 billion in 2022, and global cryogenic equipment demand is projected to grow at a 6.9 pct CAGR from 2023 to reach USD 16.6 bn by 2028. At the global level, the top nine companies accounted for approximately 35-48 pct of the cryogenic equipment market in CY22. Inox India Limited is well positioned to capture this global market growth with their inhouse technology as well as their LNG product range.
• ITER project (Iter meaning “The Way” in Lain), which is a collaboration of 35 nations, are building the world’s largest tokamak, a magnetic fusion device which will be used to study nuclear fusion as a source of clean energy. The company also engaged as one of the few Indian companies in the International Thermonuclear Experimental Reactor (ITER) project.
• As of September 30, 2023 the orderbook of the company stood at Rs. 10,366 mn which comprises of Industrial Gas (52.82 pct), LNG (25.16 pct), Cryo Scientific (22.02 pct). The current orderbook of the company is 1.07x of company FY23 sales which shows earnings visibility in coming year.
• The company has sizeable manufacturing capacity at (i) kalol in Gujrat (ii) kandla SEZ in Gujrat and (iii) Silvasa. Also, the company is planning to add 4^th manufacturing facility, for which Rs. 800 mn capex has spent. This newly added facility is expected to start giving revenue after the end of the FY24. According to the company management, adding capacity is not constraint for the company. Company can add additional capacity whenever it sees demand.
• The company is debt free and cash positive company. The company’s internal accruals are enough to meet future capex plans of the company without adding significant debt on the company’s balance sheet.
• Out of the total income of the company Industrial Gas division contributes 70.88 pct of total income, LNG division contributes 24.89 pct of the total income and Cryo Scientific division contributes 4.23 pct of total income. Also, company exports their products to other countries. The export of the company is 45.8 pct of revenue. The company’s Cryo Scientific projects require longest gestation period in this project has high margins.
• The total income of the company has grown at 27.1 pct CAGR during the period FY21-23 while EBITDA and profit grew 21.9 pct CAGR and 26 pct CAGR over the same period. During FY23, company reported income of Rs. 9,842 mn which increased by 22.4 pct YoY while EBITDA rise by pct YoY to Rs. 2,227 mn as EBITDA margin declined from 23.5 pct in FY22 to 22.6 pct in FY23. PAT in the FY23 stood at Rs. 1,527 mn, which increased by 17 pct YoY. In H1FY24 the company sales of Rs. 5,800 mn, EBITDA of Rs. 1,457 mn with EBITDA margin of 25.1 pct and profit of Rs. 1,033 mn.

Key Risk

• The markets Inox serve are subject to cyclical demand and vulnerable to economic downturn, which could harm their business and make it difficult to project long-term performance.
• The company is subject to strict quality requirements, regular inspections and audits by their customers, and any failure to comply with industry certification standards like PESO may lead to cancellation of existing and future orders.

Valuation

Inox India Ltd. is a niche player in cryogenic equipment and the only player from India. According to a Crisil report, the demand for cryogenic equipment across geographies is expected to be driven by the increased demand for cleaner fuels such as LNG and hydrogen due to the focus on reducing carbon emissions from conventional energy sources.
It is well positioned to capture this global market growth with in-house technology as well as LNG product range that includes the entire value chain. 

Inox India Ltd. is expected to benefit from the long-term demand for cryogenic equipment due to a global push to reduce carbon footprint and promote the use of clean source of energy such as LNG and hydrogen. The company’s leadership position in cryogenic equipment in India, robust order book, strong product portfolio, marquee clients diversified across sectors and focus on exports should help the company to grow its scale of operations in future. Additionally, the company has delivered healthy financial performance in the past along with decent return ratios. At the upper end of the price band, the issue is quoting at PE of 29x its FY24 annualised earnings. Even though the issue appears to be fully priced, One can Subscribe from a longer term perspective.

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Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.