3:1 Bonus Issue, 363% Gains: BUY Energy Stock Below Rs 250 For 12% Short Term Gains; What Is Desirable Target?

Brokerage Axis Securities likes Inox Wind stock as it recommends BUY for a target price of Rs 270, hinting at a nearly 12% potential upside for the short-term basis. The optimism comes after Axis Securities interacted with the company's management who have shown a focus on unlocking new revenue streams. Inox Wind is currently below Rs 250, a midcap and a multibagger as the stock has skyrocketed over 360% in a year. Not just that Inox Wind has shared its growth reward with investors earlier in 2024 in the form of a 3:1 bonus issue.

Currently, Inox Wind's share price is at Rs 241.60 apiece, on BSE with a market cap of Rs 31,499.66 crore. The stock touched a new 52-week high of Rs 246 apiece during trading hours on September 10.

YTD, the stock zoomed by nearly 84.6%, while in a year, the growth is a whopping 362.8% on BSE.

Also, Inox Wind delivered a bonus issue of a 3:1 ratio. On May 24, 2024, the company's shares turned ex-bonus for a 3:1 bonus. As per the ratio, the company delivered 3 new free shares as a bonus on the existing 1 equity share to eligible shareholders.

In its latest report, Axis Securities said, "We interacted with the company's management to get further insights into the company's outlook. As per the press release dated 2nd Sep'24, Inox Wind's EPC projects arm, Resco Global (a 100% subsidiary), has approved a Rs 350 Cr equity raise from marquee investors. This fund will be utilised to scale up business offerings at Resco to capitalize on the strong tailwinds in the wind sector in India."

Axis Securities estimates Resco's valuation at Rs 5,000 Cr, and the Rs 350 Cr fundraise implies ~7-8% stake dilution. Subsequently, the substation assets (non-core) housed at Inox Green Energy Ltd's balance sheet will be demerged out of Inox Green Energy and will be merged into Resco Global thereby aligning synergies for both businesses. Post the regulatory approvals of the demerger of these power evacuation assets (substations), it will lead to the automatic listing of Resco Global.

It added this will lead to an asset-light structure of the listed Inox Green Energy Ltd, unlocking its value, and Resco will be using these substation assets to generate additional revenue streams. Resco will utilize these substation assets to evacuate even solar power now (in addition to wind) leading to higher utilisation of these assets.

Further, the brokerage highlighted that Inox Wind's management expects that the impact of the hybridisation of the substation assets will augment the PAT of Inox Wind by Rs 75- 100 Cr per annum and Rs 50-60 Cr per annum from the Crane services. Overall, these new revenue streams will effectively increase the total EBITDA for Inox Wind Ltd. by ~Rs 150-175 Cr and PAT by ~Rs 140-150 Cr from FY26 onwards.

Also, the brokerage stated that Inox Wind company expects higher order execution from FY25 onwards, with a guidance of 800 MW and 1,200 MW for FY25 and FY26, respectively. We now increase our FY27 execution estimate of 1,560 MW to 1,750 MW as the tailwinds in the sector provide more visibility, which is still slightly conservative against the company's target of 2 GW. The company has the capability and supply chain readiness to execute higher MWs.

Additionally, the brokerage said, "We factor in the benefits from these unlocking initiatives and increase our Revenue/EBITDA/PAT for FY26 by 4%/9%/10% and 13%/17%/22% for FY27 (on higher execution at 1,750 MW vs 1,560 MW)."

On the valuation, the brokerage said, "We assign a target P/E multiple of 35x vs. 30x previously to our FY26 EPS estimate, given the tailwinds in the wind sector. After adjusting for the minority stake in Inox Green Energy Services Ltd. and Resco Global (~7%), we arrive at a TP of Rs 270/share (from Rs 205/share). We maintain a BUY rating on the stock."

Inox Wind Limited (IWL) is India's leading wind energy solutions provider servicing IPPs, Utilities, PSUs & Corporate investors. IWL is a part of the US$ ~ 8 BN INOXGFL Group which has a legacy of over nine decades and is primarily focused on two business verticals - chemicals and renewable energy.

IWL is a fully integrated player in the wind energy market with four state-of-the-art manufacturing Plants in Gujarat, Himachal Pradesh and Madhya Pradesh, where Blades, Tubular Towers, as well as Hubs & Nacelles are manufactured. With its state-of-the-art 3 MW series WTG offering, IWL's manufacturing capacity stands at ~ 2.5 GW per annum.