Thursday, May 18, 2017

Can one Invest in Inox Wind Stock after Steep Price Correction?

Inox Wind company logo

Actual Question:

Is now the correct time to buy Inox Wind shares, as the prices have dropped down to 167 Rs?


Dear Friend!
Inox Wind’ shares have tumbled over 19% supposedly on the back of a 36% slide in Q4 net profits.
However, this is not the real reason to keep away from the share.
The main problem with this company is the fundamental change in it’s business model. In the statement announcing the Q4 results the company had admitted this when it said, “The industry is under-going a significant change in market dynamics by shifting from the FIT based market to an auction based market. Under the new scenario, our conventional order book loses its relevance, …”

Further, in the light of such a competitive environment, Inox Wind’s parent company Inox Renewable, it seems, has lost interest in the wind power project setting-up business and is focussing on manufacturing wind turbine. It has sold it’s entire portfolio of wind farms of 260 MW in March.
Inox Wind appears to have performed quite decently in the past and its past financial performance parameters appear to be quite decent.
  • The EBDITA Margins in the range of 20-22% is good.
  • EBT in the range of 17 -19% is attractive I should say.
  • PAT margins of 12–16% is something one can’t complain. 

So where does the it's malady lie?
The company is facing bleak prospects not because of it’s performance but because of fundamental changes in the external environment.
In conclusion, despite the steep correction in the price and whatever maybe the reasons for the company’s future prospects, in the prevailing scenario of auction based bidding for wind farm development projects resulting in ever falling tariffs and other reasons discussed above, as per value investing principles, Inox Wind shares should not be considered for investment.
Thank you,
With Best Regards,