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Favorable winds

Inox Wind

Initiating Coverage | 1 July 2015

Sector: Capital Goods

Amit Shah ([email protected]); +91 22 3029 5126

Satyam Agarwal ([email protected]); +91 22 3982 5410

Inox Wind

1 July 2015 2

Prices as on 1 July 2015

Investors are advised to refer through disclosures made at the end of the Research Report.

Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset

and S&P Capital.

Inox Wind: Favorable winds

Page No.

Investment summary .......................................................................................... 3

Wind energy sector at inflexion point .......................................................... 4-8

INXW: Prepped for rising wind capacity installation ................................. 9-13

Expect 65% earnings CAGR over FY15-17 .................................................. 14-16

Initiating coverage with Buy rating ........................................................... 17-18

Risks and concerns ...................................................................................... 19-20

Company background ....................................................................................... 21

Board of directors ....................................................................................... 22-23

Operating metrics ............................................................................................. 24

Financials and valuations ........................................................................... 25-26

Inox Wind

1 July 2015 3

Favorable winds Expect 65% earnings CAGR over FY15-17; re-rating imminent

n Wind energy presents a strong growth opportunity with the markets likely to expand from 2.3GW in FY15 per annum to 4-5GW per annum in the medium term, aided by restoration of accelerated depreciation (AD) and generation-based incentives (GBI).

n We believe INXW is suitably placed and expect it to clock sales of 825MW in FY16 and become the number-1 player, with ~25% market share. Over FY15-17, we expect INXW to deliver 28% volume growth.

n Earnings should grow at a CAGR of 65% over FY15-17, driven by 44% revenue CAGR and improvement in realization. We believe a re-rating is imminent. Buy.

Wind energy sector at inflexion point: The wind energy sector in India had witnessed a sharp fall in capacity addition from 3.2GW in FY12 to 1.2GW in FY13, led by withdrawal of accelerated depreciation (AD) and generation-based incentives (GBI) in March 2012. However, renewable energy is now a key focus area for the government, which has ambitious plans to set up an installed capacity base of 60GW in the wind energy segment by 2022 (vs 23GW as at end FY15). We believe there are multiple tailwinds that will help drive the size of the Indian wind energy market from 2.3GW in FY15 to 4-5GW in medium term.

INXW – prepped for rising wind capacity installation: In FY16, we expect INXW to clock sales of 825MW and become the number-1 player, with ~25% market share. INXW is well positioned to benefit from the wind market revival, supported by (1) strong relationships with IPPs, (2) technology partnerships with global leaders, (3) ready pipeline of project sites, (4) strategically located manufacturing units, and (5) established execution track record.

Expect 65% earnings CAGR over FY15-17: We expect INXW to report 44% revenue CAGR over FY15-17, largely supported by volume growth of 28% and realization improvement of 8%. Operating profit is likely to witness 58% CAGR over FY15-17, led by margin expansion of 330bp during the period. Margin expansion to be supported by various initiatives including New product launch, Improved logistics and supply chain benefits, Lower Royalty expense, Improved Realizations, Recent duty benefits, etc. Driven by strong earnings growth and debt repayment, we expect RoE to improve to 28% and RoCE to 32% in FY17.

Initiating coverage with Buy rating: INXW is well positioned to benefit from the huge opportunity India’s wind power segment presents. We expect its revenue to grow at a CAGR of 44% and earnings to grow at a CAGR of 65% over FY15-17. Backed by its strong revenue and earnings growth, and robust return ratios (RoE of 28% and RoCE of 32% in FY17E), we initiate coverage with a Buy rating. Our target price of INR543 (15x FY17E EPS of INR36) implies 28% upside.

Initiating Coverage | Sector: Capital Goods

Inox Wind CMP: INR425 TP: INR543 (+28%) Buy

BSE Sensex S&P CNX

28,021 8,453

Stock Info

Bloomberg INXW IN

Equity Shares (m) 221.9

M.Cap. (INR b) / (USD b) 84.9/1.3

52-Week Range (INR) 495/385

1, 6, 12 Rel. Per (%) -3/-/-

Financial Snapshot (INR Billion) Y/E March 2015 2016E 2017E Net Sales 27.1 46.1 56.4

EBITDA 4.6 8.7 11.4

Adj PAT 3.0 6.1 8.0

EPS (INR) 13.4 27.3 36.2

EPS Gr. (%) 102.0 104.1 32.7

BV/Sh. (INR) 64.8 91.5 127.6

RoE (%) 20.6 29.8 28.3

RoCE (%) 19.2 32.8 32.1

Valuations

P/E (x) 31.8 15.6 11.7

P/BV (x) 6.6 4.6 3.3

EV/EBITDA (x) 21.1 11.4 8.2

Shareholding pattern (%)

As on Mar-15

Promoter 85.6

DII 3.7

FII 3.5 Others 7.2

FII includes depository receipts

Inox Wind

1 July 2015 4

Wind energy sector at inflexion point Multiple tailwinds; market size to double over FY15-22

n The wind energy sector in India had witnessed a sharp fall in capacity addition from 3.2GW in FY12 to 1.2GW in FY13, led by withdrawal of accelerated depreciation (AD) and generation-based incentives (GBI) in March 2012.

n However, renewable energy is now a key focus area for the ruling BJP-led government, which has ambitious plans to set up an installed capacity base of 60GW in the wind energy segment and 100GW in the solar segment by 2022.

n We believe there are multiple tailwinds that will help drive the size of the Indian wind energy market from 2.3GW in FY15 to 4-5GW in medium term.

An enabling environment is in place There are multiple factors supporting India’s wind energy segment: (a) the central government’s ambitious plans (60GW of wind energy capacity by 2022), backed by fiscal and regulatory incentives (AD and GBI), (b) finalization of feed-in tariff and regulatory support provided by state governments, (c) inclusion of renewable generation obligation (RGO) in the Electricity Act, (d) untapped wind power potential of 100GW (CWET study), and (e) long-term opportunities arising from offshore wind power installation and repowering of old WTG sites. We expect the Indian wind market size to grow from 2.3GW in FY15 to 4-5GW in medium term.

Exhibit 1: Favorable regulatory changes to boost wind energy investment

Accelerated Depreciation (AD) Overview and Policy

§ Withdrawn in Mar 2012, reintroduced in Jul 2014 and notified in

September 2014 Impact: Brings back SME interest, Captive demand Generation Based Incentives (GBI)

§ Withdrawn in Mar 2012, reintroduced in Mar 2013 and notified

in Sep 2013

§ INR0.50/unit incentive to generators with a cap of INR1 cr/MW,

up from Rs.0.62 cr/MW for 4-10th year

Impact: IPPs to focus on setting up new capacities Access to low cost funding

§ National Clean Energy cess doubled to INR200/mt

§ This Fund to be used for GBI, low cost funding and green

corridors Impact: Higher corpus available to facilitate growth Mandatory CSR (Renewable)

§ Under new Companies Act, eligible companies have to spend 2%

of its average net profit on CSR activities § Renewable energy / WTG qualifies under mandatory CSR spend Impact: Demand from Corporates / PSUs to strengthen Renewable Purchase Obligation

§ Distribution companies are required to procure a percentage of

all electricity from renewables

Impact: Aids to meet the renewable energy sourcing target of 15% by 2020

Other incentives § Fast tracking of implementation of Green Corridor will address

evacuation constraints

§ Long term funding to infrastructure projects (up to 25 years)

§ 4% SAD on parts and RM for WTG manufacturing removed

Source: Company, MOSL

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1 July 2015 5

Exhibit 2: Wind Financing Policy’s evolution

Source:Industry Reports, MOSL

To spur growth in renewable energy sector, incentives like accelerated depreciation (AD-introduced in 1990) and gross generation incentives (GBI- introduced in 2009) were introduced; however these initiatives were withdrawn in 2012, which led to slump in wind energy installation and FY13/FY14 saw a muted average addition of 1.9GW per annum, down from 3GW addition in FY12. With reinstallation of these incentives in 2014, we expect Indian wind market size to grow from 2.3GW in FY15 to 4-5GW in medium term. The Power Ministry plans to amend the Electricity Act to introduce renewable generation obligation (RGO), whereby conventional power plant developers would be obligated to generate ~10% power from renewable energy sources. Successful inclusion and implementation of the RGO norms can help the wind market to expand from 2.3GW in FY16E to 4-5GW per annum in the medium term. State governments also encouraging wind energy State governments hold the key for successful implementation of the central government’s ambitious capacity installation plan of 60GW. They play a key role in land allocation for the wind sites, evacuating power and providing grid connectivity to the power generated from the wind sites. States have provided incentives over and above the central government’s sops to attract investments in wind energy. Key incentives provided by states Feed-in tariff: Several states like Rajasthan, Madhya Pradesh, Gujarat, Andhra Pradesh, Telangana, Maharashtra and Karnataka have provided preferential tariff over and above MNRE’s GBI of INR0.5 per kilowatt-hour to attract investment. Some have also increased wind power tariffs by 2-15% to attract investments. These states are expected to witness traction and will play a critical role to achieve the aggregate target of 4-5GW per annum.

Inclusion of RGO norms in Electricity Act to increase

demand for renewable power installation

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1 July 2015 6

Exhibit 3: Preferential Feed in tariff (FIT) provided by states

State FiT (INR/KWh)

Andhra Pradesh 4.7 Gujarat 4.15

Chattishgarh WPD >200w/m2:6.25 WPD 201-250w/m2:5.68 WPD 251-300w/m2:5.00

WPD 301-400/m2:4.17

WPD>400/m2:3.91 Gujarat 4.15 Haryana WPD 201-250w/m2:5.81 WPD 251-300w/m2:5.06 WPD 301-400/m2:4.31

WPD>400/m2:3.88 J&K CUF20% 5.80 CUF22% 5.27 CUF25% 4.64

CUF30% 3.87 CUF32% 3.62

Karnataka 4.2 Kerala 4.77

Madhya Pradesh 5.92 Maharashtra WPD 200-250w/m2:5.7

WPD 250-300w/m2:5.01 WPD 300-400w/m2:4.18

WPD>400w/m2:3.92

Orissa 4.48

Punjab 5.8 Rajasthan 5.12 (for projects in Jaisalmer, Jodhpur and Barmer

5.38 (for others)

Tamil Nadu 3.51

Uttarakhand WPD >200w/m2:5.0 WPD 201-250w/m2:4.45

WPD 251-300w/m2:3.80 WPD 301-400/m2:3.05

WPD>400/m2:2.80 Uttar Pradesh 3.21; escalation of 5.71 for 10 years

West bengal Tariff cap of 5.71 for 10 years

Reduced or no VAT: Several states including Tamil Nadu, Karnataka, Maharashtra and Gujarat have policies that eliminate or reduce value-added tax (VAT) for wind turbine components. Exhibit 4: VAT benefit provided to attract investments in states

State VAT rates

Tamil Nadu Reduced VAT from 14.5% to 5% Karnataka 5.50% Gujarat 5% Maharashtra 5%


Wheeling and banking: For wind power, wheeling charges (paid to the distribution company to use transmission infrastructure to send power from offsite locations) for different states are in the range of 2% (Madhya Pradesh and Maharashtra) to 7.5% (West Bengal). Of the total wind energy fed to the grid in a financial year, Tamil

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1 July 2015 7

Nadu allows 5% and Karnataka 2% as banked energy that can be accessed any time during the financial year. Green cess fund: The Maharashtra Energy Development Agency (MEDA) has created a green cess (tax) fund. A part of this fund is used to create infrastructure for grid connectivity with proposed wind farms. Strong evacuation infrastructure promotes investments in wind power. Land facilitation policy: State governments like Rajasthan, Madhya Pradesh and Gujarat have formalized land facilitation policies to expedite wind energy projects. Major projects get delayed mainly on account of delays in land acquisition.

Exhibit 5: Land facilitation policy State Land Facilitation Policy

Rajasthan Government land at concessional rates -- 10% of DLC rates, with maximum allocation of 5 Hect./MW.

The conversion charges (private land to industrial use) will be 10% of charges levied for industrial purposes under the relevant rules.

Madhya Pradesh Government revenue land use permission at INR1/-(token) premium per year (as per circular No. F-16-3-93-VII-2A, dated 06-09-2010 and No. F-6-53-2011-VII-Nazool, dated 08-08-2011)

Gujarat WTGs may be set up on private land, or revenue wasteland / GEDA land, if available

Maharashtra Developer/Investor can be allotted Government barren land (permissible for industrial use), at declared windy sites, on lease basis with 30 yrs agreement

Andhra Pradesh

Each eligible developer may be allocated available Govt. land to harness up to a maximum of 200mw of wind power initially. After commissioning of 100 MW capacity Wind farms in 1st stage in the allocated Govt. land, the Government may allocate land for another 100 MW capacity Wind Farms. The application from the developers for Government land will be considered on a first-cum-first-served basis.


India has significant untapped wind potential According to the Centre for Wind Energy Technology (C-WET), India has the potential to install over 100,000MW of wind turbines at 80meters hub height, implying an untapped wind power potential of 78GW. Based on C-WET estimates, India has explored only 22% of its wind power potential. This indicates strong long-term business opportunity for domestic WTG manufacturers. Exhibit 6: Potential v/s currently installed capacity (MW)

State / UTs Installable Potential Installed Capacity

@50 m @80 m Andhra Pradesh 5,394 14,497 913 Gujarat 10,609 35,071 3,581 Jammu & Kashmir 5,311 5,685 - Karnataka 8,591 13,593 2,549 Kerala 790 837 35 Madhya Pradesh 920 2,931 567 Maharashtra 5,439 5,961 4,370 Odisha 910 1,384 - Rajasthan 5,005 5,050 3,053 Tamil Nadu 5,374 14,152 7,394 Uttarakhand 161 534 - Uttar Pradesh 137 1,260 - Others 489 1,833 - Total 49,130 102,788 22,462

Source: C-WET,Company, MOSL

Inox Wind

1 July 2015 8

Offshore and Repowering to be long-term demand drivers Offshore wind: The Ministry of New and Renewable Energy (MNRE) issued a draft policy for the development of offshore wind energy in 2013, which aims to deploy wind farms within territorial waters (12 nautical miles). Preliminary assessments indicate that the coastlines of Tamil Nadu (Rameshwaram and Kanyakumari) and Gujarat have reasonably high offshore wind potential. A recent study conducted by WISE estimates Tamil Nadu’s offshore wind potential at 127GW at 80 meters height, though this is yet to be corroborated by other studies (MNRE, 2013E). A separate study estimates that India has the potential to develop 350GW of offshore wind energy (PIB, 2013). Offshore wind energy offers a strong business opportunity for INXW. Repowering: Repowering low-capacity and aging wind turbines to improve efficiency, or to achieve better grid integration or higher energy yield could be another big business opportunity in India. Currently, Germany, Denmark, the US and the Netherlands are at the forefront of the repowering movement. India’s current repowering potential is estimated at ~2,760MW (GWEC, 2012A), but there are several practical challenges (involving land ownership, lack of supporting state policies or economic incentives), which hinder the realization of this potential. Tamil Nadu, which has several aging (older than 15 years) wind farms located in wind-rich districts, is a state with high repowering potential. Gamesa is the first company to implement a wind repowering project in India, “Project Avatar” in Tamil Nadu in 2011 (MNRE, 2011A).

Inox Wind

1 July 2015 9

INXW: Prepped for rising wind capacity installation To become number-1 player, with 25% market share n In FY16, we expect INXW to clock sales of 825MW and become the number-1 player,

with ~25% market share. n INXW is well positioned to benefit from the wind market revival, supported by (1)

strong relationships with IPPs, (2) technology partnerships with global leaders, (3) ready pipeline of project sites, (4) strategically located manufacturing units, and (5) established execution track record.

Well-balanced, differentiated business model In India, 80% of the wind energy projects are executed on turnkey basis, as wind power developers do not have in-house capabilities to undertake project development on a large scale. INXW’s business model, however, is equally focused on turnkey solutions and WTG supplies. While turnkey solutions contribute 48% of its orderbook, WTG supplies constitute 52%. Its balanced business model helps INXW to optimally utilize its organizational resources. Project execution on EPC basis can severely constrain organizational bandwidth. INXW provides turnkey solutions together with its wholly-owned subsidiaries, Inox Wind Infrastructure Services Limited (IWISL) and Maruti-Shakti India Limited (MSEIL). Its services include wind resource assessment, site acquisition, infrastructure development, erection and commissioning, and long-term operation and maintenance of wind power projects.

Exhibit 7: Complete solution provider to customers Wind Farm Identification n Wind resource assessment to identify suitable site for a wind farm and physical assessment of the site

n Energy assessment of the site n Identification of land including revenue, private, forest and tribal land n Approach road and logistic feasibility

Power Evacuation n Study of power evacuation options at site n Finalization of evacuation grid substation based on load flow study and capacity n Land or light of way for the transmission line

Infrastructure Development n Development and construction of infrastructure for wind farm n Land development to enable installation of WTGs

Support for all government approvals

n Assist the customer in connection with obtaining statutory approvals necessary to install and operate the wind farm and common infrastructure facilities including the sub-station and transmission lines

n Provide support in connection with power purchase agreements and wheeling and banking agreements with state distribution companies

Engineering, Procurement and Construction

n Construction of WTG tower foundations n Supply, erection and installation of turbines n Construction and installation of a unit sub-station and switch yard at each WTG n Installation of an energy meter to measure electricity generated n Pre-commissioning and commissioning of WTGs

Operation and Maintenance n 24/7 operation and maintenance of WTGs and wind farms, including preventive maintenance of WTGs, unit sub-stations and common infrastructure facilities including sub-station and transmission lines

n Maintain spares and consumables for operation and maintenance of turbines n Installation of supervisory control and data acquisition for order management n Provide various manpower, including with respect to wind farm security

Post commissioning Support

n Support for registration for renewable energy certificates (REC), generation based incentives (GBI) and clean development mechanism (CDM)

n Dedicated customer relationship management for customers’ daily generation report, monthly billing and other support


Inox Wind

1 July 2015 10

INXW has focused on the IPP segment and is the preferred partner for 8 of the top-10 IPPs in India. Focus on IPPs and timely project execution has helped INXW to develop strong relationships with the IPPs. The government is encouraging renewable energy projects and targets to have an installed capacity of 60GW by 2022. Encouraged by the enabling government policies, several IPPs have firmed-up strong capacity addition plans. Given INXW’s relationships with the IPPs, we believe it is in a sweet spot.

Its successful IPO has improved INXW’s profile as a serious player, even for several MNC PE funds / IPPs setting up wind power projects in India. This should drive greater acceptance and also enable the company to match market pricing against a new entrant’s strategy of offering discounts. In the equipment supply business, INXW is among the top-2 players in India; while the size of this segment is 15% for the WTG industry, it is targeted to contribute 30% to INXW’s revenue in FY16.

Exhibit 7: Future plans of key IPPs in India

Key Players MW Comments

Renew Energy 500 450MW pipeline to be commissioned in 2015 Continuum Wind 145 270MW under construction,580MW under development Mytrah Energy Limited 525 Plans to have 1,000MW installed capacity by 2017

Bharat Light and power 200 Plans to have 1,000MW installed capacity by 2019

CLP India 1,081 263MW of wind power plant are under construction

Tata Power 471 469MW wind energy assets under construction across the world

Hero Future Energies Pvt

78 Plans to have 1,000MW installed capacity by 2017

Source: Company, MOSL Exhibit 8: Key WTG manufacturers in India with installed capacity of ~10GW

Company Installed Capacity

(MW) Product Range

(KW) Technology

tie-up

Gamesa Wind Turbine Private Limited 1,500 800/850/2,000 Gamesa

GE India 450 1,500/1,600 GE

Inox Wind Ltd. 1100 2,000 AMSC- Austria Kenersys India Pvt. Ltd. 400 2,000 Kenersys

Leitner Shiram Manufacturing Ltd. 250 1,350/1,500 WindFin B.V.

ReGen Powertech Pvt. Ltd. 750 1,500 VENSYS

Suzlon Energy Limited 3,700 600/1,250/1,500/ Suzlon Energy

Vestas Wind Technology India Pvt. Ltd. 1,000 1,650/1,800/2,000 Vestas Wind

WinWinD Power Energy Pvt. Ltd. 1,000 1,000 WinWinD,

Source: MOSL, Company

Strong order book, ready pipeline of project sites provide comfort As of March 2015, INXW’s order book stood at 1,178MW, comprising 614MW for the supply and erection of WTGs and 564MW for the supply of WTGs. The order book includes executed binding contracts for 825MW and term sheets (or letters of intent) for 432MW. Also, INXW has access to project sites in Rajasthan, Gujarat, Andhra Pradesh, Maharashtra and Madhya Pradesh suitable for the installation of an aggregate capacity of 4,402MW, which makes available strong ready infrastructure to provide turnkey solutions. Robust order book and ready pipeline of project sites provides comfort on the revenue visibility front. We expect INXW to deliver 825MW in FY16 and 950MW in FY17.

Inox Wind

1 July 2015 11

Exhibit 9: Order book composition – FY15


Exhibit 10: Project pipeline of 4.4GW

Acquired Wind sites (MW) Wind Sites under acquisition process (MW)

Rajasthan 1,355 Rajasthan 1,194

Gujarat 430 Gujarat 164

Madhya Pradesh 285 Madhya Pradesh 634

Andhra Pradesh 20 Maharashtra 300

Andhra Pradesh 20

Total 2,090 Total 2,312


Exhibit 11: Robust order inflow led by finalization of orders from IPPs


Exhibit 12: Turnkey segment sales to reduce, improving organizational bandwidth to increase volumes


Technology tie-ups help save on R&D cost INXW has entered into technology tie-ups with global players to source key components of the WTG equipment. Technology tie-ups ensure that INXW has access to latest technology and also saves on R&D cost, which helps to keep its cost structure lean. n WTG technology: INXW has licensed the technology to manufacture 2MW

WTGs in India from AMSC Austria, and has an exclusive and perpetual license in India. In August 2014, INXW and AMSC amended the agreement to cover all 2MW WTGs with rotor diameters between 85 meters and 120 meters. In addition, INXW has a non-exclusive license to manufacture 2MW WTGs worldwide based on AMSC’s proprietary technology. Globally, over 15GW of aggregate production capacity operates on AMSC technology.

n Electronic control system (ECS): As per the terms of license from AMSC, INXW is required to purchase ECS manufactured by AMSC or its affiliates.

n Rotor blade sets: INXW has a non-exclusive perpetual license from WINDnovation Engineering Solutions GmbH, Germany.

n Gearboxes and generators: INXW procures gearboxes from DHHI (China) and Wikov Industry a.s. (Czech Republic), and generators from Emerson Industrial Automation and ABB India.

Supply of WTG, 52%

Supply and Erection, 48

%

14 120

198

630

1,162

FY11 FY12 FY13 FY14 FY15

Order inflow (MW)

100% 100% 100%87% 88%

70% 64%

13% 12%30% 36%

FY11 FY12 FY13 FY14 FY15 FY16E FY17E

Turnkey Sales (%) Equipment Sales (%)

Inox Wind

1 July 2015 12

Strategically located manufacturing units ensure efficient cost structure INXW manufactures the key components for WTGs in-house, which ensures cost competitiveness, cost-effective logistics, and attractive margins. It has split its manufacturing activities to ensure cost-efficiency. The existing rotor blade and tower manufacturing facilities are located at Rohika in Gujarat, adjacent to a highway to facilitate easier handling during transportation to wind sites and sea ports. This location is also close to states like Rajasthan, Gujarat, Maharashtra and Madhya Pradesh, where there is good potential for wind energy production. The more easily transportable nacelles and hubs are manufactured in Himachal Pradesh, which gives INXW certain tax incentives. INXW is putting up a new integrated manufacturing facility at Barwani, Madhya Pradesh to produce nacelles and hubs, rotor blade sets and towers. This is close to projects in Madhya Pradesh (MP) and Rajasthan. Expansion at MP, coupled with capacity augmentation at Gujarat would lead to a near doubling of capacity to 1.6GW by the end of FY16. On completion, total capacity would be 950 nacelles and hubs, 800 rotor blade sets, and 600 towers.

Exhibit 13: Doubling manufacturing capacity to 1.6GW by end FY16

Component(s) Plant Location Installed Annual

Production Capacity Post

Proposed Expansion

Nacelles and Hubs Himachal Pradesh 550 550

Nacelles and Hubs Madhya Pradesh - 400

Rotor blade sets Madhya Pradesh - 400

Towers Madhya Pradesh - 300

Rotor blade sets Gujarat 256 400

Towers Gujarat 150 300


Back-to-back warranty tie-ups with suppliers obviate provision requirement INXW outsources raw material and components that it does not manufacture in-house. It sources a portion of the towers required for WTGs from Fedders Lloyd Corporation. It has a license from AMSC for the production and sale of 2MW WTGs in India based on AMSC’s proprietary technology. It also purchases ECS manufactured by AMSC or its affiliates for all WTGs based on AMSC technology. INXW gets warranties from component and raw material suppliers against deficient performance and resultant liabilities.

Shift in customer profile from individuals to IPPs augurs well for INXW The average wind installation size in India has been increasing with the shift in customer base from individuals (AD market) to IPPs (GBI market). The average project size has increased from 2MW in 2009 to 7MW in 2013. Project size of 50MW and above is becoming the norm for IPPs in India. This customer profile shift augurs well for INXW, as its business model is focused on the IPP segment rather than the accelerated depreciation (AD) market. It is the preferred partner for 8 of the top-10 IPPs in India. Focus on IPPs and timely project execution has helped INXW to develop strong relationships with the IPPs. Encouraged by enabling government policies, several IPPs have firmed-up strong capacity addition plans. Given INXW’s relationships with the IPPs, we believe it is in a sweet spot.

Inox Wind

1 July 2015 13

Exhibit 14: Shift in project size and customer profile in India


Operation and maintenance business provides interesting opportunities As of December 2014, 742MW produced and sold by INXW were under operation, 84MW had been erected but not commissioned, and 312MW had been supplied but not yet erected and commissioned. Given its cumulative supplies of 1,044MW, operation and maintenance (O&M) provides interesting opportunities. We expect the contribution of O&M to increase meaningfully post the two-year warranty. The equipment supplier retains O&M on 100% of the projects and the business has gross margins of 50-55%. The typical cost for O&M stands at ~INR1m/MW per annum. We expect the O&M business revenue to scale up from INR39m in FY14 to INR594m in FY17 (147% CAGR).

Exhibit 15: Robust 82% CAGR expected in installed base over FY15-17E


Exhibit 16: O&M revenue to increase exponentially as installed base increases


74 7360

41

15

17 25

15

23

23

72

1924

21

35 12

40

2009 2010 2011 2012 2013

<10 MW 10-25MW 25-50MW >50MW

154 150 274

774 913

318 468 742

1,516

2,428

FY13 FY14 FY15 FY16E FY17E

WTG comissioned (MW) Installed base (MW)

39 159 374

594

1,212

2,802

FY14 FY15 FY16E FY17E FY18E FY19E

O& MRevenue (INR M)

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1 July 2015 14

Expect 65% earnings CAGR over FY15-17 Return ratios to improve

n We expect INXW to report 44% revenue CAGR over FY15-17, largely supported by volume growth of 28% and realization improvement of 8%.

n Operating profit is likely to witness 58% CAGR over FY15-17, led by margin expansion of 330bp during the period.

n Driven by strong earnings growth and debt repayment, we expect RoE to improve to 28% and RoCE to 32% in FY17.

Expect revenue CAGR of 44% over FY15-17 We expect revenue to grow at a CAGR of 44% over FY15-17, led by volume CAGR of 28% and 8% increase in realization. Growth in realization would be driven by increase in sales of the new Rotor 100 product, which provides 15% higher energy efficiency with 5% increase in cost, and by reduction of discounts.

Exhibit 17: Improvement in realization led by increase in sales of new product Rotor 100


Exhibit 18: Revenue to witness 44% CAGR over FY15-17 led by volume growth and better realization


Exhibit 19: Revenue mix to move in favor of newly introduced 100 metre WTG (INR B)


Operating profit to post 58% CAGR over FY15-17, led by margin expansion We expect operating profit to witness 58% CAGR over FY15-17, led by 330bp margin expansion during the period. Operating margin would expand to 20.1% in FY17. Management expects margin expansion to be supported by factors like (i) increase in sales of Rotor 100 metre blades (150bp), (ii) improved supply chain/logistics, better cost absorption, etc (130bp), (iii) improved market perception, leading to lower discounts on pricing (100bp), (iv) gains from lower special additional duty

47.941.6 42.9 45.0 47.5

6.611.7

7.611.0 11.6


Realization-WTG (INR M/MW) Realization-EPC (INR M)

10,589 15,668 27,099

46,098 56,352

73

48

73 70

22


Revenue (INR M) Growth-YoY %

-

10

20

30

40

50

60

FY11 FY12 FY13 FY14 FY15 FY16E FY17E

93 metre 100 metre 113 Metre EPC O&M

Inox Wind

1 July 2015 15

(100bp), and (v) lower royalty expense (50bp). Inox has to pay fixed royalty per WTG for the first 450 WTGs with rotor diameters of 93.3 meters and 100 meters, and the first 245 WTGs with rotor diameters of 113 meters, that it produce. Lower Royalty payment is primarily on account of extinction of royalty payment on the 93.3 metre product. We conservatively model margin to increase from 16.9% in FY15 to 20.1% in FY17E, (expansion of 330bps) to factor in i)increase in competitive intensity with Suzlon getting aggressive post financial restructuring ii) INXW does not make warranty provision as against 3% provision made by SUEL.

Exhibit 20: Margins to expand primarily on account of cost efficiencies


Exhibit 21: Operating profit to witness 58% CAGR over FY15-17


Cash flows from operations as well as free cash flows to turn positive from FY16 Historically, INXW has witnessed negative cash flow from operations on account of elongated working capital cycle, as net working capital (NWC) for the industry has deteriorated meaningfully since FY13. Collapse of the accelerated depreciation (AD) market had resulted in an increase in the bargaining power of IPPs. We expect INXW’s NWC, which had peaked at 196days in FY15 to normalize at 148 days in FY17. This is because the AD market is picking up again, the willingness of banks to fund RE projects is increasing, and the bargaining power of equipment manufacturers is increasing. NWC normalization would drive meaningful improvement in cash flows from operations.

Exhibit 22: Cash flow to improve led by normalization of working capital cycle


Exhibit 23: NWC to normalize with improvement in receivables cycle


18.6

11.2

16.9 18.8 20.1

14.2

8.4 10.9

13.1 14.2

FY2013 FY2014 FY2015 FY2016E FY2017E

Operating Profit Margin Net Profit Margin

1,965 1,762 4,574

8,659

11,354 -10.3

159.6

89.3

31.1

FY2013 FY2014 FY2015 FY2016E FY2017E

Operating Profit Growth YoY %

(1.2)

(0.9)(3.3)

0.7

7.0

(5.1)

(1.3)(3.0)

4.2 7.2

FY2013 FY2014 FY2015 FY2016E FY2017E

Cash flow from operation (INR b) Free cash flow (INR b)

148 161

196

165

148

(3)

(4)

(2)

(4)

2

FY2013 FY2014 FY2015 FY2016E FY2017E

NWC (days) Net cash (INR b)

Inox Wind

1 July 2015 16

Return ratios to improve We expect return ratios to improve, led by strong earnings growth and debt repayment. We expect RoE and RoCE to improve to 28% and 32%, respectively in FY17. Exhibit 24: Robust return ratios led by strong earnings and debt repayment


Exhibit 25: NWC to improve led by better receivable cycle management

NWC (Days) FY13 FY14 FY15 FY16E FY17E Inventories 27 63 15 15 15 Debtors Excluding Retention money 172 165 150 140 140 Loans and Advances 33 34 90 88 88 Other Current Assets 4 10 5 3 3 Total Current Assets 237 272 290 258 246 Creditors 79 98 76 80 85 Current Liabilities (excl Cust Adv) 9 12 10 6 6 Provisions 1 1 7 7 7 Total Current Liabilities 89 112 94 93 98 Core NWC 148 161 196 165 148 Retention Money - - - - - Customer Advances 3 3 - - - Reported NWC 145 158 196 165 148


29

18 19

33 32

51

31

2130 28

FY2013 FY2014 FY2015 FY2016E FY2017E

RoCE RoE

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1 July 2015 17

Initiating coverage with Buy rating Target price of INR543 implies 28% upside

We believe INXW is well positioned to benefit from the WTG demand arising from the government’s ambitious target to install 60GW capacity from wind energy by 2022, and WTG demand revival led by fiscal and regulatory incentives provided by central and state government. We expect INXW to post revenue of INR46.1b in FY16 (up 70%), INR56.3b in FY17 (up 22%). We expect INXW to report not just strong revenue growth but also report far superior earnings growth. We expect INXW to report EPS of INR27.3 in FY16E (up 104%) and INR36 in FY17E (up 33%). Backed by strong revenue and earnings growth and robust return ratios (RoE of 28% and RoCE of 32% in FY17), we initiate coverage on the stock with Buy rating and target price of INR543 (15x FY17 EPS of INR36). Our target PER of 15x is lower than Industrials / Capital Goods players like L&T (22x FY17E), TMX (28x FY17E), etc and is constrained by the following factors: n INXW’s earnings are prone to volatility, given the characteristics of the wind

sector that has historically witnessed large swings in capacity additions, led by changes in government policy. Even in most of the mature markets, the industry has not demonstrated a secular growth characteristic.

n Health of SEB finances remain the key concern, as SEBs have generally been reluctant to purchase expensive source of power. Challenges like poor investments in evacuation infrastructure, backing down in peak generation season, non availability of adequate power banking facilities, non-compliance to RPO obligations, etc are yet to be decisively addressed. Challenges in land acquisition could also be a constraining factor to industry growth.

n SUEL, a key competitor, had been impacted by constrained financial position and post the recent fund infusions by DSA / sale of Senvion, could become aggressive.

Exhibit 26: Exhibit 26: Key financials of WTG players in India

Revenue (INR m) EBIDTA Margin (%) PAT Margin (%)

FY12 FY13 FY14 FY15 FY12 FY13 FY14 FY15 FY12 FY13 FY14 FY15

Gamesa 22,847 11,610 35,298 NA NA NA NA NA -4.4 -19.0 1.6 NA

Vestas 17,515 5,047 7,951 NA 3.7 2.6 5.3 NA 0.8 -0.2 -1.4 NA

Suzlon 100,030 32,280 56,270 48,830 7.9 -51.1 -14.4 -3.4 -10.4 -118.4 -53.1 -48.7

Inox Wind NA 10,589 15,668 27,099 NA 18.6 11.2 16.9 NA 14.2 8.4 10.9


Exhibit 27: Key financial comparison for global WTG players (USD m)

Company Name MCap Revenue EBITDA Margin (%) PAT PE (x) EV/EBIDTA (x)

CY15E CY16E CY15E CY16E CY15E CY16E CY15E CY16E CY15E CY16E

Nordex SE 2,018 2,273 2,411 8.2 9.1 78 100 26.0 20.9 9.1 7.8

Vestas Wind Systems A/S 11,370 8,731 8,704 13.8 14.2 577 600 19.6 18.8 7.9 7.7

Gamesa Corp Tecnologica SA 4,656 3,759 4,032 12.5 12.8 198 235 23.9 19.9 10.2 9.3

Xinjiang Goldwind Science & Te 8,375 3,636 3,831 16.3 18.9 379 433 19.9 17.4 16.5 13.5

Source: Bloomberg, MOSL

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Exhibit 28: Comparision of Inox Wind with Suzlon (INR m) INR M Suzlon Wind Inox Wind

FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15

Revenues 91,750 100,030 32,280 56,270 48,830 719 6,216 10,589 15,668 27,099

Less: COGS 59,700 63,920 26,160 43,351 31,380 518 4,318 7,731 12,131 20,347

Gross Profit 29,405 36,110 6,120 12,919 17,450 202 1,898 2,858 3,537 6,753

Employee Expenses 8,746 10,270 8,330 7,874 7,470 38 146 250 384 549

Other expenses 18,962 18,890 15,980 15,870 13,360 46 334 644 1,390 1,629

Exchange (Loss) / Gain 0 430 2,500 2,326 4,950 0 0 0 0 0

EBITDA 1,697 6,520 -20,690 -13,151 -8,330 118 1,418 1,965 1,762 4,575

Other Income 610 0 0 0 0 10 4 48 91 143

EBIDTA incl Other Income 2,307 6,520 -20,690 -13,151 -8,330 128 1,422 2,012 1,854 4,718

Depreciation 3,410 3,890 4,280 3,745 3,760 39 76 89 116 204

EBIT -1,103 2,630 -24,970 -16,896 -12,090 88 1,346 1,923 1,738 4,514

Interest Expense 9,488 13,740 15,320 17,850 17,660 44 152 388 460 623

PBT -10,591 -11,110 -40,290 -34,746 -29,750 45 1,194 1,536 1,278 3,892

Adjusted PAT -8,318 -10,440 -38,220 -29,890 -23,760 54 1,007 1,503 1,322 2,964

Gross Margin (%) 32% 36% 19% 23% 36% 28% 31% 27% 23% 25%

EBIDTA Margin (%) 2% 8% -52% -14% -3% 16% 23% 19% 11% 17%

EBIT Margin (%) 1% 6% -80% -27% -17% 12% 22% 18% 11% 17%

WTG Sales (MW) 1,521 1,583 252 722 454 14 120 198 330 578

- India 955 1,161 415 403 442 14 120 198 330 578

Realization (INRM/MW) 56 58 85 59 76 54 53 50

Revenues (INR M) 84,650 91,570 21,430 42,720 34,290 6,107 9,485 13,730 24,772

Installed (MW) 11,541 13,124 13,376 14,098 14,552 164 318 468 742

O&M Revenues (INR M) 7,100 8,460 10,850 13,550 14,540 33 39 159


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Risks and concerns

Capital-intensive nature of the industry The WTG business in India requires high working capital; this is evident from the fact that setting up a 1MW wind farm typically requires INR40m of working capital. Change in regulatory policies In the past, withdrawal of accelerated depreciation (AD) and generation-based incentives (GBI) led to a sharp decline in wind energy capacity addition. Any such adverse policy changes in future can impact the business. Non-availability of grid connectivity Inadequate grid infrastructure is another key issue that needs to be addressed urgently. Across most states with significant wind potential, the grid does not have sufficient spare capacity to evacuate ever-increasing amount of wind power. The state distribution utilities are, therefore, reluctant to accept more wind power generation and tend to prefer thermal power generation. SEBs’ weak financial health might impact wind power demand State electricity boards (SEBs) and government distribution companies own nearly 95% of the distribution network. According to Power Finance Corporation, aggregate SEB losses in 2011-12 were around INR63.5b and are projected to reach INR116b by 2014-15. The cost of generating wind power at Rs3.7-6/kWh is relatively high compared with predominantly coal-based conventional power (Rs3.5/kWh). SEBs’ weak financial condition might deter them from purchasing expensive wind power and thus impact wind power demand in future. Exhibit 29: Commercial losses up sizably from FY08 (INR b)


Non-availability of land can act as a deterrent for WTG industry The wind energy business is land intensive—2MW of turbines require 40 acres of land, of which actual used is 2.5 acres. To achieve annual capacity addition of 4GW, the industry would require ~80,000 acres of land every year. However, this won’t be easy as land availability for wind farms is a contentious issue in most states. Even for the available privately-owned land, change of land use status from agricultural to non-agricultural is time-consuming. Further, one needs clearances from authorities if the land is in proximity to a protected area or forest; this is again time-consuming.

46 51 61 88 113

140

200

230

264

225

271

211

206

221

226

239

319 53

7 645 75

2 1,02

4

1,05

1

FY92

FY93

FY94

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

Inox Wind

1 July 2015 20

Competitive intensity The WISE Report estimates the aggregate WTG manufacturing capacity in India at 12GW as of August 2014 and expects the Indian wind power market to witness annual installations of 3-5GW over the coming years. There exists intense competition in the WTG segment. In the last few months, Suzlon has taken several steps to put its house in order by selling stakes in non-core business, inducting a strategic partner and refocusing on the Indian market. Suzlon has historically been the market leader with ~50% market share. Post its recent restructuring and liquidity infusion, it will again attempt to achieve its earlier market share.

Exhibit 30: Top Five players command 87% of market in FY15


RPO compliance might remain weak Under the Renewable Purchase Obligation (RPO), state electricity regulatory commissions (SERCs) are obligated by law to buy a certain percentage of electricity from renewable energy sources. The guidelines issued in 2010 by Central Electricity Regulatory Commission (CERC) recommended a standardized RPO target of 5% in every state, with linear increase of 1% annually till 2020 to achieve the NAPCC target of 15%. However, many SEBs are actually not complying with the renewable portfolio obligations—given their poor financial health—and a few SERCs have also lowered the non-solar RPO obligation owing to the difficulty of the states in meeting the earlier targets. SERCs specify targets for respective states based on the renewable energy potential.

Exhibit 31: State-wise RPO Compliance data

RPO Target

Achieved FY13 FY14 FY15 TN 9.0% 9.0% 10.0% 17.0% Karnataka 10.0% 14.0% Rajasthan 6.4% 7.0% 7.5% 10.0% Gujarat 7.0% 7.0% 8.0% 7.5% Maharashtra 7.8% 8.5% 8.5% 8.5% Andhra Pradesh 4.8% 4.8% 4.8% 5.0% Uttar Pradesh 5.0% 5.5% 2.0% Madhya Pradesh 3.4% 4.7% 6.0% 3.0% Punjab 2.8% 3.4% 3.8% 1.5%

Source: MOSL, Industry Data

No provisioning for warranties INXW provides its customers warranties against defective components and workmanship during the defect liability period, which is generally two years. For any failure due to defective supply or workmanship, INXW undertakes free repair or replacement. Also, claims for damages brought by third parties could be substantial and could have material adverse effect on the company.

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Mar-11 Mar-12 Mar-13 Mar-14 Mar-15

Vestas RRB Wind World Suzlon Regen Inox Others Gamesa

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1 July 2015 21

Company background Inox Wind (INXW), an Inox Group company, is India’s fourth-largest wind turbine generator (WTG) manufacturer, with a market share of 7% in FY14. INXW commenced operations in March 2010, and manufactures key components of WTGs – nacelles, hubs, rotor blade sets, and towers. It provides turnkey solutions for wind farm projects through its wholly-owned subsidiaries, and has a project site pipeline of 4GW. Order book as at December 2014 stood at 1,258MW, and cumulative installations/supplies stood at 1,044MW (including 312MW yet to be erected). INXW manufactures two different WTG models with 2MW rating: n Rotor diameter of 93 meters with hub height of 80 meters n Rotor diameter of 100 meters with hub height of 80 / 92 meters

INXW has a 100% subsidiary, Inox Wind Infrastructure Services, which does project development in respect of wind power projects, including wind studies, energy assessments, land acquisition, site infrastructure development, power evacuation, statutory approvals, erection and commissioning, and long-term operation and maintenance (O&M) of wind farms. About Inox Group: The Inox Group commenced operations in 1923 and currently operates in industrial gases, engineering plastics, refrigerants, chemicals, cryogenic engineering, renewable energy and entertainment sectors. The Group has two publicly-listed companies – Gujarat Fluorochemicals and Inox Leisure. The Group employs over 8,000 people at more than 100 business units in India. Exhibit 32: Existing and upcoming manufacturing facilities of Inox wind


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1 July 2015 22

Board of directors Mr Deepak Asher, Non-Executive Director Mr Deepak Asher, aged 56 years, is a Non-Executive Director. He has a bachelor’s degree in Commerce and a bachelor’s degree in Law from Maharaja Sayajirao University, Baroda. He is a fellow member of the Institute of Chartered Accountants of India and is also an associate member of the Institute of Cost and Works Accountants of India. He has been associated with the Inox Group for over 25 years. He is the founder President of the Multiplex Association of India and was awarded the Theatre World Newsmaker of the Year Award in the year 2002 for his contribution to the cinema exhibition industry. He has been instrumental in Inox Group’s diversification into the cinema, CDM and wind energy businesses.

Mr Devansh Jain, Whole time Director Mr Devansh Jain, aged 28 years, is a Whole time Director. He has completed a double major degree in Economics and Business Administration from Carnegie Mellon University, Pittsburgh, USA. He has over six years of work experience in various management positions. He has been spearheading Inox Group’s foray into the wind energy sector. He is on the National Council of Indian Wind Power Association and is Honorary Secretary of Indian Wind Turbine Manufacturers Association. Mr Jain has been instrumental in setting up manufacturing plants in Himachal Pradesh and in Gujarat, with technology sourced from AMSC. He has been awarded the “Wind Power Man of the Year 2012-13” for development of integrated wind power supply chain and project development capacity in the country by Renewable World.

Mr Siddharth Jain, Non-Executive Director Mr Siddharth Jain, aged 36 years, is a Non-Executive Director. He has completed his bachelor’s degree in Mechanical Engineering from the University of Michigan – Ann Arbor, USA and holds a Master’s degree in Business Administration from INSEAD, France. He has over ten years of work experience in various management positions in the Inox Group and is currently looking after new project developments at Inox Air Products Limited. Mr Rajeev Gupta, Whole time Director Mr Rajeev Gupta, aged 56 years, is a Whole time Director. He holds a bachelor’s degree in Chemical Engineering from the Indian Institute of Technology, Delhi and has over 32 years’ experience in corporate planning, business and project development, project management, sales, procurement and operations in international and domestic industries. He was involved in setting up GFL’s chemical complex at Dahej and production plants for Aditya Birla group, TOA Group of Companies, a Thai group and Lurgi India Private Limited, subsidiary of Lurgi AG, a German engineering company. He has more than five years’ experience in the wind industry in various capacities.

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Mr Chandra Prakash Jain, Independent Director Mr Chandra Prakash Jain, aged 69 years, is an Independent Director. He holds a bachelor’s degree in Commerce from Rajasthan University and a bachelor’s degree in Law from Agra University. He is a fellow member of the Institute of Chartered Accountants of India. He is former Chairman and Managing Director of NTPC Limited. He was also the Chairman of the Standing Conference of Public Enterprises (SCOPE) for the period 2003-05. He has been a past member of the Standing Technical Advisory Committee of the Reserve Bank of India, Audit Advisory Board of the Comptroller & Auditor General of India. He has headed the CII’s ‘National Committee on Energy’. Presently, he is also an Independent Director on the boards of IL&FS Energy Development Company Limited, Adani Power Limited and PCI Limited. He is also a Member on the Advisory Board of Axis Infrastructure Fund. Mr Shanti Prashad Jain, Independent Director Mr Shanti Prasad Jain, aged 75 years, is an Independent Director. He is a fellow member of the Institute of Chartered Accountants of India and has more than four decades of experience as a Chartered Accountant and Direct Tax Consultant. Mr Jain Senior Partner at Shanti Prashad & Co., Chartered Accountants, New Delhi. Dr S Rama Iyer, Independent Director Dr S Rama Iyer aged 75 years, is an Independent Director. He is a Chemical Engineer from Jadhavpur University and received a master’s degree and his PhD from Indian Institute of Technology, Mumbai. He has also participated in the Senior Executive Program of London Business School, United Kingdom. He has over five decades of experience in Design Engineering, Project and Enterprise management in the Chemicals, Petrochemicals and Oil & Gas industries as a member of the Indian Institute of Chemical Engineers. He received the ‘Distinguished Alumnus Award’ from Indian Institute of Technology, Mumbai in 1996. He has been awarded the ‘Achiever of the Year Award’ by the Chemtech Foundation in the year 2003 and the ‘Business Leader of the Year Award’ by the Chemtech Foundation in the year 2005. Ms Bindu Saxena, Independent Director Ms Bindu Saxena aged 56 years, is an Independent Director. She is an Advocate and a Partner at the law firm, Swarup & Company, Advocates, New Delhi. She has completed her bachelor’s in Commerce and in Law from Lucknow University. She has over 25 years of experience as Corporate Attorney, with experience of commercial transactions and projects in India and overseas.

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Operating metrics INR m FY13 FY14 FY15 FY16E FY17E Closing order book (MW) 370 1,178 1,384 1,622

Y-o-Y growth 218.4% 17.5% 17.2% Order inflow (MW) 198 630 1,162 1,031 1,188

Y-o-Y growth 218.2% 84.4% -11.3% 15.2% Execution (MW) 198 330 578 825 950

Y-o-Y growth 66.7% 75.2% 42.7% 15.2% Realizations (INR M/MW) WTG 48 42 43 45 48 OMS 7 12 8 11 12 Cumulative Installed (MW) 318 468 742 1,516 2,428 Revenues 10,589 15,668 26,940 46,098 56,352 WTG 9,485 13,730 24,772 37,130 45,125 Sale of services 1,010 1,756 2,093 8,883 11,133 other operating income 94 182 75 85 94 Revenues, % YoY 48.0% 71.9% 71.1% 22.2% WTG 44.8% 80.4% 49.9% 21.5% Sale of services 73.8% 19.2% 324.3% 25.3% Other operating income 92.8% -58.8% 13.3% 10.0% EBIDTA % 18.6% 11.2% 17.0% 18.8% 20.1% Net Debt (INR m) 2,743 4,469 2,079 4,058 (1,709) Core NWC (Days) 148 161 196 165 148 Customer Advances 3 3 0 0 0 Reported NWC (Days) 145 158 196 165 148

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Financials and valuations Income Statement (INR Million) Y/E March 2013 2014 2015 2016E 2017E Total Revenues 10,589 15,668 27,099 46,098 56,352 Change (%) 48.0 73.0 70.1 22.2 Raw Materials 7,731 12,131 20,347 33,651 40,573 Staff Cost 250 384 549 791 1,044 Other Expenses 644 1,407 1,629 2,996 3,381 EBITDA 1,965 1,745 4,574 8,659 11,354 % of Total Revenues 18.6 11.1 16.9 18.8 20.1 Other Income 48 91 143 157 173 Depreciation 89 116 204 280 350 Interest 388 460 623 575 613 Exceptional Items - 15 0 - - PBT 1,536 1,245 3,891 7,962 10,564 Tax 33 - 45 927 1,911 2,535 Rate (%) 2.1 -3.6 23.8 24.0 24.0 Adjusted PAT 1,503 1,290 2,964 6,051 8,029 Reported PAT 1,503 1,290 2,964 6,051 8,029 Change (%) (14.2) 129.9 104.1 32.7 Adj. Consolidated PAT 1,503 1,322 2,964 6,051 8,029 Change (%) (12.0) 124.2 104.1 32.7

Balance Sheet (INR Million) Y/E March 2013 2014 2015 2016E 2017E Share Capital 400 2000 2219 2219 2219 Reserves 2,555 2,278 12,151 18,078 26,107 Net Worth 2,955 4,278 14,370 20,297 28,326 Minority Interest - - - - - Loans 3,769 5,582 9,200 5,750 6,500 Deferred Tax Liability 195 151 209 209 209 Capital Employed 6,919 10,011 23,779 26,257 35,035 Gross Fixed Assets 1,772 2,040 2,294 4,044 4,544 Less: Depreciation 206 317 423 608 816 Net Fixed Assets 1,566 1,722 1,872 3,437 3,728 Capital WIP 41 255 202 300 300 Investments 0.02 450.02 0.50 - - Goodwill - 16 0 - - Curr. Assets 7,895 12,354 28,667 34,301 46,154 Inventory 795 2,707 1,265 1,894 2,316 Debtors 5,002 7,096 13,210 18,944 21,614 Cash & Bank Balance 15 73 7,120 1,692 8,209 Loans & Advances 1,964 2,030 6,720 11,367 13,586 Other Current Assets 119 449 352 404 429 Current Liab. & Prov. 2,582 4,788 6,962 11,781 15,147 Creditors 2,278 4,217 5,662 10,104 13,123 Other Liabilities 304 571 1,300 1,677 2,024 Net Current Assets 5,313 7,567 21,704 22,520 31,007 Application of Funds 6,919 10,011 23,779 26,257 35,035

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Financials and valuations Ratios Y/E March 2013 2014 2015 2016E 2017E Basic (INR) Adj EPS 37.6 6.6 13.4 27.3 36.2 Cash EPS 39.8 7.2 14.3 28.5 37.8 Book Value 73.9 21.4 64.8 91.5 127.6 Valuation (x) P/E 11.3 64.2 31.8 15.6 11.7 EV/EBITDA 10.6 51.3 21.1 11.4 8.2 EV/Sales 2.0 5.8 3.6 2.1 1.6 Price/Book Value 5.7 19.9 6.6 4.6 3.3 Profitability Ratios (%) RoE 50.9 30.9 20.6 29.8 28.3 RoCE 28.6 17.6 19.2 32.8 32.1 Turnover Ratios Debtors (Days) 172 165 178 150 140 Inventory (Days) 27 63 17 15 15 Creditors. (Days) 79 98 76 80 85 Asset Turnover (x) 1.5 1.6 1.1 1.8 1.6 Leverage Ratio Debt/Equity (x) 1.3 1.3 0.6 0.3 0.2

Cash Flow Statement (INR Million) Y/E March 2013 2014 2015 2016E 2017E PBT before EO Items 1,536 1,293 3,891 7,962 10,564 Add : Depreciation 89 116 204 280 350 Interest 314 460 623 575 613 Less : Direct Taxes Paid 287 334 927 1,911 2,535 (Inc)/Dec in WC (2,862) (2,389) (7,091) (6,244) (1,970) CF from Operations (1,210) (854) - 3,300 662 7,021 EO Income - 15 0 - - CF from Oper. Incl. EO Items (1,210) (870) (3,300) 662 7,021 (Inc)/Dec in FA (1,358) (498) (186) (1,848) (500) Investment in liquid assets (0) 64 450 1 - CF from Investments (1,358) (434) 264 (1,847) (500) (Inc)/Dec in Debt 2,565 1,789 10,635 (3,450) 750 Less : Interest Paid 375 460 623 575 613 Dividend Paid 0 0 - - - CF from Fin. Activity 2,193 1,361 10,084 (4,243) (5) Inc/Dec of Cash (375) 58 7,047 (5,428) 6,517 Add: Beginning Balance 390 15 73 7,120 1,692 Closing Balance 15 73 7,120 1,692 8,208

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N O T E S

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Disclosure of Interest Statement INOX WIND § Analyst ownership of the stock No § Served as an officer, director or employee No

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For U.S. Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons.

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For Singapore Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time. In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited: Kadambari Balachandran Email : [email protected] Contact : (+65) 68189233 / 65249115 Office Address : 21 (Suite 31),16 Collyer Quay,Singapore 04931

Motilal Oswal Securities Ltd

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