Company Overview
Inox India Ltd. is engaged in the business of design, engineering, manufacturing, and installation of equipment and systems for cryogenic conditions. Its business consists of three divisions namely industrial gas, LNG, and cryo scientific, out of which industrial gas and LNG divisions account for majority of the revenue. The company offers standard cryogenic tanks and equipment, beverage kegs, bespoke technology, equipment, and solutions as well as large turnkey projects that are used in diverse industries such as industrial gases, LNG, green hydrogen, energy, steel, medical and healthcare, chemicals and fertilizers, aviation and aerospace, pharmaceuticals and construction. It also manufactures a range of cryogenic equipment utilized in global scientific research and has a large portfolio of specialized cryogenic equipment engineered to global quality standards. The company offers standardized as well as customized solutions to its customers across the design, engineering, manufacturing, and installation of cryogenic equipment and systems. The company has a diversified marquee domestic and international customer base across industries and geographies including corporate and government customers. The increase in the demand for cleaner fuels such as LNG and hydrogen, as the focus shifts to reduce carbon emissions from conventional energy sources, is expected to drive the demand for cryogenic equipment over geographies. The company is well positioned to capture this demand growth with its in-house technology and LNG product range which spans across the entire value chain.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- To carry out the Offer for Sale;
- General corporate purpose.
Investment Rationale:
Leading Indian supplier and exporter of cryogenic equipment and solutions
In FY23, the company was the largest supplier of cryogenic equipment in India in terms of revenue. As on CY2022, the global cryogenic equipment market was valued at $11.5 billion and global cryogenic equipment demand is projected to grow at a 6.9% CAGR from CY2023 to reach $16.6 billion by CY2028. As the company designs and manufactures equipment to international norms, the company is well placed to capitalize on global opportunities in cryogenic equipment. As the global focus is shifting towards reducing carbon emissions, the increasing demand for cleaner fuels such as LNG and hydrogen when compared to conventional energy sources will drive the demand for cryogenic equipment across geographies. The company’s range of cryogenic equipment spans the entire cryogenic value chain in its focused sectors which provides an added advantage as these industries require specialized handling and technologically intensive solutions. Hence, the company’s presence in the industry for over 30 years, customized solutions along with an established brand and reputation has enabled it to take a leading market position. With the intention of leveraging these competitive advantages along with its global customer base, the company will continue to capitalize on the demand growth for (i) cryogenic equipments and (ii) the transition to cleaner fuels like LNG and hydrogen.
Strong product development and engineering focus provides competitive advantage.
To maintain its competitive position and address customer needs, product development and engineering activities are critical to the company. Hence, the company’s production activities are focused to develop newer technologies, engineer new products, reduce cost of production, simplify manufacturing processes, improve safety, and reduce the environmental impact of its manufacturing and products. The company’s engineering focus and deep domain expertise gives it the ability to develop bespoke products and systems for its customers, providing the company a competitive advantage over others. During the past three fiscal years, the company’s in-house team has developed cryogenic containers that comply with ISO container standards, LNG fuel stations, LNG/LCNG fuel stations, LNG fuel tanks, cryogenic biological storage, and beverage kegs. During the last five years, the company has added new products such as liquid hydrogen storage tanks, LNG dispensers, LNG fuel tanks, and aluminum trailers.
Valuation and Outlook:
According to CRISIL, India’s GDP is expected to grow at a CAGR of 5.5-6% between FY2023 and 2028, owing to strong demand from the domestic market coupled with government’s capex push, production-linked incentive schemes, and healthier corporate balance sheets. The rising investments in the infrastructure domain, the focus of central and state governments on national infrastructure along with various infrastructure-related government schemes have helped in the continuation of the growth momentum of India’s capex. As there is a global push to reduce carbon footprint and promote the use of clean source of energy such as LNG and hydrogen, Inox India Ltd. is expected to benefit from the long-term demand for cryogenic equipment. 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, focused on reduced borrowings and posted strong RoE and RoCE in excess of 25%, thereby providing confidence about its sustained business performance. The company has a track record of sustained Revenue/EBITDA/PAT performance which grew at a CAGR of 27.5%/21.9%/26.0% during the FY2021-23 period. On the upper price band, the issue is valued at a P/E of 39.2x based on FY2023 earnings which we feel is fairly valued. We, therefore, recommend a “Subscribe” rating for the issue.
