Inox Green — Q3 FY25 earnings call

Call held 31 Jan 2025

Management summary

Inox Green Energy Services delivered robust financial performance in Q3 FY25, with significant year-on-year growth in revenue, EBITDA, and Cash PAT, driven by improved machine availability. The company is aggressively pursuing its target of a 10 GW O&M portfolio within 3-4 years through organic expansion and strategic NCLT-route acquisitions, with INR 300 crores already deployed for an acquisition. While Q3 margins saw a sequential dip due to seasonal maintenance, the full-year EBITDA guidance of 50% remains intact, and the Resco demerger is expected to further enhance shareholder value and operational efficiency.

Highlights

  • Revenue for Q3 FY25 increased by 22% YoY to INR 74 crores, demonstrating strong top-line growth.

  • EBITDA for Q3 FY25 grew by 23% YoY to INR 29 crores, indicating operational efficiency.

  • Cash PAT for Q3 FY25 surged by 76% YoY to INR 23 crores, reflecting enhanced profitability.

  • Machine availability for the wind O&M portfolio improved significantly to 96.2% for Q3 FY25 and 96.3% for the nine months FY25.

  • The company is on track to achieve its target of 10 gigawatts O&M portfolio in the next 3 to 4 years, supported by both organic and inorganic growth strategies.

Concerns

  • Q3 FY25 margins declined sequentially to around 46%, attributed to higher costs associated with scheduled maintenance for the upcoming wind season.

  • The NCLT acquisition process for a large company is lengthy, estimated to take 6 to 9 months for completion and consolidation.

  • Management deferred detailed reconciliation of current portfolio size to revenue figures, suggesting potential complexity in revenue recognition models.

Key financials

  1. Revenue ₹74 Cr +22%YoY
  2. EBITDA ₹29 Cr +23%YoY
  3. Cash PAT ₹23 Cr +76%YoY
  4. O&M Portfolio 3.5 gigawatt
  5. Machine Availability 96.2%
  6. 9 Months Revenue ₹167 Cr

What they filed

Q1 FY27: revenue down 23.2%, net profit up 86.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue55 61 65 56 86 +56%78 +28%69 +6%43 −23%
EBITDA19 16 -3 6 9 −53%19 +19%-3 +0%-1 −117%
Net profit6 5 6 22 28 +367%25 +400%28 +367%41 +86%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Debt Debt disclosed
    • Repayment Approximately INR 70-80 crores used for debt reduction from recent fundraise. ₹75 Cr
    Out of INR560 crores I mentioned to you, approximately INR300 crores is being used for the acquisition, another INR70 crores, INR80 crores for the debt reduction.
  • M&A Large NCLT Company Acquisition · Pending regulatory · Consideration ₹[object Object] (cash)

    Part of inorganic growth strategy to reach 10 GW O&M portfolio, with control over Committee of Creditors.

    Expected to add 2-3 GW to O&M portfolio; financials to be consolidated post-completion.

    approximately INR300 crores is being used for the acquisition
  • Liquidity Cash ₹750 Cr INR 550 crores received from a total INR 1,050 crores fundraise, with the balance callable. Additionally, INR 200 crores from previous funding is in the system. Another INR 200-250 crores planned for utilization in next 2-3 months.
    No, I think the total was INR1,050 crores, as you would remember. And that's obviously, we have received. Manish, correct me if I'm wrong. INR550-odd crores already in the company. The balance are callable money. And as and when required, it could all be infused. [...] We still have say, INR200 crores of the previous funding in our system. And as and when we the acquisition side based on this, we can call in more money, which is a balance to be infused from the previous round. [...] We intend to utilize another INR200, INR250 over the period of next 2 to 3 months.

Guidance & targets

Capacity

  • O&M Portfolio Capacity · next 3 to 4 years · High confidence 10 gigawatts
    We remain on track to achieve our target of 10 gigawatts in the next 3 to 4 years.

    — S.K. Mathusudhana

  • Organic O&M Portfolio Capacity · by FY27 (inferred) · High confidence 7.2 gigawatts
    So organically, our portfolio will increase to somewhere around 7.2 gigawatts.

    — S.K. Mathusudhana

  • Inorganic O&M Portfolio (Acquisition) Capacity · next 12 to 18 months · High confidence 2 to 3 gigawatts
    So putting together, we are very hopeful that around 2 to 3 gigawatts when we acquire in next 12 to 18 months.

    — S.K. Mathusudhana

  • Organic O&M Portfolio (FY25 end) Capacity · by FY25 end · High confidence 4 gigawatts (+/- 100-200 MW)
    So broadly by FY '25, and we will be 4 gigawatt portfolio plus minus 100 megawatt, 200 megawatt here and there

    — S.K. Mathusudhana

Profitability

  • EBITDA Margin Profitability · full year basis · High confidence 50%
    See, so we've always been maintaining that you have to look at the margins in this business on a full year basis. And for that, we maintained the guidance of 50%.

    — S.K. Mathusudhana

Solar O&M

  • Execution Start Solar O&M · Next FY · High confidence Next FY
    Basically, the execution on solar is expected in the next FY.

    — S.K. Mathusudhana

What to watch in Q4 FY25

NCLT acquisition completion and consolidation

Next 6-9 months (check for updates next quarter)
Current In advanced stages, COC controlled, process expected to take 6-9 months.
Target Acquisition completed, company folded into Inox Green, financials consolidated.

Why it matters

This acquisition is a key part of the inorganic growth strategy to reach 10 GW and will significantly impact the portfolio and financials.

So hopefully, in the matter of 6 to 9 months, we can see this company being directly under the fold of Inox Green.

Risks & concerns

  • Lengthy NCLT acquisition process

    medium

    The NCLT process for acquiring a stressed asset is described as 'a bit long and a bit lengthy,' estimated to take 6 to 9 months for the current target.

    Management acknowledged

  • Valuation for inorganic growth

    medium

    Management emphasized paying the 'right price for the right asset' and avoiding rich valuations, indicating a cautious approach to inorganic growth.

    Management acknowledged

  • Complexity of Wind O&M as a competitive barrier

    low

    Management highlighted that wind O&M is a 'very complex business that everybody cannot get into,' which helps Inox Green maintain high EBITDA margins compared to simpler service contracts.

    Management acknowledged

Q&A highlights

6 direct, 1 evasive
Margin decline in Q3 FY25 Direct
See, so we've always been maintaining that you have to look at the margins in this business on a full year basis. And for that, we maintained the guidance of 50%. Now there may be quarterly variations. For example, in Q3 and Q4, we do the scheduled maintenance for us to get ready for the next wind season, which is Q1 and Q2 specifically. So, there are additional costs which we incur and book. So that varies the margins on a quarterly basis. But on a full year basis, 50% guidance remains.

Management explained the sequential margin dip, attributing it to seasonal scheduled maintenance costs, and reiterated the full-year EBITDA margin guidance of 50%.

Asked by Shweta Dikshit

Inorganic expansion via NCLT acquisition Partial
I think the point that we are saying is that the money has been invested in buying the debt of the company. And to that extent, the COC is -- which is the committee of creditors is something that we have a fair amount of comfort and a control over that COC. And as and when the NCLT process get complete because the company is in NCLT, and as I mentioned to you the NCLT process for a company which has been there for such a long time is always. I would say, a bit long and a bit lengthy, and we are finishing all that. So hopefully, in the matter of 6 to 9 months, we can see this company being directly under the fold of Inox Green.

Management confirmed the NCLT acquisition strategy, detailed the process and estimated timeline (6-9 months), and highlighted their control over the Committee of Creditors.

Asked by Shweta Dikshit

Revenue model and reconciliation with portfolio size Evasive
Pritesh, we can discuss in more detail this question off-line because that requires a little bit of a calculation, and I can explain it to you offline.

The analyst questioned the discrepancy between the 3.5 GW portfolio and reported revenue, suggesting a potential gap in understanding the revenue model or contract types, which management deferred to an offline discussion.

Asked by Pritesh Chheda

Challenges in NCLT acquisitions Direct
I think it's a patient game, #1. You have to understand the legality of each and every asset. So to that extent, there is a fair amount of hard work in the, I would say, the core cost that one has to endeavor. As the management, we believe that we have got our bandwidth to do so. We have understanding of these assets. And to that extent, I guess -- but for the patience and a little bit of a perseverance, they all can be done -- easily done.

Management acknowledged the complexity and time-consuming nature of NCLT acquisitions, emphasizing the need for patience and thorough due diligence.

Asked by Nitin Gandhi

Solar O&M margin profile compared to wind Direct
As far as Mr. Mathu has said that in terms of the solar margins, since we are providing a hybridization solutions, our solar O&M revenue – EBITDA margins will be a little higher as compared to the industry. That is one. But that would not be surely 50% because wind is kind of a unique play in which EBITDA margins are higher, that is complex. Solar is relatively simpler process, but due to the hybridization, we have the advantage. So accordingly, our EBITDA margins in the solar will be higher.

Management clarified that while solar O&M margins won't match wind's 50%, they expect higher margins than the industry average due to hybridization and synergies with existing expertise.

Asked by Akhilesh

Fund utilization from recent fundraise Direct
No, I think the total was INR1,050 crores, as you would remember. And that's obviously, we have received. Manish, correct me if I'm wrong. INR550-odd crores already in the company. The balance are callable money. And as and when required, it could all be infused. Out of INR560 crores I mentioned to you, approximately INR300 crores is being used for the acquisition, another INR70 crores, INR80 crores for the debt reduction.

Management provided specific figures for the fundraise, the amount received (INR 550 crores), and its allocation towards acquisitions (INR 300 crores) and debt reduction (INR 70-80 crores).

Asked by Shweta Dikshit

Resco demerger and shareholder benefit Direct
So in terms of the Resco demerger, obviously – yes, the demerger of substation business and merger with Resco Global, Inox Green shareholders will be benefit by in two ways. One, they will get the shares of Resco, broadly 10%. Broadly 20% of the Resco would be owned by the Inox Green shareholders. That is one. Secondly, after this merger, demerger will get completed, the complete depreciation will be go away from the financial numbers, and our EBITDA would be as Mr. Akhil has said will translate to PAT and PBT.

Management explained the dual benefit for Inox Green shareholders from the Resco demerger: receiving shares in Resco and improved PAT/PBT for Inox Green due to the removal of depreciation charges.

Asked by Deepak Sharma

Tax losses post-demerger Direct
No. So the tax losses would be on a company level, not on an asset level. So the tax losses will remain in this company. [...] INR700 odd crores is the tax losses, which the company carries.

Management clarified that the accumulated tax losses of INR 700 crores will remain with Inox Green post-demerger, providing a future tax shield.

Asked by Akhilesh

2 min read 6 chapters

Detailed narrative

Strong Q3 FY25 Financial Performance

Inox Green Energy Services delivered robust financial results for Q3 FY25, with revenue increasing by 22% year-on-year to INR 74 crores. EBITDA grew by 23% to INR 29 crores, and Cash PAT saw a significant jump of 76% to INR 23 crores. This strong performance was underpinned by an improved machine availability of 96.2% for the quarter and 96.3% for the nine months ended December 2024, reflecting continuous operational improvements.

Ambitious Portfolio Growth Targets

The company is pursuing an aggressive growth strategy, aiming to expand its O&M portfolio to 10 gigawatts within the next 3 to 4 years. This target comprises both organic additions, projected to reach approximately 7.2 gigawatts, and strategic inorganic acquisitions, expected to contribute 2 to 3 gigawatts within the next 12 to 18 months. By the end of FY25, the organic portfolio is anticipated to reach around 4 gigawatts.

Strategic Inorganic Expansion via NCLT Route

Inox Green is actively engaged in inorganic growth, having invested in the debt of a large company currently undergoing the NCLT process. Management expressed confidence due to their control over the Committee of Creditors and anticipates the acquisition to be completed and consolidated within 6 to 9 months. Approximately INR 300 crores from the recent fundraise have been allocated for this acquisition, which is expected to significantly boost the O&M portfolio.

Resco Demerger and Shareholder Value Creation

The demerger of the Resco business, encompassing substation and global operations, is in progress, awaiting regulatory approvals from BSE and NSE, with the NCLT process expected to take 6-9 months. This strategic move is projected to benefit Inox Green shareholders by providing them with shares in the new Resco entity (20% of Resco for IGESL shareholders) and by transforming Inox Green into an asset-light company, thereby removing depreciation charges and improving its PAT and PBT.

Entry into Solar O&M and Hybridization

Inox Green is expanding its service offerings into new business areas, including solar and hybrid project O&M, with execution expected to commence in the next fiscal year. While solar O&M margins are typically lower than wind, the company aims to achieve higher-than-industry-average margins through hybridization solutions and by leveraging synergies with its existing technical expertise and resources.

Capital Allocation and Fund Utilization

The company successfully raised INR 1,050 crores, with INR 550 crores already received and the balance callable. Of the received funds, approximately INR 300 crores have been utilized for the ongoing NCLT acquisition, and INR 70-80 crores have been used for debt reduction. Management plans to deploy an additional INR 200-250 crores over the next 2 to 3 months, further strengthening the balance sheet and funding growth initiatives.

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