Inox Green Energy Services Ltd (NSE: INOXGREEN) Q2 2025 Earnings Call dated Oct. 25, 2024
Corporate Participants:
SK Mathusudhana — Chief Executive Officer
Akhil Jindal — Group Chief Financial Officer
Devansh Jain — Executive Director
Analysts:
Abhishek Nigam — Analyst
Pritesh Chheda — Analyst
Vishal Singh — Analyst
Chandan Mishra — Analyst
Vikash Agarwal — Analyst
Akhilesh B — Analyst
Deepak — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to Q2 FY25 Earnings Conference Call of Inox Green Energy Services Limited, hosted by Motilal Oswal Financial Service. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Abhishek Nigam from Motilal Oswal Financial Service. Thank you, and over to you, sir.
Abhishek Nigam — Analyst
Yeah. Thank you, sir. Good evening, everyone, and welcome to the Q2 FY25 Earnings Call of Inox Green Energy Services Limited. For today’s call, we have with us Mr. Devansh Jain, Executive Director, INOXGFL Group; Mr. Akhil Jindal, Group CFO, INOXGFL Group; Mr. Kailash Tarachandani, Group CEO, Inox Wind Limited; Mr. SK Mathusudhana, CEO, Inox Green Energy Services Limited, and other senior members of the management.
I would now hand over to the management for their initial remarks, after which we will open the floor for the Q&A session. Thank you.
SK Mathusudhana — Chief Executive Officer
Thanks, Abhishek. Good evening, everyone. A very warm welcome to all to the quarter ended 30th September, ’24, earnings call of Inox Green Energy Services Limited. The company announced the results at its Board meeting held on Friday 25th October, ’24. The results, along with the earnings presentation, are available on the stock exchanges, as well as on our website.
Before we move ahead, let me quickly take you through the financials. For the quarter, on a consol basis, Inox Green has reported revenue of INR64 crores in Q2 FY25 versus INR58 crores in Q2 FY24, EBITDA of INR34 crores in Q2 FY25 versus INR31 crores in Q2 FY24, PAT of INR6 crores in Q2 FY25 versus INR3 crores in Q2 FY24, Cash PAT of INR23 crores in Q2 FY25 versus INR20 crores in Q2 FY24.
Now, I’ll briefly provide an update on business operations and outlook before we open the floor for Q&A. At the end of the quarter, Inox Green’s wind O&M portfolio increased to around 3.5 gigawatts. Machine availability for the entire portfolio for Q2 FY25 was at 96.4%, which is a significant improvement over the past years, supported by our technological and manpower capability. Additionally, we are also providing several value-added services and refurbishment services, which is also contributing to our growth.
Our portfolio growth outlook through both organic and inorganic growth continues to be very strong. From the organic growth perspective, our parent, Inox Wind, is targeting to execute at least 4 gigawatts of orders by FY27, which will be added to our portfolio once commissioned.
On the inorganic side, we continue to evaluate multiple opportunities for the acquisitions of portfolio of several ISPs, amongst others, as well as participate in tenders for O&M of third-party wind assets. Our subsidiary, I-Fox Windtechnik, has recently won two bids for the O&M of wind power projects cumulating to 54 megawatts. We expect to receive LOAs for both the contracts very soon.
At Inox Green, motivated by the philosophy of INOXGFL Group, we are constantly working on ways and means for cost and quality control. We are indigenized several critical spare parts and equipments, including control system, gearbox, etc., by developing in-house capabilities and tying up with localized vendors. This significantly reduces the supply chain risk and timelines for maintenance activities, resulting in significant cost savings.
The Board of Inox Green has appointed consultants and registered valuers for valuating demerger of power evacuation business from Inox Green. Post valuation of reports and subject to Board approval, the demerger process will be initiated. The demerger of Power Infra facilities currently on the balance sheet of Inox Green will result in a cleaner and asset-light balance sheet. The proposed demerger will significantly add value through depreciation elimination.
Our VayuVeer program, launched recently to create highly trained, skillful manpower with six months of dedicated technical and on-job training, has been a success. After the successful completion of the first batch of VayuVeers, we are in the process to induct the second batch. This will further help the company to create sustainable business operations and control costs to achieve our desired results. As we are significantly and rapidly scaling up our operations across several locations, the program helps in creating job opportunities for local youth and also meeting our social commitments.
Inox Green remains strongly committed to almost doubling its O&M portfolio in revenue terms from current levels to 6 gigawatts by FY26 and 10 gigawatts in the next three years to four years. The macro outlook for the renewable sector, especially wind power, continues to be very strong. In FY25, around 12 gigawatts of hybrid FDRE wind capacities have already been awarded, and we expect the pace of awarding and subsequent commissioning of wind capacities to continue strongly. This will provide large, multi-decadal opportunities for O&M service providers like us.
With this, we will now open the floor for Q&A. Thank you very much.
Questions and Answers:
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Pritesh Chheda from Lucky Investments. Please go ahead.
Pritesh Chheda
Sir, I have two questions. One on this proposed removal of the power transmission — power assets. What will we get in lieu of it and in what value?
And second, the depreciation number of INR16 crores, INR17 crores that we see on the quarter basis, that whole depreciation will go away and some interest costs will go away? So, if you could tell us the quarter — or let’s say, the half year P&L that you are reporting? This half year PAT number ex of this transaction will look like what number?
Akhil Jindal
Yeah. Hi, Pritesh. So, broadly, as you rightly said, whole depreciation number will go away after this transfer of the substation business. In lieu of the substation business, you will receive the — the shareholders of Inox Green — limited shareholders will receive the share of the Resco. The exact valuation is yet to determine. But that would be beneficial for both the companies, as we have done in the past as well. Excluding the substation business, the revenue would be down by around INR3 crores or INR4 crores on a quarterly basis, and the whole depreciation will go away. So, broadly, that will add around INR12 crores-odd in the bottom line on a quarterly basis.
Pritesh Chheda
Your reported bottom line, which looks INR6 crores in the current quarter, will start looking INR18 crores to 20 crores per quarter on this transaction?
Akhil Jindal
Yes, that’s right. Broadly right.
Pritesh Chheda
Okay. When do you think this should materialize, your best or fair guess?
Akhil Jindal
So, broadly, the — the vendors and everyone have been appointed and they are evaluating the deal. In next — in few — a few weeks or something, I guess, we should be able to gather the opinion and start process — start doing the transaction.
Pritesh Chheda
Okay. My second question is, on the equity raise that we did a quarter back, what is the progress on the proposed usage of that equity raise? At what stage of the development of progress we are? How should we look at the usage of this equity raise?
Devansh Jain
So, we spelled out, in terms of the usage, we have called in the first INR500 crores, we’ve not called in the next INR500 crores. Of the initial INR500 crores, the broad — the proposed use of about INR100 crores-odd towards depreciation — towards — sorry, towards debt repayment. We have INR200 crores on the balance sheet lying as liquid cash, and the INR200 crores we made a strategic investment into an entity, which we believe should eventually be controlled, acquired by us. It’s in a different stage, won’t be able to share more details around that. But we believe that should be a very, very large value-efficient transaction for us in the months to come. And at this point in time, we are evaluating multiple opportunities.
Having said that, we are very, very prudent with capital allocation. We are not going to acquire companies at 40 times, 50 times multiples. We’ve done a phenomenal job. I think the team has done a phenomenal job with I-Fox acquisition. We’ve virtually doubled its profitability, doubled its growth, doubled its size in 12 months, and it’s on the path of significant growth. We acquired it at a 4x multiple. So, we are evaluating opportunities. But having said that, while we have access to cash, we will not be doing anything stupidly, which is beyond our capital allocation policies.
Pritesh Chheda
Okay. So, you are making your first progress towards usage of cash for whatever presentation that you have mentioned, your ambition of 10,000 megawatts. So, you made your first step in terms of the usage of that cash, which will come to — whenever you close it, or that’s how I should read it, right?
Devansh Jain
That’s right. We’ve made a strategic — we’ve taken a strategic position for INR200 crores. And I think as that plays out over the next couple of months, I should — I believe that should be hugely value-accretive for the company. INR100 crores was paid towards the debt and INR200 crores as liquid cash lying on the balance sheet. Naturally, as we progress towards using that cash, we’ll call for the next INR500 crores preferential, which is available on tap for the next 15-odd-months.
Pritesh Chheda
This INR200 crores is in which line item of your balance sheet reported in half yearly? It’s in other current, other [Speech Overlap]
Akhil Jindal
It would be in the investment side of it. If you see the balance sheet, there is an item called non-current investment, I guess, which is [Speech Overlap]
Pritesh Chheda
Okay. Okay. Done, sir. Okay. Thank you very much, and all the best to you, guys. Thank you.
Devansh Jain
Thank you.
Operator
Thank you. Next question is from the line of Vishal Singh [Phonetic] from Finvester [Phonetic]. Please go ahead.
Vishal Singh
First of all, thank you, sir, for giving opportunity to ask questions. My question is, when can we see inorganic growth — inorganic opportunities materialize, which can grow our portfolio? Currently, our portfolio is at 3.5 gigawatts and what could be the tentative size at the end of financial year ’25? We know you have guided us for 6 gigawatts by financial year ’26.
SK Mathusudhana
Yeah. See Vishal [Phonetic], thanks for asking this question. So, basically, Inox Green is growing tremendously, both organic as well as inorganic, as you know. And we are pretty much on track to achieve what we have given as guidance for FY26, which is 6 gigawatts, right? And we are even giving a projection up to 10 gigawatts by — in three years to four years.
And coming to the inorganic, as Devansh told, we have a very, very stringent capital allocation policy and we are doing several M&A due diligence to review each and every target, and whichever target — and we have a lot in progress. Whichever target is in a very — fits into our framework, we are very quick to grab it. So, since we did it in the last year also, and hopefully, we will give good news in near future.
Devansh Jain
Just to add to it, I think we’ve already made our first strategic investment, which was north of INR200 crores, as I mentioned on the previous answer. We can’t disclose more details around that, but that’s something which should add a very, very significant quantity to our pipeline. Probably over the next couple of months, we’ll talk about that. But that’s been done very, very competitively. As Mathu also mentioned, in I-Fox, we’ve added another 54 megawatts. So, we’re on track to hit the numbers we’ve set out for ourselves.
Vishal Singh
Okay. Thank you sir. Good luck, sir.
Devansh Jain
Thank you.
Operator
Thank you. [Operator Instructions] Next question is from the line of Chandan Mishra [Phonetic] from Finvester [Phonetic]. Please go ahead.
Chandan Mishra
Sir, my question has been answered. Thank you.
Operator
Thank you. Next question is from the line of Mr. Abhishek Nigam from Motilal Oswal. Please go ahead, sir.
Abhishek Nigam
Yeah, hi. Thank you so much for the opportunity. So, I just wanted to check, are we participating in any other tenders relating to O&M of Wind projects? And also, any tenders relating to refurbishment of Wind’s assets, which are open for us to participate?
SK Mathusudhana
Yes, this is a continuous ongoing activity for us and we are keen to review each and every tender. And you already know that we are executing a INR33 crores order of NLC through I-Fox. And also, we are actually reviewing more and more opportunities coming up. And since more and more ageing fleets are there in different PSU tenders, possibility of getting that is very high. So, we are very, very actively looking into that.
Abhishek Nigam
Okay, that’s very clear. Thank you so much.
SK Mathusudhana
Thank you.
Operator
Thank you. Next question is from the line of Vikash Agarwal [Phonetic], who is a self-employed individual and investor. Please go ahead.
Vikash Agarwal
Yeah. Am I audible?
Operator
Yes, please proceed.
Devansh Jain
Yes, you are.
Vikash Agarwal
Yeah. First of all, hello, Devansh sir, we are great fan of yours. We really talk about your style of business, and we really appreciate it. I just want to ask one question, as in, the opening remarks, we had discussed that Inox Wind organically would add 4 gigawatts to the order book of Inox Green. And we talked about the Inox Green order book going about — to capacity to 6 megawatts. So, is this two different or it will be added both and we get 6 megawatts — gigawatts?
And the second question would be, we discussed, I think there was somewhere mentioned transformer business and the crane business. Will the transformer business and the crane business come back in the Inox Green business or will it be added in the Resco, as we see that transformer business is a huge money-making business, as in, the other companies which are into this, they are running up hugely.
SK Mathusudhana
Vikash [Phonetic], answering to your first question, currently, we are at 3.5 gigawatts. And by FY26, we are about to hit 6 gigawatts. And since we are already actively getting into an inorganic growth of — we are already getting into that, that also will be — it’s a low-hanging fruit for us. And in organic also, we have given a guidance from Inox Wind also for every year — this year, 800 megawatt, next year 1,200 megawatt. So, that’s a very clear guidance has given from Inox Wind Limited side as well. So, whatever project gets commissioned, so that it will be automatically gets added to Inox Green portfolio.
Akhil Jindal
And there is no duplication.
SK Mathusudhana
And there is no duplication.
Devansh Jain
I think, Vikash [Phonetic], just to answer your second question — thank you for your comments. The crane business and the transformer business are part of Resco, which is another subsidiary, the EPC arm of Inox Wind. So cranes would be for — cranes are something which we are acquiring, which will be for captive requirement, as well as the free capacity will go for third-party players. On the transformer side, we’ve done value addition. So, we’ve taken over plants’ controlling. We are not going to hold off on buying transformer companies and doing all these work ourselves. And that in itself adds significantly to our profitability. So, again, core to our philosophy, we are focused on core business. We are not spreading ourselves too thin into 10 micro, micro, small, small things. But through the tolling [Phonetic] route, we are capturing a lot of value out of the transformer business.
Vikash Agarwal
Okay. Sir, can I ask one more question?
Devansh Jain
Sure.
Vikash Agarwal
Yeah. Sir, somewhere we had read that when we provide a turbine, two years of the O&M service is provided with the cost of the turbine. So, the two years of service that is given by Inox Green, is it — the value of that service for the two years, is it added to the balance — P&L of Inox Green or is it free of cost? And how do we treat it?
Akhil Jindal
So, yeah, you have heard it correctly. Whenever we enter into any O&M contract, first two years are the free O&M. And first two years’ cash flow doesn’t accrue to Inox Green as it’s a part of business development cost. But as per the Ind AS principles, we need to straight line our revenues and we straight line the revenues — our revenue over a period of time. And the revenue in P&L statement starts coming from the year one, though the cash flow will start accruing from year three.
Devansh Jain
There are no costs, because we are in the warranty period at that point in time.
Vikash Agarwal
Okay. And sir, one more thing. The margin guidance, we have upped the margin guidance in the Inox Wind business. So, can we expect a guidance upping in the Green business also?
Akhil Jindal
No, not really, because, as you know, the O&M business is somewhere around 50%-odd EBITDA margin, which is one of the highest EBITDA margin businesses. So, broadly, our guidance is near about to 50%-odd of EBITDA margin.
Vikash Agarwal
So, we can expect a 50% EBITDA margin? Like, when we are doing the modeling, we can take in 50% as the EBITDA margin, right?
Devansh Jain
I think that’s reflected in our quarterly results as well. [Speech Overlap] every quarter, on average, full year, we’ve been at about, except when we had external issues or when we were — non-operating income from an operations perspective. We currently are operating and will continue to operate at about 50% EBIT margins.
Vikash Agarwal
And sir, we had incurred a loss in previous years. So, in Inox Green, we guided that FY25-’26 there will be tax cost. So, in Inox Green also, we can see that in the future or like we don’t carry forward any losses due to any accounting purpose?
Akhil Jindal
So, we have a lot of unaccounted [Phonetic] losses as we have discussed in the past as well on different calls. So, in next at least sort of two years to three years from here, Inox Green doesn’t need to pay any taxes, and our tax expenditure apart from the deferred tax which is a kind of an accounting adjustment would be nil. The tax outflow would be nil in Inox Green for the next two years to three years.
Can we move to the next question, please? Next participant?
Operator
Thank you. [Operator Instructions] Next question is from the line of Akhilesh B [Phonetic], an individual investor. Please go ahead.
Akhilesh B
Yeah, hello. Am I audible?
Operator
Yes, you are audible. Please go ahead.
Akhilesh B
Yeah. So, Devansh and team, congrats on the turnaround. It has been great to see turnaround in all the companies over the last two years. So, I had a few questions. First one was, what is the average length of contract of the O&M that we are signing when we are signing the new contract? So, my angle is that at the end of FY26, when we will have a portfolio of more than 6 gigawatts, what might be the average contract length in hand? Right now, it’s around six years as per your presentation.
SK Mathusudhana
See, the current average length of a typical O&M service contract is 10 years, okay? And the subsequent addition of new projects, they will almost keep the same numbers. And even the investors or the customers want a longer length of the contract, nobody wants to have a shorter period of it.
Akhilesh B
Okay. So, as new contracts come in, this should probably increase as the older ones are ramped down?
SK Mathusudhana
Yeah, yeah, absolutely. Yes. And we have a luxury of renegotiating the price during that time and we have a longer period length of the contract, based on the conditions of the market.
Akhilesh B
And is there generally a price step-up every year included in these contracts, like 5% or 2% something?
SK Mathusudhana
Yes. Yes, we have an escalation of 5%.
Akhilesh B
Okay. And once the Resco gets the evacuation assets, there will be no depreciation in this company and there is no interest, and we will not have to pay taxes for the next two years, three years as you mentioned. So, basically, EBITDA will be cash PAT. Is that right to assume?
Akhil Jindal
Yeah, that’s correct. So, after this substation business will got removed, there will be no depreciation. EBITDA would be the cash PAT.
Akhilesh B
Okay. And also, the PAT because there is no tax?
Akhil Jindal
Yeah, yeah. So, also the PAT as well.
Akhilesh B
Yeah. And one more query I had on the inorganic side, basically servicing turbines which may not be of Inox Wind-make. So, besides acquiring companies, I think you mentioned in prior calls that there are some defunct OEMs who are no longer there, and those contracts are also possible — available in the market. So, are we seeing some shift? Are we able to get those contracts without trying to acquire any companies? Can we just get those contracts as well on those machines?
SK Mathusudhana
Yes, Akhilesh [Phonetic]. So we have created multi-brand capabilities of almost all the OEMs in the market, and we are continuously adding the capacities of other brand OEMs. And I have mentioned in the opening remarks of 54 megawatts, which is of non-Inox-make.
Devansh Jain
Further added to I-Fox.
SK Mathusudhana
Yeah.
Devansh Jain
I-Fox is now more of 350-odd megawatts.
SK Mathusudhana
Yeah. And I-Fox has grown up to 350 megawatt and we are actually planning to add more. So, the answer is yes.
Akhilesh B
And just one last question. In Resco, our efforts to in-house the crane operations, so 12 months from now, is it possible that we are able to completely meet our own needs via Resco?
Devansh Jain
Yeah, that’s what the target is. I mean, it’s the crane supplies on which we are dependent. I think we ordered a large chunk. We have used the might of the group to get cranes delivered earlier. But as we start getting cranes, I would expect, over the course of the next financial year, we should be completely in-house. Possibly earlier than that.
Akhilesh B
Okay. Thank you very much.
Akhil Jindal
Thank you.
Operator
Thank you. Next question is from the line of Deepak [Phonetic], who’s an individual investor. Please go ahead.
Deepak
Hello, am I audible?
Operator
Yes, please go ahead.
Deepak
Sir, first of all, Happy Deepavali to Inox team, and congrats on the fireworks you did in the numbers in Inox Wind and the Green, both.
Akhil Jindal
Thank you.
Deepak
So, my question is, what is the revenue per gigawatt in O&M business?
Akhil Jindal
So, broadly, the thumb rule is around INR8 lakh per megawatt per annum. So, based upon the megawatt usage, which is have, you can consider INR8 lakh per megawatt per annum.
Deepak
Okay. And what is the gap between the — when the Inox Wind starts commissioning and the O&M start Inox Green?
Akhil Jindal
So, immediately after the Inox Wind Limited commissioned the turbine, that commission — that turbine has been taken over by Inox Green. So, there are as such no gaps. But there can be two months, three months of gap for signing of contract and so on and so forth. But that would be a very miniscule kind of gap.
Deepak
Okay. Okay, sir. Thank you.
Akhil Jindal
Thank you.
Operator
[Operator Closing Remarks]