Inox Wind trades at steep discount to Suzlon Energy shares; worth a buy?

Motilal Oswal Financial Services Ltd (MOFSL) has initiated coverage on Inox Wind Limited (IWL) with a 'Buy' rating, setting a target price of Rs 210 per share. This move implies a potential 21 per cent upside for the stock, which is currently trading at a discount compared to its direct competitor, Suzlon Energy Limited.

Inox Wind is a key player in India's wind energy sector, offering end-to-end solutions from conception to commissioning and maintenance of wind power projects. The company boasts a manufacturing capacity of 2.5 gigawatts (GW) annually across four facilities, producing 2MW and 3MW Wind Turbine Generators (WTGs).

As of the end of fiscal year 2025, Inox Wind holds a robust order book of approximately 3.2GW. This substantial backlog provides the company with strong revenue visibility for at least the next two years, highlighting its potential for sustained growth.

MOFSL's report highlights Inox Wind's significant operational synergies within its group. The listed subsidiary, Inox Green Energy Services Ltd (IGESL), manages an extensive 5.1GW operations and maintenance (O&M) portfolio.

Inox Renewable Solutions Limited (IRSL), another subsidiary, is expanding beyond traditional wind EPC into solar and hybrid EPC, as well as specialised services like crane operations. This diversification is aimed at broadening Inox Wind's market reach and service offering.

The Ministry of New and Renewable Energy (MNRE) has proposed amendments that could benefit Indian OEMs like IWL. These changes mandate local sourcing of key components, potentially providing a boost to Inox Wind and diminishing competition from Chinese players.

MOFSL anticipates a strong compounded annual growth rate (CAGR) of 38 per cent in EBITDA for FY25-28 for Inox Wind. This is supported by a ramp-up in WTG execution and a projected increase in O&M contracted capacity, which is expected to nearly triple by FY28.

The company's EPC business is strategically positioned to benefit from expansion into the Independent Power Producer (IPP) domain and solar/hybrid O&M. This initiative complements its existing and growing execution of wind projects.

IRSL is broadening its service portfolio to include crane services and transformer manufacturing, setting it apart in the Indian market by providing a comprehensive suite of services under one umbrella.

The group recently completed a merger with IWEL following approval from the National Company Law Tribunal (NCLT). This merger has resulted in a liability reduction of approximately Rs 20 billion, streamlining the group structure for enhanced operational efficiency.

MOFSL's valuation sets a target P/E of 25x for FY27E EPS, which is at a 29 per cent discount to its target multiple for Suzlon Energy. Currently, Inox Wind trades at a FY27 P/E of 20.5x, marking a 28 per cent discount to Suzlon Energy.

The report notes several risks, including rising competition from Chinese and European players, potential pressure on margins, and volatility in raw material prices. These factors could impact the company's future performance.

Inox Wind is poised to capitalise on India's ambitious wind energy targets. The country aims to expand its installed wind capacity from 50GW by the end of FY25 to 100GW by 2030.

The projected increase in annual installations is supported by forecasts from Suzlon Energy, predicting 6GW in FY26, 7-8GW in FY27, and 9GW from FY28 onwards. This positions IWL well for future growth.

Given India's need for round-the-clock power, hybrid and firm renewable energy tenders are seen as key to future energy strategies. These tenders necessitate a certain proportion of wind energy.

Despite concerns about competition from solar energy and storage solutions, wind energy remains a critical component of India's renewable energy mix, expected to account for 20 per cent by 2030.

The company's strategic positioning, combined with its substantial order book, creates a promising outlook for future earnings growth. Integrated operations and synergies are expected to drive faster execution, cost optimisation, and profitability improvement.

MOFSL's report underscores the potential for IWL's operational efficiency to enhance transparency and performance, positioning it advantageously in the competitive wind energy market.

Inox Green Energy Services Ltd is advancing a demerger of its power evacuation division, integrating it into another subsidiary, IRSL. This restructuring is expected to create an asset-light balance sheet and reduce depreciation expenses.

The group's efforts to streamline operations and enhance its service offerings position Inox Wind as a strong player in India's renewable energy landscape, with a focus on strategic growth and market expansion.

Furthermore, the diversification into solar and hybrid EPC, along with specialized services, is expected to significantly broaden IWL's market reach. This strategic move not only enhances the company's service offerings but also strengthens its competitive edge in the renewable energy sector.