(A Quick Analysis) Inox wind at its 52 weeks low.

INOX WIND remains a controversial company. Sometimes I heard buy ratings and other time, sell. The company’s IPO, in April 2015, was one of the most successful of the year, being oversubscribed 18.6 times. Listed at Rs 300, it opened at Rs 400 on April 10 and closed at Rs 438.

Img – business-standard.com

Img – livemint.com

But what made the share price dropped from an all-time high of 447 to the low of 181? A drop of 56% with no drastic change in the books. What is the reason behind the consistent drop & Is the drop justified? – That is what you’re going to get in this quick analysis.

Img – Google SE

And a few day back INOX WIND was at its 52 weeks low at 181.

What is the reason behind the consistent drop of Inox Wind share price?

#1) Increase in Trade Receivables (TR).

Trade receivables are the money payable by clients. The aggregate receivables increased to 148 days in 2016, from 140 days in 2015. In simple terms, it means company takes 148 days to liquidate its sales into cash which can lead to the cash shortage. The days are much higher as compared to its industry and still increasing.

Have a look on how TR increased by more than double this year.

Img – Company’s official site

It’s a straight 68.5% increment in TR.

But remember, increase in TR is not a major concern instead increase in TR days is a matter of concern. It is good to have increasing TR due to high increasing sales and same is the case with Inox Wind but the increasing rate of sales is 63% which is lower than TR increasing rate which resulted in more days to liquidate sales. So here comes another fact – Increase (%) in sales should be more than an increase (%) in TR to reduce the total TR days.

Img – Company’s official site

Also, the profit in the balance sheet shows the accrual sales (transaction occurred but cash is not received yet) due to high TR which creates some negative effects like cash shortage.

Question: If Inox wind is not getting its sales converted into cash then from where they manage to get cash for further operations? This leads to another drawback which is explained further.

#2) Increase in Debt and Interest burden.

The company takes a long time to liquidate it cash so from where it is getting cash for further production?


Which in turn increased the interest burden a bit. Even CRISIL has revised its outlook on the long-term bank facilities of the company to ‘Negative’ from ‘Stable’ and reaffirmed the ‘CRISIL AA-‘ rating. In short, something negative happened with the company.

Img – Company’s official site

#3) Competition from Suzlon.

The comeback of the rival company SUZLON created uncertainty towards Inox Wind among Investors. The following snapshot is enough to show how Suzlon is boosting up again after a huge downfall in past several years.

Img – Google SE

There are also some minor adversities like the declining financial health of its Austria based technology provider, some adverse tariff issues but the company remains confident and kept aside these issues.

Is the Inox Wind share price drop justified?

I’ve been tracking the ups and downs of this stock since it was 290. Financial books are bit attractive but I was afraid to lock money due to the adverse outcomes, quarter by quarter. However, entered the stock at slightly more than 200 INR.

Following are some facts and figures which (I think) makes Inox an attractive investment at the current low market price.

First of all…..

People are continuously asking Devansh Jain, Executive Director of Inox Wind, about – Why Inox Wind has not delivered any returns, in fact it has been hugely negative returns for shareholders since listing. When can your shareholders expect gains, when can the company show blockbuster numbers?

His reply was – “Having said that as a management the important thing for us to do is to achieve the targets we have committed. We delivered on the profit margins, we have delivered on the growth numbers, we have delivered on the absolute profitability”

Read more at http://bit.ly/2brLmyN

And Yes! He is up to the mark to his statements. They had performed well this year and why he should care about the stock price instead he should concentrate on its management. Well said by Warren Buffett:

“Players should concentrate on the playground, not on the scoreboard” (click to tweet)


Most of the sales were executed in the second half of the year which was around 70% of the sales. This is what put an immense pressure on Trade Receivables reflected in the year end annual reports. SO chances are, the company may release a huge amount of cash this accounting year.

Img – Company’s official site


I accept that there is an increment in TR days but if we see the other side, the company did the job up to the mark. What’s the other side?

Despite the increment in TR days, company managed to decrease the net working capital days by around 18 days to 130 days which is now further dropped to 122 days (have a look below)

Img – screener.in

Here’s the statement from company’s spokesperson:

“We came down from about 148 odd days to about 130 days while we have maintained that our eventual target is to get to about 90 days. I think we are well on track to do that. However, what is difficult to commit is – will it happen within Q1, will it happen within Q2…….”

But I’m still confused on why the stock dropped to such a great extent just because of high TR days (as claimed by many brokerage firms) despite the fact that the overall days declined.

Let us dig out how it company managed to decline its WC days but before have a look at the formulas:

Working capital = Current asset – Current liabilities.

Current Asset = Asset which had to be realised in under 1 year.

Current Liability = Obligations which had to be met under 1 year.

Working capital days = (Average Working Capital/Annual sales) * Number of days in the year.

Average WC = It is the average value of the WC which is maintained through out the year of operation.

These ratios show the operational efficiency of the company. In simple terms, how effectively the company is deploying its day to day operations.

Management had taken a very clever move to decrease their net working capital days as well as the long-term borrowings. I become a great fan of the management after I found this.

Let’s peek into their balance sheet.

Img – Company’s official site

Now just focus on the red marked elements. Company raised the short-term borrowings by an almost bit less than double and manage to get a high amount of float benefits from its suppliers which lead to increase the Trade Payables.

This 2 elements helped the company to decrease the Net WC days by 18 days. The contribution due to TP is appreciable.

And the company had also reduced its long-term borrowing by more than 25% as you can see in the image above. It ensures that company is getting rid of long term debt element in its balance sheet and raising out short-term obligations which should have to be paid under a year. It makes us believe that company will stay unaffected with interest burden in the long run.

But it will still incur short-term interest burdens?

Yes! It is and management is quite confident on this point that they are generating enough cash to pay their financial obligations without defaulting. Let us believe their board of directors a bit.

Also, Inox wind is already sitting on an order book which can sustain for almost next 4 years with most of the client remained government institute (one order is from my state – Telangana) which make sure that it will not turn out to be defaulted AKA this ensure that company will not get much affected by the short-term interest burden.

Should you buy Inox Wind shares?

After considering above all the facts and figures, it makes sense (at least for me) to buy the Inox Wind stocks at its current low valuation. It looks a good opportunity for a long term investment of 2-3 years time horizon. Hold on! I don’t own your money so don’t consider buying the stock on solely on this analysis. Invest with your own due diligence and also consult your financial adviser before you make any move.

Here’s a great saying: (#RT)

So it kinda possible with Inox Wind also (at least for this accounting period). Always remember the rule of long term investing – Think long, Don’t distract by shit like quarter results.

So what if any undervalued stock dropped out further?

Here comes the concept of Margin of Safety – It’s good to buy a stock valued 100 for 80 but its better to buy it for 50. Both are undervalued but later has more Margin against risks.

If the price dropped furthermore then it means that the Mr. Market gave you another chance for acquiring that asset for a more undervalued price.

I keenly track the stocks which touch their 52 weeks low because this is where the real gold mines are hidden. A perfect opportunity to get wonderful business at cheap rates. Not every stock which turned there are excellent but almost 5% of them are always great opportunities like my move with HCL made me some quick bucks, Tata steel on the day of BREXIT, ICICI bank when it touched its 10 years low etc.

Currently, I’m reading a book – The Little book by Aswath Damodar. He stated a quote at the very end of the first chapter – Success in investing doesn’t come from being right but from being wrong less often than everyone else. (click to tweet)

In the stock market, it’s not possible to be accurate on all of your 10 bets. The real success is from being right for 7 bets and for rest 3, even Warren Buffett lose.

All this shit is just to clear out the point that it may possible that something adverse happens in the future and Inox Wind turns out to be the worst performing stock but it doesn’t mean that you lost. Keep your portfolio with concentrated excellent stocks.

Some stocks may perform good, some may be bad and some may not move the needle in either direction but just make sure that the overall portfolio return should always be positive.

  • Shinoj Jose

    Good Analysis

  • Sreenivas Doosa

    Good analysis Sowmay though I could not understand some technical parameters in your post. No worries, I will soon learn them.

    Surprisingly the company profit is increasing Querter on Querter but the stock went in reverse direction. Now your analysis gives the proper reason for that weird behaviour. Keep it up.

  • Jitu Deepak khatri

    Kudos once again. CA sowmay you “Rocks”.

    • Thanks, Jitu. By the way, I dropped CA in its second level.

      • Sushanth

        You could be a good professor. I will join ur class. I am a science student and accounts came only in college. So as every science student I studied only theory and scored minimum in accounts. If i did had a teacher like you explain terms. I would have liked accounts. It would be good if you have a article with just term related to stock accounts. It would be a good reference. Actually that is one of the best things in ur blog I like.

  • Jatin Grover

    Nice analysis sowmay. Can you please check and write on Indo wind, another wind energy infra player?

    • Yes, Jatin. whenever I got some time, I’ll write on them too.

  • Navin

    Thanks Sowmay, Great article!

  • Sagarkumar Jain

    Hi Sowmay,
    How did you find out that the company takes 148 days to liquidate its sales into cash on the basis on Trade receivables?
    Also, what do you mean by working capital days in layman terms?

  • TR is a kind of bill received from the customer company promising that they will pay the stated amount. SO to find the days, use this formula – (Avg TR / Annual sales) x Number of days in the year.
    Working capital is the net current assets needed to operate the day to day operation of the company. Formula is WC = CA – CL

  • Gunvant Patil

    Thanks Sowmay, I was sitting on fence for inox-wind since some time wondering should get in to it or not but your detailed analysis made decision easy !

  • It can be contrarian bet…..as these days investors want quick money…one bad Q results stock will dive deep….so looking at fundamentals it should do good….renewable energy will not go down at least 15-20 years….

  • Nitin Sharma

    I did the similar exercise when it hit 52week lows around 240/-…here are the reasons that I left it. Reason are related buissness than valuation.

    – it is high asset buissness and should be valued like power utility.
    – unlike solar, wind energy has already hit the upper yield and there are little technology breakthrough. It is more or less commodity play
    – wind energy is concentrated in few coastal States… The high yield sites are already taken. many of these companies will struggle to ramp up in future (with profitability)
    – govt focus is more on solar. The solar cost is dropping but wind energy cost is not. Wind power company will find it difficult to sell power.

    It is fairly valued on paper. But cash flow w.r.t. profits are really bad. It will worsen IMHO.


  • Yes, I understood but always remember a rule of value investing – Think long. You can’t say anything from just quarter market perspective. Have you read the recent report of Inox Wind? Here it is – http://bit.ly/2c7xAiY (roburst growth man).

  • Wow!! What an analysis by you sowmay!!
    Kuntal Banerjee

  • Rahul Aggarwal

    Hi Sowmay,
    first of all this is a great article and I invested in inox wind after reading it.
    but I would like you to please share your view after today results. Should we hold after such bad results?

  • Varun

    I think I’ll try to understand the trade receivable and Trade payable thing with an example.

    Suppose I have a candy shop and a customer bought a candy worth Rs. 10 from me.But he said he cannot give me the money after 6 hours. Technically, I am Rs. 10 richer but I don’t have the 10 rupee note with me…..so I cannot use it to re-stock the candy I sold.

    Now, suppose another scenario, the customer wanted a candy but I didn’t have one, so I said “Pay me Rs. 10 now, I’ll cut you a receipt and you can collect the candy after 6 hours.” The receipt is just a piece of paper, so I have a free Rs. 10 (float money) with which I can buy the candy (priced at rs. 6 wholesale) and also invest the other Rs. 4 in a stock (just saying).

    Am I understanding this thing correctly?

  • Glad to hear it and Yes! I’m working on a course for beginners to stock market which will cover every terminology, basic understanding and more.

  • Hey, success in stock market is not about being right. It’s about being wrong less than others. No liability to me on your move. Always concentrate on overall portfolio returns. I had explained it very well at the end of the article. And don’t panic with quarter results. Always remember the rule of long term investing – “Think long”.

  • Exactly Varun! The former scenario is traded receivable and later, traded payable. The later is appreciated in business.

  • Aditya Dutta

    Hi Sowmay, On September/02/2016, Inox Wind has posted that it revenues have fallen to 80% , can you throw some light on that , and what will be the future concequences .

  • Yes! That’s very bad and looks like Monday market will be a bad day for Inox Wind but the order in the books is very high. High chances that the annual result will be quite satisfactory. Let’s see what happen.

    • chirag patel

      sowmay –
      where we come to know that order in the books is very high?

  • arvind kamble

    it may be due to cheaper availability of solar energy, wind energy stocks are out of favor

  • Niket Gupta

    Hi sowmay, nice analysis done here 🙂 Can you also share an article on rane brakes and indo count industries…That will be very helpful in deciding on adding them in portfolio

  • Surely will do it when got time.

  • Kaushalendra Mishra

    Thanks Sowmay for sharing your knowledge as always.
    I have a query regarding TataElxsi.
    TataElxsi is making 52 week low every day / week.

    what are your views on this stock?

  • Swamy

    *can give me* or *cannot give me*

  • INOX’s reports and analyst’s reports.

  • Vaibhav

    Hey Sowmay, nice analysis. Looks like the current valuations are attractive enough to take a position for 2-3 yrs. Do you still think so or have you changed your mind (based on some new facts :))?

    Btw, I’m scanning through your other posts and boy, they are just Awesome! Articulated with right amount of information and clearly reflecting your passion about investment & blogging! Kudos to you!!

  • Recent change in government policy for wind industries had changed the business of Inox Wind a lot. It’s competitor are Suzlon and Gamesa are performing better in current scenario.