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Inox India Ltd Management Discussions

1,016.45
(1.59%)
Apr 1, 2025|12:00:00 AM

Inox India Ltd Share Price Management Discussions

Economy overview and outlook

Global

The global economy demonstrated resilience despite weathering several headwinds. The global growth is predicted to be 3.1% in CY2024, attributing to the exceptional stability shown by the United States and several other large emerging and developing economies. Despite a tight labour market and reduced household savings post the pandemic era, effective government policies, increased private spending and improved real disposable income have propelled the growth of the global economy.

The prospect of an economic slowdown has significantly reduced, facilitated by disinflation and steady growth. This reducing inflation will result in lowering energy prices and easing financial conditions effectively. In CY2023, the major central banks have raised policy interest rates to combat inflation, resulting in higher mortgage costs, reduced credit availability and decreased investment in businesses and in the residential sectors.

The current global headline inflation rate is 6.8%, and is projected to be 5.8% in CY2024 and 4.4% in CY2025. Inflation has been declining quicker than the projections, with both headline and core inflation matching up to the pre pandemic levels.

Indian

The Indian economy observed a robust 7.6% GDP growth rate in FY2024, demonstrating resilience while navigating global headwinds. Favourable domestic policies, regulatory support and prioritising structural changes have contributed positively to the gradual growth of the private sectors.

The catalyst to Indias growth has been the simultaneous focus on developing niche and complex manufacturing sectors and building supporting infrastructure. It is observed that the emerging sectors are growing relatively faster than other sectors; EVs and energy transition accounted for 16% of the incremental capex in FY2023 and FY2024.

The Indian economy is expected to grow from $5 trillion to $7 trillion by 2031, with an average growth rate of 6.7%. This will position India as the worlds third largest economy. The Indian economy can take aid from the domestic structural reforms and cyclical levers to bolster its growth. Focusing on building both physical and digital infrastructure and implementing effective reforms will enhance the ease of doing business, providing India with opportunities amidst various global risks.

Overview of cryogenic gases

Industrial gases are used in industrial processes for manufacturing products in various industries, including oil and gas, petrochemicals, chemicals, power, mining, metals, pharmaceuticals, electronics, glass and aerospace. Nitrogen, oxygen and natural gas are the major gases accounting for almost 80% of the cryogenic equipment demand. Argon, helium, nitrous oxide, ethylene and carbon dioxide are some of the other gases required for cryogenic equipment.

Nitrogen, oxygen and argon, the major sources of industrial or cryogenic gases, are separated into its constituents by air separation units (ASUs).

Cryogenic industry supply chain

There are four major groups in the cryogenic industry:

Raw Material Manufactures They include metal and metal part manufacturers that produce large quantities of steel and steel products. These materials, along with copper and nickel alloys, chromium, and titanium, are the major raw materials for cryogenic equipment.
Cryogenic Equipment They manufacture equipment such as tanks, valves and vaporisers, which enable storage and handling of cryogenic gases. The equipment is supplied to gas companies for manufacture, storage, and transportation of industrial or energy gases such as LNG or hydrogen.
Gas Suppliers They include industrial gas manufacturers operating air separation units, or oil and gas companies producing LNG.
End Users They are industries where such gases are used. Some of the end users are steel, glass, semiconductor industries and hospitals.

Global cryogenic equipment industry by types of Cryogenic Equipment

Cryogenic equipment, including tanks, valves, vaporisers and pumps, are used to store, transport and handle cooled gases in liquid form. The tanks are used for storage and transportation, valves are used to control flow and safety, and vaporisers are used to convert cryogenic liquids to gaseous form.

Global cryogenic equipment industry by end-user industry

The major end-user industries that utilise cryogenic equipment are metallurgy, energy and power, chemical, electronics, transportation and others.

Metallurgy industry: Metallurgy has the largest demand for cryogenic equipment. The large market share can be attributed to rapid industrialisation and favourable government policies, benefitting the manufacturing and industrial sectors globally.

Energy and power industry: Energy and power industry was the second-largest demand segment for cryogenic equipment. Cryogenic equipment is used for various industrial gases across energy and power applications. Cryogenic equipment is also used by the energy and power industry for supply of some of its products (LNG and hydrogen) to other end-use industries.

Chemicals industry: In the chemicals industry, industrial gases are used for polymerisation and synthesis of intermediates, synthetic gases, specialty chemicals and more. The demand for cryogenic equipment from the segment has recovered gradually from its low during the peak pandemic season. The growth can be attributed to increased consumption demand and a conscious shift towards lowering emissions.

Electronics industry: Cryogenic gases cater to an array of applications in the electronics industry, including, fibre optics, flat panel displays, integrated-circuit manufacturing, packaging, assembly and testing, LED technologies, photovoltaics, printed circuit board (PCB) assembly and testing, and semiconductors. During the Covid pandemic peak, the electronics industry was the least impacted among the other cryogenic equipment end-user industries as most companies shifted to work-from-home or remote working sessions during the global lockdown.

Transportation industry: Owing to increasing emission of pollutants and greenhouse gases from trucks, buses, ships and airplanes, the transport industry has come under immense pressure to shift to low carbon alternatives. Low carbon fuels alternatives include electric and compressed natural gas (CNG). Hence, for long haul heavy transport, fuel will need to be contained more densely in smaller tanks.

Demand for cryogenic equipment region-wise

The global cryogenic industry can be categorised by geographical segments.

Overview of the Indian cryogenic equipment industry

The demand for cryogenic equipment in India saw a 6.5% CAGR over CY16-19. With the global lockdown and imposition of travel restrictions, the growth of the cryogenic equipment stalled over CY19-21. According to CRISIL, however, the demand is expected to see a CAGR of 7.1% over CY22-27E. An increase in industrial output, surge in investments in the electronics and space sectors, and a paradigm shift towards cleaner fuel sources such as LNG and hydrogen in the industrial and transport sectors, are expected to propel the growth of the Indian cryogenic equipment industry.

Indian cryogenic equipment industry by types of Cryogenic Equipment:

Tanks constituted 54% of Indias cryogenic equipment in CY21. Valves, vaporisers, and pumps contributed 16%, 11% and 10%, respectively. Other equipment accounted for 9%. In CY21 nitrogen and LNG were the major cryogenic gases used in the Indian cryogenic equipment industry, accounting for 30% and 23%, respectively, of the total equipment demand.

Company Overview

INOXCVA has fortified its position as one of the leading providers for customised cryogenic equipment and cryogenic tank manufacturers in the world. With over 30 years of experience, the Company offers varied solutions across design, engineering, manufacturing and installation of equipment and systems for cryogenic conditions. The Company also provides standard cryogenic tanks and equipment, beverage kegs, bespoke technology, equipment and solutions, and large turnkey projects. INOXCVA cater to diverse industries, including industrial gases, liquified natural gas ("LNG"), green hydrogen, energy, steel, medical and healthcare, chemicals and fertilisers, aviation and aerospace, pharmaceuticals and construction. Additionally, the Company manufactures a range of cryogenic equipment that are utilised in global scientific research projects. INOXCVA is one of the largest exporter of cryogenic tanks from India in terms of revenue in FY 2024. With a global clientele base, in FY24, the Company provided their equipment and systems to 350+ domestic customers and 130+ international customers across three divisions.

INOXCVA serves the requirement of multitude of customers across various divisions in its geographic area

Industrial Gas: The Industrial Gas division manufactures, supplies and installs cryogenic tanks and systems for storage, transportation and distribution of industrial gases, such as green hydrogen, oxygen, nitrogen, argon, carbon dioxide (CO2) and hydrogen. The Company ensures after-sales services are provided to the consumers as well. INOXCVA designs and manufactures customised cryogenic storage tanks tailored to customers requirements and standard storage tanks built in accordance with industry standards. The Company provides stationery storage tanks from 1,000 litres to one million litres capacity, portable storage tanks from 1 litre to 1,000 litres capacity and transport tanks and tankers/trailers up to 60,000 litres capacity. The Companys diverse portfolio includes storage tanks, transport tanks, microbulk units, vaporisers, Cryo Bio tanks, and storage and regasification equipment.

LNG: INOXCVA provides standard and engineered equipment for LNG storage, distribution and transportation. The Company also manufacture small-scale LNG infrastructure solutions suitable for industrial, marine and automotive applications. INOXCVA develops solutions for LNG and liquid compressed natural gas ("LCNG"), including static storage tanks up to one million litres capacity, transport trailers, LNG satellite stations for industrial users, marine fuel tanks, LNG and LCNG fuel stations, and LNG vehicle fuel tanks. In the LNG tank segment, INOXCVA have supplied over 60% of the tanks in both the stationary tank and trailer-mounted mobile LNG tanks segments in India. The stationary tank segment includes all LNG applications including LCNG stations and trailer mounted mobile LNG tanks in India which have a valid PESO license as of May 4, 2022. The Company also offers operation and maintenance for LNG solutions. The Company product line includes storage and regas system for industrial applications, marine fuel gas systems, LCNG fuel stations, vehicle-mounted LNG fuel tanks and LNG infrastructure for automotive applications.

Cryo Scientific: INOXCVA provides equipment for technology intensive applications and turnkey solutions for scientific and industrial research involving cryogenic distribution. The Companys activities are focused on customised cryogenic storage and distribution systems for space research, cryogenic fuel-filling systems for launch pads, space simulation chambers, vacuum jacketed piping and cryostat for magnetic resonance imaging ("MRI") magnets. INOXCVA is engaged as one of the few Indian companies in the International Thermonuclear Experimental Reactor ("ITER") project, an international nuclear fusion research and engineering megaproject. The Companys portfolio includes Satellite and launch facilities, Cryogenic propulsion system and research, MRI Cryostat, Fusion and superconductivity, and Liquid H2 and He systems.

Financial and Operational Performance:

Financial Overview:

Particulars FY24 FY23 Chang YoY (%)
Total Income 1162 986 17.9%
EBITDA 282 225 25.4%
EBITDA Margin 24.2% 22.8% 1.4%
PBT 258 207 24.6%
PAT 196 155 26.7%
PAT Margin 16.9% 15.7% 1.2%
EPS 21.59 17.05 26.6%

a) Total Income:

In FY24, the Company recorded highest total income of H 1162 Cr.

b) EBITDA & EBITDA Margin:

In FY24, the EBITDA increased by 25.4% to H 282 Cr in comparison to H 225 Cr in FY23. The EBITDA Margin for

FY24 is 24.2% as compared to 22.8% in the FY23.

C) PBT:

In FY24, the PBT increased by 24.6% to H 258 Cr in comparison to H 207 Cr FY23.

d) PAT & PAT Margin:

In FY24, the PAT increased by 26.7% to H 196 Cr in comparison to H 155 Cr FY23. The PAT Margin for FY24 is

16.9% as compared to 15.7% in the FY23.

e) EPS:

IN FY24, the Company recorded earnings per share of H 21.59 per share as compared to H 17.05 per share in FY23.

Operational Overview:

In FY24, Order Inflow was at H 1193 up by 14% YoY.

In FY24, the Order Backlog was at H1087 Cr with 55% orders from Industrial Gas, 20% orders from LNG and balance 25% orders from Cryo Scientific Division.

In FY24, export order comprised of 52% of the Order Backlog.

Key financial ratios, along with detailed explanations therefor:

Particulars FY24 FY23 Change (%)

Reason for Change

Debtors Turnover 7.47 8.74 (14.53)%
Inventory Turnover 2.67 2.63 1.52%
Interest Coverage Ratio 46.46 57.16 (18.72)% Interest cost higher due to use of working capital sometimes due to Mutual fund not encashed to take long term benefit
Current Ratio 1.77 1.69 4.73%
Debt-Equity Ratio 0.01 0
Operating Profit Margin (%) 24.22% 22.77% 6.37%
Net Profit Margin (%)or sector-specific equivalent ratios, as applicable 16.86% 15.69% N=RIGHT>7.46%
Return on Net Worth (%) 30.20% 28.16% 7.24%

Notes: a). Above ratios were based on the Consolidated Financial Statements of the Company b). Definitions of the ratios:

1. Debtors turnover: Revenue from operations by Average trade receivable for the year.
2. Inventory turnover: Revenue from operations by Average inventory for the year.
3. Interest coverage ratio: Total EBIT by finance cost for the year.
4. Current ratio: All types of Financial and Non-Financial Current assets by all types of Financial and Non-Financial current liabilities.
5. Debt equity ratio: Current and Non-current Borrowing by total equity at the end of the year.
6. Operating profit margin: Operating EBIDTA by Total Income for the year.
7. Net profit margin: Profit for the year by Total income for the year.
8. Return on net worth: Profit for the year by average Total Equity
Strengths, Weakness, Opportunities and Threat:
Strengths:
INOXCVA is worlds leading provider of customised cryogenic equipment and one of the leading cryogenic tank manufacturers in the world
The Companys varied portfolio includes specialised cryogenic equipment engineered to global quality standards.
The Company has a varied global clientele base, spanning diverse industry sectors.
The Companys state-of-the-art workshops are equipped with required facilities for construction of cryogenic equipment.
With facilities present at Kandla Special Economic Zone, the Company can augment its exports effectively.
The Company has established advanced systems for cryogenic equipment fabrication.
With subsidiaries, service centres and marketing offices in Europe and Brazil, the Company can afford to serve a global clientele base.
Due to the continuous backward and forward integration, the Company provides a sale of around 10% of the revenue to the
group companies.
The Company can boast of a professional and skilled team of promoters, senior management and leadership team.
The Company has shown healthy financial performance to support growth.
Weaknesses:
The requisite to manufacture cryogenic tanks of varied sizes and pressure ratings do not provide adequate volume for mass production benefits.
As transportation costs are exorbitant for large tanks, this leads the Company to focus on regional areas.
Major competitors focus on from large-scale production as they have limited product range and have manufacturing facilities in the United States, European Union, China and India.
As gas industry is controlled by few multinational companies, this results in limited buyers. The companies can exploit their purchasing power to drive the commercial terms to extremely competitive levels.
Opportunities:
The Company should capitalise on opportunities in LNG and hydrogen as a paradigm shift towards clean energy is being observed.
With the increasing awareness of sustainability and cleaner fuel, LNG demand is expected to rise.
The distribution of LNG on land presents an lucrative opportunity for increased cryogenic equipment supply.
The Company can offer site-built storage tanks as a new product line for international market, enabling in developing a diversified clientele base.
Leveraging partnership and future investments can facilitate the development of international business.
Developing non-cryo related engineered products required for defence/automotive & nuclear projects.
With a surge in demand for standard cryogenic and non-cryogenic equipment, the Company can expand into international markets.
The Company can augment growth through strategic acquisitions and alliances.
Threats:
Non-ozone depleting refrigerants require disposable cylinders, however, there is a possibility of CFC regulations altering the market for disposable cylinders.
As there are limited consumers, an adverse relationship with even a single customer could lead to significant business loss.
Cryogenic distribution equipment can be used for a long time. Most industrial gas companies re-locate their old equipment from time to time, deferring the requirement of new equipment. This leads to periods of muted demand, especially if the industry is under difficult situation.
The Companys export revenues are approximately 55% based on FY24 calculation. Any imposition of antidumping duties or other duties by importing countries could affect our revenue.
The future demand for cryogenic equipment will be affected by LNG and Hydrogen prices and Government policies, notably affecting the Companys business in future.

Future Growth Drivers / Strategies:

Opportunity in LNG and Hydrogen: It is essential to capitalise on the shift towards LNG and Hydrogen, ensuring an effective value chain

Increasing global footprint: The Company can expand their standard cryogenic and non-cryogenic equipment business into international markets.

Turnkey solutions: With increasing operational efficiency, the Company can grow their large turnkey project business.

Smoothen operational efficiency: The Company undertakes relentless initiatives to improve operational efficiency and productivity.

Acquisition: Strategic acquisitions and alliances will facilitate the growth of the Company.

Risk & Concern:

Manufacturing facility: The Companys business depends on their three manufacturing facilities. The Company is subject to certain risks in the manufacturing processes. Breakdown or failure of equipment and industrial accidents can interrupt business operations, adversely impacting production schedules, costs, sales and the ability to meet customer demand.

Customers: The Companys biggest consumers and top 10 customers contributed around 8.5% and 45.70% of revenue from operation for FY24. Any cancellation, delay or reduction in their orders could have a negative effect on the business, operational efficiency and financial condition.

Input costs: An increase in the key ingredients have the potential to affect the pricing and supply of the products, consequently resulting in business loss.

Order book: The order book is not necessarily indicative of the future revenues or profit as the contracts may be adjusted, cancelled or suspended by the customers.

Material developments in Human Resources / Industrial Relations front, including number of people employed:

The Company believes that their workforce is an invaluable asset for them. Several initiatives are undertaken to achieve excellence and foster productivity, innovation, efficiency and dedication.

As of March 31, 2024, the Company has a workforce of more than 1100 diligent working employees, dedicated to achieve the Companys goals. Embracing the philosophy that human potential knows no bounds, the Company prioritises effective learning and development workshops to facilitate optimise utilisation of talent. Each employee is provided opportunities for professional growth and development, with defined and scheduled training programs, particularly tailored for Graduate Engineer Trainees and Postgraduate Engineer Trainees.

Recognising the significance of employee engagement, the Company organises activities to facilitate full engagement. The Company celebrates various events involving employees, including Annual Day, Annual Picnic, Engineers Day, Vishwakarma Day, Yoga Day, Kite Flying Festival, quizzes, and more, to ensure sustained engagement year-round.

Additionally, the Company also conducts behavioural and motivational development initiatives and computer literacy enhancement programs such as Microsoft Excel and ChatGPT. Notably, a special motivational workshop titled Vision-2000 was conducted for all senior managers within the organisation.

Culture and Safety at INOXCVA

INOXCVA follows the ‘Safety first culture. The Company engages in providing cryogenic solutions to esteemed customers worldwide. The Company ensures safety is not just a priority, but a global requirement to ensure wellbeing of our employees and interested parties. INOXCVA firmly believe that all types of injuries, illness and incidents are preventable. The Company is committed to ensuring continuity of cryogenic solutions and related services to consumers while enhancing improvement in Quality, Occupational Health, Safety and Environmental (QHSE) management performance. The Company is focused on its responsibility to organise operations with an increased emphasis on environment, and health and safety of all those involved in its operations. INOXCVA has implemented an Integrated Management System (IMS), accredited for the ISO 9001:2015 Quality Management System, ISO 14001:2015 Environmental Management System and ISO 45001:2018 Occupational Health & Safety management system.

The Company conducts periodic internal and external audits to evaluate an effectiveness of the system and processes. INOXCVA provides resources required for the execution, development and maintenance of the QHSE Management System through process flow charts. The Company provides awareness training to all direct & indirect employees. The Company takes proactive actions to identify and mitigate any risks identified as part of improvements. Induction training and on safety, relevant technical is being conducted for all employees.

Training and competence development represent one of the key focus areas for INOXCVA. Besides basic safety induction, job-specific safety trainings, such as welding, cutting, grinding, working at height and material handling, are conducted for different teams throughout the year. Fire safety practical training and first-aid training are also conducted as part of practices and to comply with legal requirements. Emergency response training was also imparted during the year. The Company has set up, maintained and executed processes required to prepare and mitigate possible emergency situations comprising actions to address any risks. Emergency mock drills are conducted to ensure that the team is ready to handle any emergency scenario. The lessons from the mock drills are captured and shared to improve the system. INOXCVA set up procedures to ascertain that there was a suitable response to accidental and unexpected incidents.

The Company have initiated online legal compliance tools to showcase real-time legal compliance of its offices and factories. The Company established a comprehensive IMS manual aligned with its processes & applicable regulations. INOXCVA celebrates National Safety Week and Environment Day to increase awareness among employees and stakeholders. The Company also recognises and suitably awards outstanding performances of its employees.

Investor Relations and Engagement:

Investor Relations (IR) plays a crucial role in todays dynamic world to manage investor expectations. The objectives of Companys investor relations activities are to boost confidence, develop a long-term relationship and build trust with stakeholders, including shareholders, investors and analysts, through true and fair disclosure of information, explanation and bilateral communication.

To pursue these objectives at all times, the Company continuously discloses necessary information and conducts various investor relations activities. Engaging closely with the investor community helps the Company to gain investor confidence, thereby enabling it to drive maximum value out of the IR programme.

After listing, INOXCVA conducted following major activities for Investor Relations and Engagement:

Conducted results earning calls post announcement of the financial results for Q3FY24 / 9MFY24.

Participated in one domestic investor conference organised by top brokerage house of the Country.

Organised plant visits for analyst & investors community to showcase on-ground development of project. This ensures the stakeholders gain insights on the functioning of plant.

Investor presentation and the required disclosures are shared with the Stock exchanges as well as hosted on the website of your Company.

Internal Control System:

INOXCVA has robust internal control system and procedures compatible with size and operations. The Company has well defined internal control system and policies. The Internal Audit of the Company is done by internal auditor firm that includes professionally qualified accountants, engineers and IT experienced executives.

Some elements of the Companys internal control system:

Preparation and supervision of annual budgets for all operating and service functions

Making Standard Operating Procedures and guidelines and ensure compliance with same.

Scope of internal audit and the frequency of audit being decided every year to ensure sufficient coverage of different areas and functions over a reasonable period.

The audit plan is discussed and approved in Audit Committee

Internal Audit is conducted regularly during the year and on quarterly basis Internal Audit Report is being submitted to audit committee for their review and also for future improvements in the system across the organisation.

The Company possesses ERP system to record data for accounting, consolidation and management information purposes.

The Company is also having well defined delegation of power with authority limits for approving revenue and capex expenditures including approval of non-routine and abnormal items.

External Auditor also performs independent testing of Internal Finance Controls over financial reporting which is line with regulatory reporting requirements.

Internal Auditor is also checking the Internal Financial Controls as part of their Audit scope.

The Audit Committee of the Board of Directors comprising of 100% independent Directors, which quarterly reviews the audit plans, significant audit findings, adequacy of internal controls system, compliance with Accounting Standards etc.

Cautionary Statement

This document contains statements about expected future events, financial, and operating results of INOXCVA Limited, which may be forward-looking. By their nature, forward-looking statements require your Company to make assumptions and are subject to inherent risks and uncertainties. There is significant risk that the actual results may differ from the forward-looking statements mentioned in the Annual Report. Readers are cautioned not to place undue reliance on forward-looking statements.

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