INOX India IPO - Your Passport to Profits??

Inox is one of the established and long running brand in India, with clean managament and strong brand value. Incorporated in 1956, with the name Baroda Oxygen Limited, which in 1987 was changed to Inox India Limited, is a prominent manufacturer of Cryogenic Equipments. With 30+ years of experience in offering solutions across design, engineering, manufacturing and installing of equipements, it makes it one of the established players in this segment. The company offerings are spread across industries, offering standard cryogenic tanks and equipment, beverage kegs, bespoke technology, equipment and solutions as well as large turnkey projects which are used in industrial gases, liquified natural gas (“LNG”), green hydrogen, energy, steel, medical and healthcare, chemicals and fertilizers, aviation and aerospace, pharmaceuticals and construction.

What are Cryogenic Equipments and Why are they needed?

These are equipments which deals with extremely cold temperatures. These equipment are used for storing or transporting gases like oxygen, nitrogen or helium in cold liquid form. Gases are generally transported in liquid form because when a gas is turned into liquid, due to density difference, it occupies little space. This way it makes it efficient to carry large quantities of a substance. Further, some gases are challenging to handle in their gaseous state, turning them into liquid makes them manageable and safer to transport.

Business Segments -

•  Industrial Gas: This division manufactures, supplies and installs cryogenic tanks and systems for storage, transportation and distribution of industrial gases like such as green hydrogen, oxygen, nitrogen, argon, carbon dioxide (CO2), hydrogen and provides after-sales services.

• LNG: This division manufactures, supplies and installs standard and engineered equipment for LNG storage, distribution and transportation as well as small-scale LNG infrastructure solutions suitable for industrial, marine and automotive applications;

• Cryo Scientific: This division provides equipment for technology intensive applications and turnkey solutions for scientific and industrial research involving cryogenic distribution. Their applications focus on space research, launch pads, space simulation chamber, MRIs, Thermonuclear Reactor project.

Financial Summary -

As seen majority of the revenue comes from Industrial Gas followed by LNG. Company in the report has stated, that they are shfiting their focus on large turnkey projects, as they help in achieving better margins because of their scale and customization elemtents in the project, with limited competition.

Apart from Domestic 1255 clients across industries, INOX has strong global presence by having 45.83% revenue from exports which includes 60+ countries and 284 international clients.

Further, I don't see any customer concentration risk, as top 10 customers contribute around 46.52% revenues and the company has shown that there is a trend of customer stickiness (as shown below) due to continous R&D paired with leadership in cryogenic equipments.

Company also has a strong order book around ₹10,031.50 million.

Future Prospects -

Industrial gases are used in industrial processes for manufacturing products in a wide range of industries, including oil and gas, petrochemicals, chemicals, power, mining, metals, pharmaceuticals, electronics, glass and aerospace. Nitrogen, oxygen and natural gas are the major gases which would account for almost 80% of the cryogenic equipment demand. Other gases would include argon, helium, nitrous oxide, ethylene, and carbon dioxide.

The cryogenic equipments demand for the next 4 years, is expected to grow at a CAGR of 6.8%. Further, demand for cleaner fuels, such as LNG and hydrogen will drive the uptake of cryogenic equipment across geographies.

Atmospheric gas is produced by gas production plants called ASUs, which filter and cool the atmospheric air to very low temperatures. Major cyrogenic equipments include tanks, valves, vaporiser and pumps. The other equipments includes pipes, regulators, freezers, dewars, stainers, samplers, heat exchangers, leak detection equipment, etc.

End User industry - expected growth till FY28

Sector	Growth Expected - Globally
Metallurgy	7.4%
Energy and Power Industry	7.6%
Chemical Industry	6.1%
Electronics Industry	8.5%
Transportation Industry	6.6%

Major Factors -

• Expected increase in manufacturing of steel and aluminum

• Shift towards LNG

• Shift towards renewable energy such as Hydrogen

• Focus on Decarbonization

• Surge in Space Exploration

• Increase in usage of semiconductors

• Innovations in Healthcare and Lifesciences

IPO Objectives -

The IPO is purely OFS - Offer for Sale, that means, existing shareholders are going to offload their shares and company is not receiving any proceeds from this IPO. Generally, this type of IPO is flagged as risky, but it is exception for Inox India. Inox India wants to establish a strong global presence. With listing in India, it increases it's credibility and enhances transparency due to filings, which will help them in their objectives.

Current Competitive Landscape

In India, Inox India is the largest cryogenic equipments supplier, with four times the sales revenue of the following player VRV Asia pacific.

Key Performance Indicators -

Valuation Metrics -

• Price-to-Earnings (P/E) Ratio: 39.22

• Price-to-Book (P/B) Ratio: 10.9

Peer Comparison:

• The company, as stated in its RHP (Red Herring Prospectus), asserts that it has no listed peers in India.

Interpretation:

• The P/E ratio (39.22) & P/B ratio (10.90) suggests that investors are optimistic about the company's growth potential, as a result it indicates a slightly overvalued valuation. But as it is the first player of this segment to be listed, we can expect it to command a premium.

• The absence of listed peers makes it challenging to provide an industry comparison. Investors should consider these ratios in the context of the company's specific circumstances and growth prospects.

Key Risks -

• Handling and Leakage of Cryogenic Gases - Any small leakage in the equipments can lead to catostropohe and in a moment, it can lose it's leadership.

• Customer Concentration Risk - Although it is not a significant risk as of today, but any change in customer stickiness can impact the revenues.

• Regulation and Certification Risk

Disc. - Not an Investment Advice.