IPO Note - Inox Wind Ltd :HDFC Sec

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--> Background & Operations: Inox Wind Ltd (IWL) is one of India’s leading wind power solutions providers. It manufactures wind turbine generators (WTGs) and provides turnkey solutions by supplying WTGs and offering services including wind resource assessment, site acquisition, infrastructure development, erection and commissioning, and also long term operations and maintenance of wind power projects. Incorporated in April 2009, IWL commenced its operations in March 2010. The company manufactures the key components of WTGs in-house such as nacelles, hubs, rotor blade sets and towers. It has established relationships with leading suppliers for raw materials, such as steel and epoxy, and those components that it does not manufacture in-house, such as gearboxes, electric control systems (ECS) and generators. IWL has a perpetual license from AMSC Austria GmbH (formerly Windtec GmbH), or AMSC, a leading wind energy technology company based in Austria, to manufacture 2 MW WTGs in India based on AMSC’s proprietary technology. Its license in India is exclusive, subject to three existing licenses that AMSC had previously granted for the production and sale of 2 MW WTGs worldwide, including in India. In addition to its license in India, it also has a non-exclusive license to manufacture 2 MW WTGs outside India based on AMSC’s proprietary technology. IWL has non-exclusive licenses from WINDnovation Engineering Solutions GmbH (based in Germany), or WINDnovation, for custom-made rotor blade sets. Through Its wholly owned subsidiaries, Inox Wind Infrastructure Services Limited (“IWISL”) and Marut-Shakti India Limited (“MSEIL”) IWL provides turnkey solutions for wind farm projects. These services include wind resource assessment, site acquisition, project development, erection and commissioning, and also long term operations and maintenance of wind power projects. It has acquired or expects to acquire access to certain Project Sites in Rajasthan, Gujarat, Andhra Pradesh and Madhya Pradesh and it expect to have access to Wind Sites Under Acquisition in Rajasthan, Gujarat, Andhra Pradesh, and Madhya Pradesh, which it estimate are suitable for the installation of an aggregate of 4,052 MW of capacity. IWL intends to develop these Project Sites and Wind Sites under Acquisition for customers as part of its turnkey model for wind farm development. Objects of Issue: The objects of the Issue are The Issue comprises of the Fresh Issue by the Company and an Offer for Sale by the Selling Shareholder. The Company will not receive any proceeds from the Offer for Sale by the Selling Shareholder and the proceeds received from the Offer for Sale will not form part of the Net Proceeds. IWL proposes to utilise the funds which are being raised through the Fresh Issue, after deducting the Issue related expenses to the extent payable by it towards funding the following objects:- 1) Expansion and upgradation of existing manufacturing facilities 2) Long term working capital requirements 3) Investment in its Subsidiary, IWISL, for the purpose of development of power evacuation Infrastructure and other infrastructure development; and 4) General Corporate Purposes In addition, the Company expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges.

Competitive Strengths: Ability to provide turnkey solutions for wind farm projects in India: Based on IWL’s experience of working with customers in India, many customers prefer not to engage in Wind Site acquisition and other processes associated with the development of wind farm projects. Together with its wholly-owned subsidiaries, IWISL and MSEIL, provides turnkey solutions for wind farm projects. These services include wind resource assessment, site acquisition, infrastructure development, erection and commissioning and long term operations and maintenance of wind power projects. High quality WTGs based on sophisticated technology and design: IWL manufactures the major components of its WTGs, including nacelles, hubs, rotor blade sets and towers, at its in-house facilities. It has a perpetual license from AMSC, a leading wind energy technology company based in Austria, to manufacture 2 MW WTGs in India based on AMSC’s proprietary technology. It also has a non-exclusive license from WINDnovation for custom-made rotor blade sets. IWL’s Type Class III-B 2 MW WTGs have been designed and developed after due assessment of wind site qualities and conditions across low wind resource locations, such as those in India. Its WTGs are designed and developed with a view to achieving efficient power curves, improved up-times and reducing operations and maintenance costs. Strong order book and ready pipeline of Project Sites: As of December 31, 2014, IWL’s order book included orders for WTGs with aggregate capacity of 1,258 MW, comprising orders for supply and erection of WTGs with aggregate capacity of 694 MW, including 50 MW ordered by IRL, a Group Company, in addition to orders for only the supply of WTGs with aggregate capacity of 564 MW. Out of the above order book, WTGs of aggregate capacity of 122MW have already been erected and commissioned as of December 31, 2014, and hence, a significant part of revenues in respect these WTGs has been recognized and payment thereof realized by December 31, 2014. In September 2013 IWL acquired Marut-Shakti Energy India Limited, or MSEIL, a company that is engaged in the development of wind power projects and has been allotted Project Sites with aggregate capacity of 85 MW in Madhya Pradesh, which are included in its inventory of Project Sites, and has also applied for the registration of Wind Sites Under Acquisition with aggregate capacity of 80 MW in Madhya Pradesh. Efficient cost structure: IWL manufacture the key components of its WTGs in-house this helps ensure cost competitiveness, cost-effective logistics and attractive margins. Its license to use AMSC technology reduces its research and development expenses and it operates with a strong focus on controlling operating and financing costs. It has split up its existing manufacturing activities with a view to ensure costefficiency. In addition, based on operating and financial performance, IWL’s cost structure is among the most competitive in the wind turbine manufacturing industry. Strong management team: IWL’s senior management has extensive experience in the quality, engineering, supply chain management, manufacturing, marketing, project development and maintenance of WTGs. Each of its senior managers in charge of these functions has an average of more than ten years of experience in their respective fields and considerable experience in the wind energy industry. Recognized and trusted corporate group: IWL is a member of the Inox Group, which commenced operations in 1923 and currently operates in the industrial gases, engineering plastics, refrigerants, chemicals, cryogenic engineering, renewable energy and entertainment sectors. The Inox Group, which includes two publicly-listed companies, namely Gujarat Fluorochemicals Limited, or GFL, and Inox Leisure Limited, is a market leader in various industries in India. The Inox Group’s long history, business relationships and financial stability instill confidence in its customers who prefer dependable and established suppliers for long-term projects such as wind farms

Business Strategy: Expanding and improving existing manufacturing facilities: IWL has in-house facilities dedicated to manufacture the major components of a WTG, including nacelles, hubs, rotor blade sets and towers. It has entered into license agreements with WIND novation to allow it to manufacture rotor blade sets with rotor diameters of 100 meters and 113 meters. IWL intends to apply a portion of the proceeds of this Issue to expand and improve its manufacturing facilities to meet expected increased demand for its WTGs based on its recent introduction of rotor blade sets with rotor diameters of 100 meters and planned introduction of rotor blade sets with rotor diameters of 113 meters. IWL also intend to expand the capacity of the tower manufacturing facility at its Rohika Unit from the current capacity of 150 towers per annum to 300 towers per annum. In addition, it intends to invest in new equipment at its Una Unit with a view to optimizing the capacity of its nacelle and hub manufacturing facility. Constructing a new integrated manufacturing facility at Barwani, Madhya Pradesh: IWL is in the process of constructing a new integrated manufacturing unit at Barwani, Madhya Pradesh to manufacture nacelles and hubs, rotor blade sets and towers. IT has been allotted 170,000 square meters of land in the Industrial Area, Relwa Khurd, Barwani District, Madhya Pradesh, for a period of 30 years by Madhya Pradesh Audyogik Kendra Vikas Nigam (Indore) Limited for construction of this plant. The projected cost of construction of the proposed Barwani Unit is approximately Rs 2,000 million, which it intends to fund with internal accruals and bank financing. IWL commenced construction of its proposed Barwani Unit in November 2014 and the facility is expected to be commence production during Financial Year 2015-2016. After giving effect to the expansion of its existing manufacturing facilities and the construction of its proposed Barwani Unit, its total production capacity is expected to be 950 nacelles and hubs, 800 rotor blade sets and 600 towers Increasing inventory of Project Sites: IWL has acquired access to certain Project Sites in Rajasthan, Gujarat, Andhra Pradesh and Madhya Pradesh and expect to have access to Wind Sites Under Acquisition in the states of Rajasthan, Gujarat, Madhya Pradesh, Andhra Pradesh and Madhya Pradesh, which it estimates are suitable for the installation of an aggregate of 4,052 MW of capacity. It intends to develop these Project Sites and Wind Sites Under Acquisition for customers as part of its turnkey model for wind farm development. As part of its strategy to provide turnkey solutions for wind farm projects, IWL intends to continue to pursue further Wind Site acquisition and development opportunities to replenish and expand its inventory of Wind Sites. Improving the cost-efficiency of generating power from wind energy: IWL aims to continue improve the cost-efficiency of power generation from wind energy by reducing the cost of generating electricity per kWh from its WTGs. It plans to achieve this goal by offering its customers more advanced WTGs with improved power curves, such as its newly introduced WTGs of 100 meter rotor diameter and its proposed WTGs of 113 meter rotor diameter, higher machine availability times, identifying Wind Sites which offer wind conditions that are optimal for WTG installations and reducing the costs of manufacturing, infrastructure, operations and maintenance through economies of scale. Continuing to consolidate its position in the Indian market and grow outside of India: IWL intends to develop its customer relationships and enter into agreements with the large independent wind power producers to ensure a steady expansion of capacity installations. To further expand its business, it intend to pursue international growth opportunities, which may involve the establishment of offices and production facilities outside of India. The adaptability of its WTG design positions it well to expand outside of India when appropriate opportunities arise. It will also evaluate potential acquisition targets and alliance partners that offer an opportunity to grow its business and/or expand its capabilities Industry: Power Generation in India India is the fourth largest energy consumer in the world trailing only the United States, China and Russia. Despite overall increases in electricity consumption, India’s per capita electricity consumption remains fairly low. As of March 2013, the per capita consumption was estimated to be 917.2 kWh which is lower than that of the developed countries and the other BRICS (Brazil, Russia, India, China and South Africa) countries. The table below sets forth the per capita electricity consumption by kilowatt hour in 2012 of India compared to the other countries Generation Capacity of India Electricity demand in India increased from 739.3 BU in the year ended March 31, 2008 to 1,002.2 BU in the year ended March 31, 2014, an increase of more than 35%. Despite an increase in generation capacity, a power supply deficit continues to exist in India. The average energy deficit and peak demand deficit for India over the past seven years from the year ended March 31, 2008 to the year ended March 31, 2014 was 8.7% and 8.15%, respectively. During the years ended March 31, 2012, 2013 and 2014 the energy deficit was 8.5%, 8.7% and 4.2%, respectively, while peak deficit for the year ended March 31, 2014 was 4.5%. India’s energy deficit and peak demand deficit for the year
ended March 31, 2014 were 42.2 BU (4.2%) and 6.1 GW (4.5%), respectively. Energy deficit refers to the shortfall in meeting the overall electrical energy demand during a year. Peak deficit refers to the shortfall in meeting power demand during peak periods in a day. As of March 31, 2014, coal based projects accounted for approximately 59.2% of the total installed power generation capacity in India and renewable energy based projects accounted for approximately 12.9% of installed capacity. However, renewable energy’s share of energy output is approximately 6% in India due to low capacity utilization. Wind Power Market During calendar year 2013, global installed capacity for wind power increased by 12.5% to approximately 318.1 GW. Globally, more than 35 GW of capacity was added during 2013. More than 51% of the installations during 2013 were in Asia. Total investment in the wind sector during 2013 was US$80.3 billion. The chart below shows cumulative market share (by calendar year 2013) and annual wind power installations (during calendar year 2012) for the top 10 countries by wind power installation. India ranked at fifth position for cumulative installations with a 6.3% share of cumulative installations and fourth position with a 5% share of annual installations at the end of calendar year 2013.

Key Concerns: Projects included in order book may not ultimately be confirmed: As of December 31, 2014, IWL’s order book included orders for WTGs with aggregate capacity of 1,258 MW, comprising orders for supply and erection of WTGs with aggregate capacity of 694 MW, including 50 MW ordered by IRL, a Group Company, in addition to orders for only the supply of WTGs with aggregate capacity of 564 MW. Its order book includes executed binding contracts for WTGs with aggregate capacity of 826 MW and signed term sheets or letters of intent, which are subject to the execution of binding contracts, for WTGs with aggregate capacity of 432 MW. As such, it cannot be assured that the orders will be confirmed, that binding contracts will be executed, and that binding contracts or other orders will not be cancelled or reduced or result in revenues that it will receive payment as per the indicative terms of any such orders. In addition, it may also encounter certain problems while executing a project as ordered, or executing it on a timely basis. If it is unable to commission the WTGs on schedule, it has to pay liquidated damages to its customers and it may also suffer damage to its reputation, which could result in further terminations of orders. Any delay, cancellation or payment default could adversely affect its cash flow position, revenues or profits, and adversely affect the trading price of the Equity Shares. Acquisition of Project Sites and/ or Wind Sites Under Acquisition may be subject to legal uncertainties and defects: Through its whollyowned subsidiaries, IWISL and MSEIL, IWL provide turnkey services for wind farm projects. As part of its turnkey solutions model for wind farm projects, it acquires and develops Wind Sites and facilitates of the transfer of rights to such Wind Sites in favor of its customers pursuant to its project agreements with its customers. Some or all of the land comprising its Wind Sites may not be acquired by it for a variety of reasons, including that allotments of government land may be cancelled and that private land may not be available at competitive prices or at all. Its inability to acquire such Wind Sites may hinder its ability to successfully execute wind power projects for its customers in time or at all, which may in turn result in a material adverse effect to its business, prospects and results of operations. Demand for products and services depends on the activity and new capital expenditure levels in the wind power sector: All of its historical income has been, and its expected future income will for the foreseeable future be, derived from products and services sold in connection with wind power projects. Demand for its products and services are particularly sensitive to the commercial viability of wind power relative to the commercial viability of other sources of power. With respect to governmental policies, certain fiscal incentives including the ability to use accelerated depreciation for tax purposes, have spurred demand for WTGs by individuals and certain companies. While the stated policy objective of the Government of India, which is reflected in recently announced regulations, is to increase generation of power from renewable sources, a reduction of capital investment in the wind power industry due to changes to any of the above factors or for any other reason could have a material adverse effect on its results of operations and financial condition. IWL does not have an agreement to share revenues derived from wind farms that it develops for Group Companies or its Promoter: IRL and Inox Renewables (Jaisalmer) Limited, which are Group Companies, and GFL, its Promoter, together accounted for 15%, 34%, 100%, 100% and 100% of its revenue from operations in the years ended March 31, 2014, 2013, 2012, 2011 and 2010, respectively. While IWL Group Companies and Promoter did not account for any of its revenue in the nine months ended December 31, 2014, as of December 31,

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