Inox India coming with IPO to raise upto Rs 1459.32 crore

Inox India 

• Inox India is coming out with a 100% book building; initial public offering (IPO) of 22,110,955 shares of Rs 2 each in a price band Rs 627-660 per equity share.
• Not more than 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not more than 15% of the issue will be available for the non-institutional bidders and the remaining 35% for the retail investors.
• The issue will open for subscription on December 14, 2023 and will close on December 18, 2023.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 2 and is priced 313.50 times of its face value on the lower side and 330.00 times on the higher side. 
• Book running lead managers to the issue are ICICI Securities Limited and Axis Capital Limited.
• Compliance Officer for the issue is Kamlesh Shinde.

Profile of the company

The company is the largest supplier of cryogenic equipment in India by revenue in Fiscal 2023. It has over 30 years of experience offering solutions across design, engineering, manufacturing and installation of equipment and systems for cryogenic conditions. Its offering includes standard cryogenic tanks and equipment, beverage kegs, bespoke technology, equipment and solutions as well as large turnkey projects which are used in diverse industries such as industrial gases, liquified natural gas (LNG), green hydrogen, energy, steel, medical and healthcare, chemicals and fertilizers, aviation and aerospace, pharmaceuticals and construction. In addition, it manufactures a range of cryogenic equipment utilised in global scientific research projects. 

The company’s Industrial Gas Division designs, manufactures, supplies and installs vacuum insulated cryogenic storage tanks and systems for the storage, distribution and transportation of industrial gases. It designs and manufacture customized cryogenic storage tanks and systems for its customers’ requirements as well as standard storage tank in accordance with industry standards. Its storage tank offering includes 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. Its product line also includes vaporizers of various types and skid mounted piping skids for pumping and regasification. It also provides engineering, procurement and construction (EPC) services for cryogenic solutions including bulk storage and regasification equipment, typically associated with petrochemical or steel projects. It currently manufactures beverage kegs using the NSF certified stainless steel material, and it is implementing the project by entering technology and marketing alliances with international industry players.

The company’s LNG Division designs, manufactures and installs standard and engineered 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, it has supplied over 60% of the tanks in both the stationary tank segment which 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. It also offer operation and maintenance for its LNG solutions.

The company’s Cryo Scientific Division designs, manufactures and installs equipment for technology intensive industrial applications and turnkey solutions for scientific and industrial research involving cryogenic distribution. Its activities are focused on customized 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. It is also engaged as one of the few Indian companies in the International Thermonuclear Experimental Reactor (ITER) project, which is an international nuclear fusion research and engineering megaproject.

Proceed is being used for:

• Carrying out the Offer for Sale of up to 22,110,955 Equity Shares by the Selling Shareholders.
• Achieving the benefits of listing the Equity Shares on the Stock Exchanges.  

Industry Overview

The Indian cryogenic equipment market size was estimated to be $353 billion in calendar year 2022. The demand for cryogenic equipment in India grew at a steady CAGR of 6.8% between calendar year 2017 and calendar year 2019. The lockdown and travel restrictions resulting from the Covid-19 pandemic saw the demand growth for cryogenic equipment stall for two years between calendar year 2019 and calendar year 2021. Going forward, demand for cryogenic equipment in India is expected to grow at a CAGR of 7.2% between calendar year 2023 and calendar year 2028, according to the CRISIL Report. The growth is expected to be driven by increase in industrial output, increase in investments in electronics and space sectors and shift towards cleaner fuel sources such as LNG and hydrogen in the industrial and transport sector. Of the types of equipment used, tanks used for storage and transportation form a major share of the Indian cryogenic equipment demand, amounting to a market share of 54% in calendar year 2022. The other major types of cryogenic equipment in the Indian market are valves which are used to control flow and for safety, vapourizers which convert cryogenic liquids to gaseous form, and pumps. In calendar year 2022, valves, vapourizers and pumps contributed to approximately 16%, 11% and 10% of the Indian cryogenic equipment industry, respectively. Other equipment accounting for 9% of the market share include, among others, pipes, regulators, freezers, dewars, strainers, samplers, heat exchangers, leak detection equipment, dispensers, and manifolds, fittings, vacuum jacketed / insulated piping, hoses and connections.

The equipment used to store, transport and handle the cooled gases in liquid form is collectively called cryogenic equipment. ASU’s form about 59-61% of the demand for domestic cryogenic equipment consumption in calendar yar 2022. The major cryogenic equipment includes tanks, valves, vaporisers and pumps. LNG applications form another major market for cryogenic equipment due to the large volume of natural gas demand and the subsequent need for its transport, storage and distribution. Of these application LNG bulk carrier ships and LNG terminals for liquefaction and regasifications are the major demand segments. LNG bulk carrier ships are marine vessels that enable the transportation of large quantities of liquified industrial gas which accounts for 3-5% of the domestic cryogenic equipment demand while LNG liquefaction and regasification terminals are facilities that convert the industrial gas into its liquid and gaseous states, respectively, to facilitate storage and transporation of large volumes of natural gas economically over long distances. This segment accounted for 17- 19% of the total cryogenic equipment demand in calendar year 2022. All other applications of cryogenic equipment are grouped under non-ASU segment, which includes rail and road transport, small-scale/temporary storage, cryopreservation, research studies, satellite launch facilities, cryogenic process technologies and cryogenic electronics, such as superconducting magnet systems, low-temperature detector systems and infrared array systems, among others.

Pros and strengths

Leading Indian supplier and exporter of cryogenic equipment and solution: In Fiscal 2023, the company was the largest supplier of cryogenic equipment in India by revenues in Fiscal 2023. Further, with exports to 66 countries in the six months ended September 30, 2023, and in Fiscal 2023, Fiscal 2022 and Fiscal 2021, it is well placed to capitalize on global opportunities in cryogenic equipment and systems as it designs and manufacture its equipment to international norms. It was also the largest exporter of cryogenic tanks from India in terms of revenue in Fiscal 2023. The company attributes its leading market position to its competitive advantages that include: the nature of the industry which requires specialized handling and technologically intensive solutions; its range of cryogenic equipment which spans the entire cryogenic value chain in its focus sectors; the company’s investment in product development and engineering that allows it to customize its equipment and systems to meet its customers’ requirements; and its presence in the industry for over thirty years with an established brand and a reputation for consistent quality of its products. 

Large portfolio of specialized cryogenic equipment engineered to global quality standards: The company offers comprehensive solutions across design, engineering, manufacturing and installation of standard as well as customized cryogenic equipment and systems. Its equipment and systems are used in industries such as energy, industrial gases, LNG and LCNG, steel, medical and healthcare, chemicals and fertilizers, aviation and aerospace, pharmaceuticals and construction.  Cryogenic engineering is specialized due to ultra-low temperatures where permanent gases, such as oxygen, nitrogen are in liquid form. Properties of materials as well as behaviour of liquified gases are different at such temperatures and require deep understanding and use of sophisticated engineering tools for realization of equipment for end applications. In addition, new industrial applications such as use of LNG as vehicle fuel requires innovative solutions to engineer safe and reliable products for automobile and marine applications. For research applications such customization is even more complex and even more demanding. All such engineering activities require trained manpower with skills, and it benefit from the lower engineering costs in India compared to the rest of the world. 

Diversified domestic and international customer base across industry sectors: The company has a diversified customer base across industry sectors and geographies. In the six months ended September 30, 2023, and in Fiscal 2023, Fiscal 2022 and Fiscal 2021, its installed capacity of cryogenic tanks and related items was 1,550, 3,100, 3,100 and 2,200 Equivalent Tank Units (which are cryogenic storage tanks of 10,000 litres) and 1.2 million, 2.4 million, 2.4 million and 1.4 million disposable cylinders, respectively. Further, it provided its equipment and systems to over 1,201 domestic customers and over 228 international customers across its three divisions in Fiscal 2023, Fiscal 2022 and Fiscal 2021. It provides its cryogenic storage, distribution and transportation equipment and systems to corporate and government customers. It has a diversified end-industry mix with customers in industries such as energy, industrial gases, LNG and LCNG, steel, medical and healthcare, chemicals and fertilizers, pharmaceuticals, aviation and aerospace, pharmaceuticals and construction, amongst others.

Strong product development and engineering focus: The foundation of the company is based on product development and engineering. It has an inhouse engineering team to develop new products and solutions. In the past three fiscal years, its inhouse team has developed cryogenic containers that comply with ISO containers standards, LNG fuel stations, LNG/LCNG fuel stations, LNG fuel tanks, cryogenic biological storage and beverage kegs. During the last five years, it has added new products: liquid hydrogen storage tanks, LNG dispensers, LNG fuel tanks and aluminium trailers. Its product development and engineering activities are critical in maintaining its competitive position, addressing customer needs and industry developments. Its activities are focused on developing newer technologies, engineering new products, reducing its cost of production, simplifying manufacturing processes, improving safety and reducing the environmental impact of its manufacturing and products. Its cryogenic pressure vessels comply with international standards and requirements. 

Risks and concerns

Cryogen leakage from equipment poses health hazards: Due to cryogenic gases being stored at very low temperatures, their leakage poses health hazards and risks. First, prolonged exposure to cryogen can cause frostbite and damage to the lungs. Secondly, discharge of the cryogen into an enclosed area can lead to oxygen deficiency in the area, posing a health risk. These necessitate extra care in designing, testing and maintaining cryogenic equipment. Although it has had no incidents of cryogen leakage in the six months ended September 30, 2023, and in Fiscal 2023, Fiscal 2022 and Fiscal 2021, it faces an inherent risk of exposure to claims in the event that the failure, use, or misuse of its products due to the high pressures and low temperatures at which many of its cryogenic products are used and the inherent risks associated with concentrated industrial and hydrocarbon gases. Any such claims for loss, in excess of or outside its insurance coverage, could materially and adversely affect its business, results of operations and financial condition.

Do not have any long term contracts with third-party suppliers: The company does not have any long term contracts with its third-party suppliers and typically source raw materials from third-party suppliers under contracts of short period/ purchase orders or the open market. Prices are negotiated for each purchase order. A failure to maintain its required supply of raw materials, and any inability on its part to find alternate sources for the procurement of such raw materials, on acceptable terms, could adversely affect its ability to deliver its cryogenic equipment and systems to customers in an efficient, reliable and timely manner, and adversely affect its business, results of operations and financial condition.

Subject to strict quality requirements, regular inspections and audits by customers: The company’s cryogenic products are subject to stringent certification requirements and is required to undergo rigorous testing and quality checks by its customers. Its products go through various quality checks at various stages including random sampling check and quality check internally. Many of its key customers have audited and approved its facilities and products in the past and may undertake similar audits periodically in the future. Successful audits play a critical role in customer retention, and any issues that arise in the course of these audit may lead to loss of the particular customer. Further, failure of its products to meet prescribed quality and certification standards may result in its customers cancelling present or future purchases of its products and could adversely affect its business, financial condition and results of operations. 

Operate in competitive environment: The market wherein the company operate is competitive, rapidly evolving and is characterized by frequent introductions of new cryogenic solutions, applications and technologies. It expects competition to persist and intensify in the future as the market wherein it operates is constantly evolving and growing with new and existing competitors devote considerable resources to introducing and enhancing products and systems. Accordingly, its ability to grow its business in accordance with its strategy will depend on its ability to introduce new products, adapt to new technologies, respond to pricing strategies by competitors, redevelop its brand, execute agreements with technology partners, improve its manufacturing capabilities and technology and develop intellectual property. To remain competitive, it must continue to invest significant resources in modernisation, research and development, manufacturing, sales and marketing and customer support. It cannot be sure that it will have sufficient resources to make these investments or that it will be able to make the technological advances necessary to be competitive. Failure to compete successfully against current or future competitors could have a material adverse effect on its business, results of operations and financial condition. 

Outlook

Inox India is a prominent manufacturer of cryogenic equipment. It has over 30 years of experience offering solutions across design, engineering, manufacturing and installation of equipment and systems for cryogenic conditions. Its offering includes standard cryogenic tanks and equipment, beverage kegs, bespoke technology, equipment and solutions as well as large turnkey projects which are used in diverse industries such as industrial gases, liquified natural gas (LNG), green hydrogen, energy, steel, medical and healthcare, chemicals and fertilizers, aviation and aerospace, pharmaceuticals and construction. In addition, it manufactures a range of cryogenic equipment utilised in global scientific research projects. It also was the largest exporter of cryogenic tanks from India in terms of revenue in Fiscal 2022. On the concern side, the company requires certain regulatory approvals, sanctions, licenses, registrations and permissions for operating and expanding its business and also to maintain registers and updated filings under various provisions of law. The company’s business requires working capital for day-to-day operations, procurement of raw materials and production. In addition, turnkey projects and contracts may require it to incur substantial working capital costs before milestone payments are made to cover these costs for the purpose of ensuring that such projects and contracts are delivered and completed in a timely manner.

The issue has been offered in a price band of Rs 627- 660 per equity share. The aggregate size of the offer is around Rs 1386.36 crore to Rs 1459.32 crore based on lower and upper price band respectively. On performance front, the company’s total income increased by 22.46% to Rs 9,841.99 million for Fiscal 2023 from Rs 8,037.13 million for Fiscal 2022, primarily due to a 23.40% increase in revenue from operations. The company’s profit for the year increased by 17.02% to Rs 1,527.14 million for Fiscal 2023 from Rs 1,304.98 million for Fiscal 2022. Meanwhile, the company is looking to gain market leadership positions across the entire value-chain of its product lines, and it intends to continue to expand its offerings in each segment to provide its customers with end-to-end solutions. By expanding its product portfolio to include a fully integrated product presence in each major segment, it expects to capture market share. In this regard, it aims to offer customers equipment for storage for transportation, for distribution and, finally, equipment for the end-use by customer.