Best Renewable Energy Stock: KP Energy vs Inox Wind

India is the fourth largest wind energy market in the world and a hub for wind energy manufacturing with an annual capacity of 12 gigawatts (GW).

To take this capacity to 140 GW by 2030, the government is encouraging private investment by providing various incentives.

Several private players are investing heavily in wind energy projects to make the most of this opportunity.

Although there are several listed players, two prime beneficiaries in the wind energy market are Inox Wind and KP Energy.

In this article, we compare them on various parameters to find out which one is a better wind energy stock.

Business Overview

# KP Energy

KP Energy is engaged in the business of providing balance of plant (BoP) solutions to the wind energy sector.

It is involved in the entire development process of wind farms, right from conceptualisation to commissioning of the project.

The company also operates a portfolio of wind energy generation assets with a total capacity of 18.4 megawatts (MW).

It also undertakes operations and maintenance of wind farms and currently maintains a portfolio of 200 MW.

Some of its clients include NTPC, Aditya Birla Renewable Energy, and Apraava Energy.

# Inox Wind

Part of the Inox group, the company is in the business of providing engineering, procurement and construction (EPC) services to wind farms.

It is also engaged in the generation and sale of wind energy.

In December 2023, the company's board approved the amalgamation of Inox Wind Energy with Inox Wind.

Inox Wind is a manufacturer of wind turbine generators and also provides end-to-end turnkey solutions, from site acquisition to development operations and maintenance of wind power projects.

It has four manufacturing plants with a cumulative capacity to produce 1.900 MW of nacelle and hubs, 1,600 MW of blades, and 600 MW of towers.

Some of its clients include Tata Power, Adani, NTPC, NHPC, and Oil India.

Particulars	K P Energy	Inox Wind
Market Cap (in Rs billion)*	23.7	167.9
Order Book (in Megawatt (MW))**	888.1	1276

Data Source: Equitymaster, company presentation|*as on February 9, 2024|** as of September 2023

Between the two, Inox Wind has a higher market cap and a higher order book.

The primary reason behind this is Inox Wind's presence across eight states in India and a reputed clientele that gives it high repeat orders. On the other hand, KP Energy majorly functions in Gujarat and has limited operations.

However, KP Energy has a land bank of wind sites across Gujarat with a power generation potential of over 1000 MW, which is the highest wind potential in the country.

If KP Energy decides to expand its power generation business, it could become a leading player in the wind power generation business.

If we compare the performance of both companies on the bourses, both have outperformed the benchmark Nifty 50 and given multibagger returns.

KP Energy outperformed by giving a 521% return as opposed to a 442% return from Inox Wind.

# Revenue

In terms of revenue growth, KP Energy is ahead of Inox Wind as the former has a smaller base.

The company's revenue has grown at a compound annual growth rate (CAGR) of 22.5% in the last five years, driven by faster project execution and an increase in revenue from the sale of power.

Inox Wind's revenue, on the other hand, saw a degrowth of 12.5% in the last five years, primarily due to lower-than-expected execution due to the pandemic.

However, the company's revenue is expected to increase in the medium term due to improved execution, high order book, and commercialisation of new products.

Revenue

Net Sales (in Rs m)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23	5-Year CAGR
K P Energy	1,584	750	716	2,504	4,375	22.50%
Inox Wind	14,374	7,602	7,107	6,246	7,370	-12.50%

Data Source: Equitymaster

# Profitability

Even in terms of profitability metrics, KP Energy is leading when compared to Inox Wind.

In the last five years, KP Energy's earnings before interest tax and depreciation (EBITDA) and net profit have grown at a CAGR of 16.3% and 17.7%, respectively.

In contrast, Inox Wind witnessed an expansion in losses during the same period.

An increase in the scale of operations has helped KP Energy grow its profit. On the other hand, Inox Wind's profitability was affected due to a fall in revenue.

In the current financial year, Inox Wind's financial performance has improved due to high order inflow and faster order execution.

Industry experts are expecting the company's losses to contract and profit margins to improve in the medium term.

Profitability

EBITDA (in Rs m)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23	5-Year CAGR
K P Energy	331	108	178	344	705	16.30%
Inox Wind	1,492	-1,299	-1,918	-3,124	-5,168	-228.20%
PAT (in Rs m)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23	5-Year CAGR
K P Energy	194	11	61	183	439	17.70%
Inox Wind	-400	-2,794	-3,071	-4,826	-6,707	75.70%
Gross Profit Margin	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
K P Energy	20.90%	1440.00%	2490.00%	1380.00%	1610.00%
Inox Wind	10.40%	-17.10%	-27.00%	-50.00%	-70.10%
Net Profit Margin	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
K P Energy	12.30%	1.50%	8.50%	7.30%	10.00%
Inox Wind	-2.80%	-36.80%	-43.20%	-77.30%	-91.00%

Data Source: Equitymaster

# Debt Management

It is important to look at a company's debt metrics to understand how the company finances its business. A very high debt indicates higher financial obligations and lower profits for the company.

Moreover, a high debt also indicates a high risk if the company is not capable of repaying its dues.

Both companies have a high working capital requirement and hence require sufficient capital to run their business.

KP Energy and Inox Wind are leveraged companies. However, KP Energy's debt is falling continuously due to the company's efforts to deleverage its balance sheet.

On the other hand, Inox Wind's debt has increased in the last five years.

The company is, however, taking measures to deleverage its balance sheet. It recently sold part of its stake in a Special Purpose Vehicle (SPV), Nani Virani, to reduce its debt.

KP Energy has taken debt to fund the increase in its power production capacity, but the company has sufficient liquidity and a high-interest coverage ratio of 11.7x to pay its debt obligations.

Inox Wind, on the other hand, has a negative interest coverage ratio as of March 31, 2023.

Debt Management

Debt to equity ratio (x)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
K P Energy	0.5	0.4	0.4	0.2	0.3
Inox Wind	0.2	0.1	0.3	0.2	0.5

Data Source: Equitymaster

# Financial Efficiency

To understand a company's ability to generate profits with limited capital, it is important to look at the return ratios.

Return on capital employed (RoCE) and return on equity (RoE) are two such ratios that can help assess a company's financial efficiency.

A high ratio indicates that a company is able to generate high returns for its investors.

Financial Efficiency

ROCE	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
K P Energy	32.90%	8.70%	16.00%	29.70%	43.30%
Inox Wind	4.60%	-10.30%	-11.50%	-16.30%	-13.30%
ROE	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
K P Energy	32.50%	1.80%	9.20%	20.90%	34.20%
Inox Wind	-2.00%	-16.60%	-23.30%	-26.40%	-38.60%

Data Source: Equitymaster

In terms of return ratios, KP Energy is leading.

The company's five-year average RoCE and RoE are 26.1% and 19.7% respectively. Moreover, the return ratios have improved consistently since the lockdown.

On the other hand, Inox Wind's return ratios are negative due to accumulated net loss. However, the company reported a contraction in losses in the initial quarters of the financial year 2024, which indicates that the return ratios might improve going forward.

# Dividend

To know whether a company will pay consistent dividends, it is important to look at its dividend metrics.

A consistent increase in the dividend metrics indicates that the company is likely to pay dividends in the future.

Dividend

Dividend Per Share (Rs)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23	5-Year CAGR
K P Energy	0.3	0	0	0.3	0.4	7.00%
Inox Wind	0	0	0	0	0	NM
Dividend Yield	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
K P Energy	0.20%	0.00%	0.00%	0.20%	0.20%
Inox Wind	0	0	0	0	0
Dividend Payout Ratio	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23
K P Energy	2.90%	0.00%	0.00%	3.00%	1.80%
Inox Wind	0	0	0	0	0

Data Source: Equitymaster

In the case of dividends, KP Energy is leading as it pays dividends to its shareholders, whereas Inox Wind doesn't. However, the company is not consistent with its dividend payments, as it has paid only three dividends in the last five years.

Moreover, the dividends are quite low when compared to other dividend-paying companies.

The reason for low or no dividends is that both companies have a high working capital requirement and have significant debt on their books.

# Valuation

To understand the worth of a company, it is important to look at its valuations.

Two valuation ratios that are commonly used are price-to-earnings (P/E) and price-to-book value (P/B).

Both ratios help us measure the actual worth of a company.

A high ratio indicates they are overvalued, whereas a low ratio indicates they are undervalued.

Valuations	K P Energy	5-Year Average	Inox Wind	5-Year Average
P/E (x)	46.2	39.7	NM	-13.4
P/B (x)	15.8	2.8	10.9	1.2

Data Source: Equitymaster

KP Energy has a P/E of 46.2x, which is higher than its peers in this sector. Its P/B, which is at 15.8x, is also higher than the industry average.

For Inox Wind, the P/E is not measurable due to net loss on its income statement. The P/B is 10.9x, which is higher than its five-year average and industry average but lower than KP Energy.

Which Renewable Energy Stock is Better?

In terms of revenue growth, profitability, financial efficiency, debt management, and dividends, KP Energy is leading ahead of Inox Wind.

On the other hand, Inox Wind has better valuations than KP Energy.

With the amalgamation of Inox Wind Energy into Inox Wind, the revenue of the combined entity is expected to bump up.

It is also commercialising some new products, which can aid in revenue growth.

Inox Wind has secured quite a few orders from several notable clients and has improved its order execution.

As a result, in the initial quarter of FY24, the company reported a growth in revenues and a contraction in profits.

Strong support from the parent group, an established track record in the wind turbine manufacturing business, and improved performance will aid the company's growth in the medium term.

KP Energy, on the other hand, is increasing the scale of its operations.

This helped the company execute faster, which led to an increase in revenue and profits.

It is also investing in power generation through wind and solar energy to increase its revenue.

To add to this, it has a land inventory to produce over 1000 MW of power through wind energy, which increases its prospects for growth.

Given the growing need for renewable energy and the government's renewable energy target of 500 gigawatts (GW), both companies are set to grow exponentially.

However, project execution and how they manage their debt will play a major role in their growth story.

Happy Investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...