Inox Wind Energy: What does merger with parent IWL mean?

The market seems to be expecting the best out of wind-turbine manufacturers, now that the world is looking to shift to renewable energy in an attempt to sail through the devastating effects of climate change.

Some of the wind-turbine manufacturers, such as Inox Wind Energy Ltd (IWEL), Inox Wind Ltd (IWL) and even Suzlon Energy, have garnered investor attention.

Shares of IWL have risen over 30 percent in the past three months, while those of IWEL have skyrocketed 85 percent. Even Suzlon Energy shares have witnessed an upswing of 87 percent during the same period.

In fact, IWEL made news on June 13, 2023, with the company announcing a merger with parent IWL by way of a share swap. The IWEL share also hit the all-time high of Rs 2,150 on the BSE on June 13.

To bring in a green power revolution, the Indian government has set an ambitious target of 500 GW of installed renewable energy by 2030, which include 280 GW of solar power and 140 GW of wind power.

The installed capacity of wind power is expected to increase by around 8 GW annually, to reach the targeted capacity by 2030, analysts have said.

IWEL has been in the news today with the company announcing a merger with parent IWL by way of a share swap.

Catch up on all LIVE stock market updates here

What IWEL and IWL do

IWEL generates and sells wind energy, provides services for erection, procurement and commissioning (EPC) of wind farms and holds a strategic business interest in renewable energy.

IWL is also engaged in a similar line of business. It manufactures and sells wind- turbine generators and also provides EPC, Operations & Maintenance and common infrastructure facility services for wind-turbine generators and wind farm development services.

Share swap

For every 10 shares of IWEL, 158 equity shares of IWL will be issued.

In consideration of the amalgamation of IWEL into IWL, the latter will issue share warrants convertible into equity shares to every warrant holder of the former in this ratio — 158 share warrants of IWL with an issue price Rs 54 each to be issued for every 10 share warrants of IWEL, with an issue price of Rs 847 each.

Rationale

The rationale for this merger is the consolidation of wind energy business and streamlining of group structure and operations.

The proposed arrangement would enable the consolidation of the same line of businesses, pooling of homogeneous assets and expertise across the group, along with ensuring simplified and streamlined group structure by reducing the number of listed entities in the group, IWEL explained in the regulatory filing.

Read more | Why are investors blown away by this wind energy stock?

This merger will help improve the overall operational efficiency and effectiveness of the combined business. Further, there will also be a reduction in the overall operational, administrative and compliance cost.

Nirav Karkera, Head of Research, Fisdom, also agreed that the key benefits of this consolidation will be operating synergies and cost efficiencies.

This merger is merely an amalgamation of IWEL, which was a vertical extension into the value chain with IWL, he added.

On the contrary, some market participants believe this merger is not a good idea as it reeks of corporate shenanigans. It does not put the company in a good light to demerge first and then re-merge, some added.

Technical view

Looking at the dramatic rise of IWEL and decline of IWL shares on June 13, Karkera said that one should not read much into the steep share price movement as the prices have only adjusted in response to the proposed share swap terms.

At 1:10 pm, IWEL shares were up 15 percent at Rs 2,087.65 and IWL shares were down about 3 percent at Rs 141.7.

Read more | Foreign investors flocked to Varun Beverages, Britannia in past three years

Shares of IWL have made a classical double-top in the Rs 150-155 zone and has seen a corrective retracement, said Milan Vaishnav, CMT, MSTA, founder and technical analyst, Gemstone Equity Research and ChatWizard FZE.

“While the primary uptrend remains absolutely intact, the stock may consolidate in a broad range for some more time. With no exit signals, investors may stay invested in the stock. However, fresh entries can be made only after the stock crosses above the Rs 155 level,” he added.

Looking at the charts of IWEL, he said the stock is in a very strong uptrend and has made its lifetime high, but has come off from that point. The stock also remains steeply overbought.

He believes it would be prudent to book profits in IWEL and take some money off the table. Re-entry can be done in this stock above the Rs 2,050 level. Fresh buying should also be done only above the Rs 2,050 level as the current level do not present a favourable risk-reward ratio, he added.

Talking about Suzlon Energy, the scrip witnessed a strong breakout once it crossed Rs 8.80. It has returned over 80 percent in less than a month. At present, Vaishnav does not see any sign of reversal but given the kind of upmove, he suggests partially booking profits in the stock.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.