Wind energy companies have been getting lot of buzz after the mega successful IPO of Suzlon. One such counter that is smoking hot in Indian markets is Indowind Energy. In just 2 months since its listing the stock has gone from 65/- to 186/- . Close to 300% gain............Can't beat that..............There is a mad frenzy to get in this stock at whatever price available. However, my view is that people should curb their enthusiasm and analyze the business potential before really getting into this stock at current levels.
Before starting my research I surfed the web to see if somebody else has already done the research that I need. Sometimes you can find good articles on the web which may eliminate the need for you to do your own research. I mean there is no point in duplicating efforts. Two such articles on Indowind energy have been listed below for your reading.
One thing was quite clear to me that no promoter would try to list his IPO below the market price in the current bull market. If Indowind energy was truly worth 186/- the promoter of Indowind would not have asked for an IPO price of 65/-. That itself was a warning signal for me to not buy this stock at current levels. Friends.........you don't need a great deal of financial knowledge to understand the value of stocks.............just a little bit of common sense, business acumen and basic mathematics is quite sufficient to avoid losses in the markets.
One more important thing that we need to understand is that wind energy is currently very inefficient for commercial production. I read somewhere that efficiency of wind farms is only 35% as compared to 60% plus for conventional power plants. Wind technology has to advance to a level where it can start achieving the efficiencies of conventional power plants.
Carbon credits (CER) is one reason why Indowind is getting all the hype. I saw that Indowind has 12.3 MW certified by United Nations Framework For Climatic Convention (UNFCCC) for generating Carbon Emission Reductions (CERs). There is a 15MW wind farm project in Rajasthan which generates approximately 1,00,000 CERs annually. Using this logic I have made an attempt to value Indowind's shares. Please check the source of my information below.
Back of the Hand Valuation:
The value of CER can vary from 7/- to 15/- euros depending on market conditions for carbon credits. Assuming the most optimistic scenario; potential revenue for Indowind energy from carbon credits at today's exchange rate could be approx 1,00,000 x 15 x 56 = 8.4 crores annually.
Adding 6.5 crores of net profit from FY07 to 8.4 crores; potential net income for Indowind could be 14.9 crores when benefits of carbon credits are fully realized. On a 6 crore equity base that would translate into an EPS of 14.9 / 6 = 2.48/-. With a P/E ratio of 50 the value of Indowind stock could be 2.48 x 50 = 124/-
Mind you that I used some very optimistic numbers to arrive at this valuation. Please do your own homework and decide whether you want to buy Indowind Energy at 186/- 0r not. I believe my money is safe with some other stock and hence decided to give Indowind a pass for the time being.
If you have any questions or comments feel free to contact me on secmoney@gmail.com or leave a comment at this blog.
Regards,
Bargain Hunter
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