Parag Kulkarni, Executive Editor, INOX India Limited

12 Dec 2023 , 03:35 PM

The company is in a very niche business and does not have any listed peers in India or globally. Help us understand the business model of Inox India Limited.

We specialize in a unique and highly specialized field where our expertise lies in the technology to store gases in liquid form at extremely low temperatures. This capability sets us apart, as very few are equipped with the knowledge and capacity to manufacture such specialized equipment. The utilization of gases in liquid form is rapidly expanding, with traditional industrial gases like oxygen, nitrogen, and argon finding new applications. Emerging trends such as LNG as a fuel, both in its cold and gaseous liquid form, and the future prospect of transporting hydrogen in bulk as a liquid gas are propelling the growth of our industry.

Over the past 30 years, we have honed our skills and developed a high level of specialization. With nearly 400 engineers dedicated to this unique field, we have positioned ourselves among the top 10 companies globally. Despite our global presence and competition, our visibility is relatively low. This is a key driver behind our decision to go public. We believe that going public will also provide us with the platform to elucidate how this business can thrive in the future.

Could you elaborate on how the order book serves as an indicator for economic activity? 

Certainly, being a B2B business, our contributions span various sectors due to the diverse applications of gases in our expanding portfolio. The order book, to some extent, serves as a proxy for economic activity, reflecting the growth and demand in different regions.

As a capital goods supplier to the industry, our growth is intricately linked to the increasing use of gases, aligning with the overall expansion of economies globally. Given the limited number of companies equipped to provide specialized equipment in this field, our role becomes crucial. The products we manufacture are mission-critical, especially in applications like providing liquid oxygen tanks for hospitals. The reliability and track record of over 30 years instill confidence in our buyers, who are meticulous in selecting companies for such critical infrastructure needs.

While our business naturally aligns with the general growth tied to GDP, the recent surge in our business is attributed to the adoption of newer gases, particularly LNG and hydrogen. These gases are gaining prominence due to their essential role in addressing environmental concerns, reducing CO2 emissions, and adhering to government regulations. Notably, LNG’s cost-effectiveness compared to diesel and its cleaner attributes contribute to the increasing demand in the market.

How does your company’s comprehensive end-to-end approach, helps you in addressing the specialized storage, conversion, and infrastructure requirements for LNG?

We play a crucial role by offering comprehensive end-to-end solutions in this field. It is not merely about introducing LNG into any vehicle; it requires a highly specialized approach for proper storage and conversion into gas for efficient utilization.

Beyond that, a specialized infrastructure is imperative for the transport and receipt of LNG in its liquid form on the road. This involves the need for specific dispensers and dedicated fuel stations capable of handling such requirements. Our involvement spans the entire value chain, encompassing these intricacies.

This holistic approach positions us favorably, ensuring sustained growth in the foreseeable future.

What percentage of your revenue comes from domestic markets, and what percentage is generated from international markets?

It is a balanced split, approximately 50% for exports and 50% for the domestic market. However, specifically, last year leaned slightly more towards domestic market, which formed about 55% of total revenue. 

What sets you apart in this IPO flurry and why should retail investors consider investing in this IPO?

From the investors’ perspective, the focus should be on a company that can be trusted to deliver long-term returns rather than seeking short-term gains or losses. Our business stands out as a pioneer, operating in a niche with high barriers to entry due to the need for emissions-specific and quality-conscious products. We are witnessing favorable trends in newer applications driving growth, and being in this specialized field allows us to maintain healthy profit margins.

The combination of sustained business growth (over 20%), consistently maintained profit margins and our early market presence positions us as an attractive investment. The potential for continuous growth is significant, considering the initial stage of our market presence and our ability to retain profitability. Additionally, our strong management team, established systems, and global-scale production contribute to the stability of our business model.

For retail investors, these factors offer a promising outlook with stability, industry knowledge, and consistent long-term growth potential.

Client concentration seems to be a significant risk for the company with the largest client forming 12% and top 10 forming 46% of revenues in FY23. How do you plan to diversify the client profile over the next few years?

Given the highly specialized nature of our business, the client base is inherently limited. For instance, in the industrial gas sector, our clients consist of major companies like Linde, Air Products, and others, which invest substantial sums in establishing large plants for gas distribution. These companies are few in number due to the considerable capital investment required, even though the actual cost of the gases, such as oxygen, may be relatively low.

In contrast, the LNG sector presents a broader clientele. Our equipment is sought after by various entities involved in LNG distribution, including public sector companies and city gas distribution companies. The demand for investments in infrastructure from these diverse players contributes to our market presence.

Moreover, our involvement in international projects, especially in the cryo scientific business, adds another layer of diversity. Projects like ITER project, space research initiatives by ISRO, and other scientific endeavors contribute to our client base.

Despite the limited number of clients in each sector, the diversity comes from our presence in three distinct sectors: industrial gases, LNG, and cryo scientific projects. This segmentation ensures that any potential disturbance to one customer or sector does not significantly impact the overall business. While each sector caters to a niche audience due to the unique nature of our products, we anticipate further diversification, particularly with the expansion of larger projects in the LNG sector.

What are the primary inputs used in your operations, and how are the pricing structures determined for your contracts?

Our pricing strategy is intricately tied to our input costs. The major contributors to our input costs are stainless steel plates and carbon steel plates, both of which are commodities. Additionally, we source specialized valves and gauges. The pricing dynamics for stainless steel and carbon steel plates are internationally tracked through indices. Our pricing model is straightforward and transparent. It is directly linked to the current costs of these raw materials and the prevailing market prices. This approach ensures a pass-through mechanism to our customers. When the prices of stainless steel rise, the prices of our products follow suit. Conversely, if the prices of stainless steel decrease, our product prices also decrease accordingly.

This system minimizes the risk associated with fluctuating material costs, providing a clear correlation between the pricing of our products and the cost of raw materials.

Please outline the top three to four growth strategies that the company plans to implement over the next four to five years.

Growth for us is intricately tied to the expansion of our customer base, given our role as capital goods manufacturers. The strategies we employ to track growth differ across the three sectors we operate in.

In the industrial gas business, we closely monitor both domestic and international markets. Our significant market share in the domestic market positions us well to capitalize on the rapid growth of the Indian economy. Additionally, in the export business, where we currently hold a smaller market share globally, there is ample opportunity for growth as we aim to increase our market presence in the international arena.

Moving to the LNG sector, our strategy is tailored to the evolving landscape of LNG use. In India, we align ourselves with the changing infrastructure requirements for LNG distribution for automotive and industrial applications. This involves collaboration with city gas distribution networks and CNG stations. Our focus extends to the automotive industry as heavy-duty trucks transition from CNG to LNG systems, necessitating the provision of complete equipment solutions. Globally, we observe the shift toward LNG as a fuel for ships, particularly ferries and cruise ships, where we have a niche presence by supplying LNG storage systems.

In the cryo scientific business, our demonstrated capabilities in limited markets, catering to mega projects in science, space, and related fields, have garnered credibility and reputation. Despite the niche nature of these projects, our reasonable size as a company allows us to be a dependable player for larger projects, with a focus on quality and reliability.

Give us an overview of the company’s ESG strategy.

We play a pivotal role in promoting green gases. However, we recognize the paramount importance of health and safety, not just for our employees but also for the communities in which we operate. Balancing environmental responsibility with the well-being of our workforce and the broader community remains a crucial aspect of our overall corporate strategy.

Furthermore, our engagement extends beyond our immediate operations to encompass Corporate Social Responsibility (CSR) initiatives. One notable example is our factory in Kalol, situated in a rural area. Here, we actively promote the inclusion of women welders by providing them with training and employment opportunities. This innovative approach is not only aligned with CSR principles but also aims to make a positive impact on society. In addition to our regular CSR activities, we are committed to taking inventive steps that involve all stakeholders, fostering a holistic approach to corporate responsibility.

How does the company ensure a strong commitment to health and safety of employees?

Certainly, when it comes to the safety and health of our employees, we prioritize stringent adherence to safety systems. Internally, we implement rigorous safety measures, and to underscore our commitment, we obtain certifications from recognized external bodies, making our facilities certified in Health, Safety, and Environment (HSE) standards at every manufacturing location.

To oversee and manage these efforts, we have a dedicated HSE department that ensures the implementation of best practices across our operations. The certification not only serves as a testament to our commitment but also provides a benchmark for maintaining high standards in health and safety.