As a practitioner of Technofunda (practitioner of the combo of technical and fundamental analysis), it always pays to track the recent IPOs as they often bring fresh ideas, new industries, disruptive technologies, and innovative business models to the table. Thus, we as investors can identify potential growth opportunities before they become mainstream. Secondly, since they exhibit price volume action they are also breeding grounds for swing/momentum trading.
Cryogenics
Materials don’t behave the same at all temperatures—the properties of material change significantly in a sub-zero-degree temperature environment. Cryogenics is the scientific study of materials and their behavior at extremely low temperatures typically below -150°C (123 K).
Cryogenic gases have a very low density at room temperature; thus, require a high-pressure vessel to store gasses in large quantities. However, in liquid form (at very low temperatures), the density of these gases is increased and can be stored in large quantities. As long as cryogenic gases are kept cool, they stay in liquid form and can be held at a lower pressure one can store very large quantities in a smaller tank which requires high-pressure tanks as if the temperature of a cryogenic liquid increases, by absorbing heat from its surroundings, it turns into gas, increasing the pressure inside the equipment.
The applications range from freeze-drying pharmaceuticals, advanced scientific research in superconductors, and quantum computers, and space exploration where cryogenic technology is crucial for storing and handling propellants like liquid oxygen and hydrogen used in rocket engines due to their high efficiency and clean combustion.
In India, there are three players which deal in cryogenic tanks i.e. Inox India, VRV Color, and Cryolor. Inox is the market leader in the segment with over 4x revenue as its nearest competitor VRV Color. Let’s delve further into Inox India:
Inox India
Inox India designs, manufactures, and installs cryogenic equipment. In 2009, it acquired a controlling interest in Cryogenic Vessel Alternatives Inc. (CVA Inc.) in Texas, USA, with subsidiaries in Canada and China. It has three business Divisions i.e. Industrial Gases, LNG, and Cryo Scientific
Serves industries/ processes like Industrial Gas, Food & Beverages, LNG, Cryo-Scientific (Advancing ultra-low-temperature applications, scientific research, and fusion energy - the company has been part of the multi-country mega-project in the field of Nuclear Fusion), Hydrogen, Health Care & Life Sciences( Supporting medical applications eg cryostat used in MRI applications), Aviation & Aerospace and Metal Processing, etc.
Inhouse team of engineers - development of new products and customized solutions as well as specialized product development
IPO in December 2023, which was purely an offer-for-sale wherein the Promoters and promoters group diluted their stake from 99.30% to 75%
In a nutshell:
Make in India for the World
The products require stringent regulatory approvals in domestic and global markets. It has supplied its tanks to various countries and has dealt with regulators over the years.
Intellectual property development eg. the company received a patent for “A method for suspending inner vessels of Dewar type container to store cryogenic fluid”. The company also has patents registered for LNG dispensing systems etc.
Green Hydrogen Optionality
Writing about green hydrogen and its importance in the transition to clean & renewable energy is a topic for a separate post. However, I would like to emphasize that green hydrogen is one of the pillars of the ongoing energy transition.
The industry is at a nascent stage and the Government is focusing on this area through the “National Green Hydrogen Mission”
Apart from this, an outlay of ₹ 1,466 crore is envisaged for pilot projects including low-carbon steel, mobility, shipping, decentralized energy applications, hydrogen production from biomass, hydrogen storage technologies, etc.
Inox is currently focusing on solutions for hydrogen fueling infrastructure, storage, distribution, etc. As per the company update, they have already:
Manufactured trailer mounted Hydrogen transport tank, designed jointly with ISRO
Produced & supplied liquid Hydrogen tank to 2 customers in South Korea
MoU with Adani Total Gas
“preferred partner” status for the delivery of LNG and LCNG equipment and services with Adani Total Gas. A long-term contract where Inox and Adani intend to collaborate on engineering, design, and planning.
Adani Total Gas is building out this LNG infrastructure, Inox to facilitate fast-track setting up of LNG stations across the country
In the coming two to three years, they will be expanding heavily, especially in the fueling station, LCNG station, satellite station, and maybe the convergence of their mining and cement trucks to LNG as a fuel.
Though the numbers are not clear but could become a substantial driver of LNG business. Order booking has already started. Worked with them earlier on three stations, they were having, (helped them in starting those stations because they were having some issues with the station which was delivered by some other companies) and recently received five fueling stations from them (con call Q3FY2024)
Other Optionalities
Development of domestic Semiconductor Industry: The Semiconductor Industry requires several Industrial gases for manufacturing
The increasing mix of LNG in Transportation:
LNG as fuel for large vessels: eg. EU rules to switch 30,000 ships from diesel to LNG
LNG in mobility: heavy-duty CVs, LNG stations for Heavy duty CV
eg TATA is rolling out LNG versions in CVs
Cryo-Scientific: strengthening its presence in the cryo-bio and life sciences segment with new products developed for vaccines, stem cells, blood, and biospecimens.
Increasing global footprint: secured high-value supply contracts from South Korea, Japan, and Europe.
New Products: eg beverage kegs -
Inox is setting up a new plant to ramp up the capacity of beverage kegs which are used in the F&B industry to store beer, syrups, and other beverages, which remain unaltered during storage, regardless of the handling and climate conditions.
Risks
Anti-Dumping Duty: An anti-dumping investigation is ongoing in the USA for its product “disposable cylinder for storing of refrigerant”
Increased Competition intensity or backward integration by customers.
Hydrogen in energy is at a nascent stage. What final shape the ecosystem takes may not be as beneficial to the sector/company.
Since the company’s performance is derivative of the demand in the capital goods sector, which is cyclical, the slowdown in the end-user segment can have a huge impact
Although most of the raw materials like different steels are available in India and most of the raw material prices are passed through there is nonetheless some dependence on imports for some specialized inputs like valves.
Competition in Global markets
Accidents/fire etc.
The margin of safety owing to rich valuation
Final Views
The company has a dominant position in the niche industry of cryogenic products in India especially in cryogenic tanks, cryo-containers, vaporizers, and disposable cryogenic cylinders. With the revival of capex in the end-user industries like industrial gas and LNG segment along with traction in sunrise industries like semiconductors, and aerospace the future of the company looks promising.
Financially the company has grown revenue at over 25% Cagr from 2021-2023, stable margins, and healthy ROCE and ROE
The company is debt-free and has an order book of over INR 1000 crore as of 31st December 2023. The product mix consists of standard products (manufacturing in 3-4 months) and custom projects (manufacturing in 8-12 months). Hence it takes one year from scratch to completion. Hence, we can make a reasonable assumption that revenue for the next 12 months should not be less than the order book giving the basis for base case estimates.
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Disclaimer: I am not SEBI registered. The information provided here is for educational purposes only. This is not buy or sell advice. I will not be responsible for any of your profit/loss based on the above information. Consult your financial advisor before making any decisions.
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