In today’s Finshots, we dive into the business of cryogenic equipment manufacturing.

Note: The IPO closes on the 18th of December.

The Story

When you convert atmospheric gases such as oxygen, nitrogen, and argon into their liquid form, they become quite useful. They’re used in welding metals. They’re used in storing frozen food. They’re used in making semiconductor chips. And heck, they’re even used in special engines to propel rockets.

But first, to metamorphose the gases into a liquid state, you need a special Air Separation Unit. This device takes everyday air and separates it into nitrogen and oxygen and argon. But how? Well, by cooling the air at really really low temperatures. We’re talking about temperatures that are typically below -150°C. And the gases turn into what’s commonly known as cryogenic gases.

Now if you want to store and transport these gases, you need special equipment too. Because these really cold temperatures have to be maintained. So you can’t just take any random container for storage. These need to be super-insulated so that the liquified gases are protected from outside temperature.

All of this calls for specialised cryogenic equipment. And that’s what InoxCVA manufactures.

Sounds quite cool, no?

And if you’re wondering how Inox even ventured into this niche domain, well, it all began in the 1960s. A young Devendra Jain had just graduated from college and didn’t want to join his father’s paper business. He wanted to run his own show. And that’s when he struck upon the idea of selling industrial gases. Gases such as oxygen that was used in the healthcare industry. He called the company Industrial Oxygen (which later became Inox Air).

Now the company was already in the businesses of gases. So when they saw an opportunity to make the cryogenic equipment needed to store and transport liquified gases, they latched on to it too — thus, Inox India was born. And when the company decided to acquire US-based Cryogenic Vessel Alternatives (CVA) in 2009, it became InoxCVA.

Today, the company is the the largest Indian supplier of cryogenic equipment by revenue. In fact, it’s 3x bigger than the second-largest player VRV Asia Pacific. And it is consistently profitable. With the net profit margins clocking a healthy 16%.

Also, with decades of experience under its belt in a specialist industry with limited competition, Inox has captured a fair bit of the international market too.

For instance, Inox is also one of the few Indian companies that is part of the International Thermonuclear Experimental Reactor (ITER) project in France — these folks are trying to use nuclear fusion to make cheap energy for the world.

Quite an important project, no?

So it’s quite a big deal that Inox was responsible for designing, manufacturing, and installing cryolines for the project. Think of these as high-tech pipes that carry crucial fluids and gases like hydrogen, nitrogen, and helium among the various equipment.

That’s quite a feather in Inox’s hat. And it pretty much puts it head and shoulders above any other such company in India. It puts it in the spotlight internationally and it’s no surprise that 50% of Inox’s revenues come from its export business.

And there are 3 key segments that contribute to its top line.

  1. The industrial gases division which sells equipment for the dairy industry, biological sample preservation for medical research, and non-cryogenic kegs for food and beverage.
  2. The LNG division involves tankers and cargo to transport the fuel
  3. And the cryo-scientific division makes equipment used in space research primarily for ISRO. Think liquid hydrogen tanks and what not.

Okay, now that we know about Inox’s past, we’re sure you’re wondering what the future holds for Inox too.

Well, the one thing everyone’s excited about is clean energy.

See, we want to ditch fossil fuels like coal and oil. But before we move into renewables completely, we might have transitional fuels — such as natural gas. Now bear in mind that natural gas is also a fossil fuel, but it’s considered less harmful than coal and oil. It’s a better alternative. So the demand for the gas is growing. And since we liquefy the gas into LNG, we need a lot of cryogenic equipment to store and transport it. This could potentially fuel the next leg of growth for Inox.

And if you’re looking at an even longer trigger, there’s hydrogen which is a renewable source of energy. All you need to do is pass an electric current through water (H2O) and voila, you separate hydrogen and oxygen. The resultant hydrogen can then be used to power cars and even produce electricity for the world. In its liquid form, mind you. I mean, look at South Korea which is leading the charge in its use. Just last year, InoxCVA constructed a humongous liquid hydrogen tank — the largest made in India — and shipped it across the seas so that Korea could use it to power buses. If the trend continues, InoxCVA could be a prime spot to exploit these opportunities.


Of course. But don’t forget the risks too.

What if the demand for cryogenic equipment does not pan out the way everyone expects?

See, while the need for cryogenic equipment is expected to rise by over 8% annually in the next five years, it’s the typical extrapolation that market analysts like to do. Between 2017 to 2022, the market only grew by 3% yearly. So you’d need to be cautious about forecasting a 2x jump in demand for the next few years.

The other risk is the concentration.

Firstly, there’s manufacturing concentration. InoxCVA has three operational facilities currently. But in FY23, around 70% of the revenue came from a single plant in Kalol in Gujarat. A hiccup or two at the factory could derail the business prospects.

Secondly, the revenue concentration. For starters, the top 10 customers account for nearly half of the company’s revenue. This despite boasting of a customer base of nearly 1,500 enterprises spread across 66 countries.

And these are things that long-term investors will have to keep in mind.

But hey, things like space exploration, medical research, clean energy are all buzzwords that investors love to hear. And with InoxCVA dominating the cryogenic market in India, it could get quite a boost during its IPO.

Until then…

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