Suzlon Energy Ltd. share price target

The Indian power grid needs more wind in its mix. The need to enhance wind capacity addition (post subdued activity in the recent past) has finally dawned upon the stakeholders. Grids are looking for a solution to meet demand effectively while containing carbon emissions.

We recently interacted with the management of Suzlon Energy (SUEL) to gauge the business prospects.

Suzlon Energy Ltd Q2FY18 results comment Revenue fell by 71.58% to Rs. 637.81 Cr in Q2FY18 when compared to the previous quarter. Also, it decreased by 67.12% when compared with Q2FY17.

Revenue fell by 46.62% to Rs. 2665.26 Cr in Q1FY18 when compared to the previous quarter Revenue fell by 46.62% to Rs. 2665.26 Cr in Q1FY18 when compared to the previous quarter

Company Update

Revenue increased by 50.56% to Rs. 4992.59 Cr in Q4FY17 when compared to the previous quarter.

Suzlons (SUEL) 4QFY17 result was a beat on all counts, with volume at 554MW ( 25% YoY) and realisations at Rs 82.2 mn/MW. EBITDA margins also improved ( 70bps YoY to 14.1%), leading to an APAT of Rs 2.7bn (ahead of our estimate of Rs 2.3bn). SUEL ended FY17 with volumes of 1,573 MW ( 39% YoY).

We initiate coverage on Suzlon Energy Ltd as a BUY with a price objective of Rs 42.8 which represents a potential upside of 115% from the CMP of Rs 19.9

Suzlon Energy Ltd. (SEL) is the largest renewable company in India as well as the largest wind equipment manufacturer. It is market leader in India with global footprints across Asia, Australia, Europe, Africa, North and South America. The company has a capacity to manufacture 3.6GW WTG. SEL operates through three segments namely; sale of WTG (Wind Turbine Generators), foundry & forging and operations and maintenance services. SEL' services range from feasibility studies to manufacturing of wind turbine components and installation and commissioning of wind farms as well as long term operations and maintenance. The company has 15 manufacturing facilities spread...

Revenue increased by 30.91% to Rs. 2548.0 Cr in Q3FY17 when compared to the previous quarter. Also, it increased by 92.47% when compared with Q3FY16.

EBITDA margin expanded by 800 bps y/y to 21.6% due to higher capacity utilization The raw material cost and other expenditure yoy increased by 80 % and 24% respectively. Staff expenditure stood at `2,555 mn( +26.6% y/y; -1.3% q/q) Depreciation was at `1094mn (+15.5% q/q; +12.2% y/y). Interest expense stood at `3391 mn (+18.6% y/y; +13.7% q/q) .This increase was mainly due to higher working capital requirement during the quarter. Consolidated net term debt (excluding FCCB)...

Suzlon Energys (SUEL?s) 3QFY17 result was a beat on all counts with volumes of 462MW ( 80% YoY) and EBITDA margins of 22.5% ( 490bps YoY) - leading to a higher-than-expected APAT of Rs 3.0bn. Improvement in EBITDA margins was led by operating leverage benefit and a favourable revenue mix (lower EPC).

Depreciation stood at `947.6mn (+13.3% q/q+23.7% y/y).Interest expense stood at `2981 mn (+7.7% y/y;-2% q/q). This decrease -q/q was mainly due to repayment of debt during the quarter. Consolidated net term debt (excluding FCCB) stood at `66460 mn; a reduction of `2300 mn q/q. Working capital debt stood at `31,930 mn Tax expense stood at `9.8 mn (-75.3% q/q). Consequently, PAT stood at `2423 mn. Total outstanding order book positition-1136 MW valued at `7,165 Cr Senvion was fully divested by Suzlon group on 29th April 2015.Hence, 2Q FY 16...

Suzlons 2QFY17 result was a beat on all counts with volumes of 353MW ( 56% YoY) and EBITDA margins of 21.3% ( 460bps YoY) - leading to an APAT of Rs 2.0bn (higher than expected). EBITDA margin improvement was led by (a) contribution from larger turbines, (b) benefit of low RM cost and (c) favorable mix (lower EPC).

EBITDA margin decreased by 620 bps q/q to 7.4% % due to lower capacity utilization The raw material cost and other expenditure q/q decreased by 56% and 29.7%...

Suzlon’s 1QFY17 volumes of 204MW (flat YoY) was below our estimates, leading to a loss of Rs 2.6bn (higher than expected). Loss could have been lower (by Rs 1.2bn) had it not been for the new Ind AS norm. With an order book of 1,205MW (to be entirely executed in FY17E), the company remains confident of meeting its FY17E volume guidance of 1.5 - 1.6 GW. The same should also aid in balance sheet healing (primarily debt reduction).

Muted order announcements, so far in FY17E, have cast pressure on the WTG stocks. However we expect the order flow momentum to pick up as most states have finalized their tariffs. Visibility on volumes over the longer run also remains high given continued government thrust, improvement in technology and expected tender based bidding in wind. In this backdrop, we reiterate BUY on Suzlon with a TP of Rs 28/share (10x FY18E EV/EBITDA).

Suzlon Energy Limited - SUZLON attended Suzlon’s analyst meet, wherein the management was confident of the wind industry’s growth in India over the next five years. The government is committed to attaining 60GW of wind power by 2022 and given the IPP-led customer profile; these targets are achievable, as per the company. It expects FY17 to be a 4.3GW market with Suzlon commanding the leader’s market share of 40-50%.HDFC Securities reiterate their BUY rating on the stock with a TP of Rs28/share (10x FY18E EV/EBITDA).

Trendlyne has 3 reports on SUZLON updated in the last year from 1 broker with an average target of Rs 28. Brokers have a rating for SUZLON with 1 price downgrade and 1 price upgrade in past 6 months.

Suzlon is a market leader in India with a global footprint across all continents. Over the past two decades, Suzlon has built and consolidated its presence in 19 countries. Suzlon is a market leader in India with 100+ wind farms with an installed capacity of ~9,000MW spread across 9 states. Suzlon's diversified client portfolio includes companies from a variety of industries, including...

Suzlons 4QFY16 volumes of 443MW (in line with our estimates) put it back in the black, with an APAT of Rs 500mn. EBITDA margin at 14.1% appears low primarily owing to the revenue mix (lower OMS contribution with increasing WTG volumes).

We expect India?s wind installations to grow from ~2.3GW in FY15 to ~4.5GW by FY18E, which should improve volumes and ensure strong earnings growth at listed wind turbine players Suzlon and Inox. The recent correction provides an attractive entry point in both stocks. Reiterate BUY on Suzlon and initiate with BUY on Inox.