Suzlon Energy: Domestic Rebound Remains the Single Ray of Hope: Citi

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Suzlon Energy (SUZL.BO)
Hold: Domestic Rebound Remains the Single Ray of Hope
 Quantum of losses reduced Q-o-Q — After a consolidated loss of Rs9.1bn 1QFY11,
Suzlon has lowered the loss in 2QFY11 to Rs3.7bn as Suzlon WTG has broken
even at the EBITDA level and REpower’s has also rebounded from the lows of
1QFY11. However, interest costs continue to weigh down on the numbers and the
company should focus on deleveraging the balance sheet further.



 Domestic rebound continues — At the end of 2QFY11 the company had a total
order backlog of 1550MW comprising of 857MW of export orders and 693MW of
domestic orders. Export inflows continue to be challenging but domestic inflows
have been a major positive surprise with 892MW of order wins in 1HFY11. Suzlon
is readying its execution capabilities to execute a maximum of 1200MW in FY11E
and 2000MW in FY12E. We believe this is Suzlon’s ray of hope given domestic
orders yield higher margins than export orders.

 How many MWs can Suzlon WTG sell in FY11E? — Suzlon WTG sold 568MW in
1HFY11 and based on the delivery schedules for 2HFY11 on current backlog the
company can achieve 1618MW. However, if domestic momentum continues the
company can hope to do 1200MW domestic and 700MW exports totalling to
1900MW in FY11E (v/s current CIRA estimates of 1646MW).

 REpower rebounds from the lows of 1QFY11 — Sales of €286mn were down 7%
YoY and EBIT of €32.9mn was up 60% YoY. The order backlog of €2.58bn is up
61% YoY, comprising of 2254MW of orders.

 Hansen cuts its FY11E guidance — Hansen’s 2QFY11 sales at €89mn were down
40% YoY and EBITDA at €13mn implied margins of 14.6%, up from 6.2% in
2QFY10. Hansen expects the operating environment to remain challenging for the
last two quarters of FY11. Further, the company has adjusted its sales guidance,
from 5% to 10% growth for FY11E, to a decrease of around 10%.