Suzlon Energy - India market gains traction:: Kotak Sec

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Suzlon Energy (SUEL)
Industrials
India market gains traction; but high WCap and debt levels remain a concern.
Suzlon reported 2QFY11 sales of 361 MW versus our estimate of 400 MW primarily led
by India sales. Indian market dominated the order inflows as well with only 50 MW of
the reported inflows of 453 MW from international markets. Lower-than-expected
reduction in working capital and debt levels in the wind business continues to remain a
concern straining the cash flows of the company. Retain REDUCE.






Results broadly in line; international sales continue to remain weak
Suzlon reported sales of 361 MW versus our estimate of 400 MW sales, from 283 MW in 2QFY10.
The company reported wind business revenues of Rs22 bn, recording a 17% yoy growth and
about 9% below our estimate of Rs24 bn. Suzlon reported a small positive EBITDA of Rs50 mn.
High interest costs and depreciation led to a net loss of Rs3 bn in the wind energy business -
broadly inline with our estimates. Sales were led by the domestic segment - about 290 MW of the
361 MW sales was in the domestic market

Some traction seen in domestic market while US and Europe remain sedate
The domestic market also witnessed some pick-up in inflows. Of the total reported inflows of 453
MW in 2QFY11, about 400 MW was from India. The entire international inflow (of 50 MW) was
also only from China with zero inflows from all other geographies. Indian market now contributes
to a majority (45%) of the total order backlog of the company versus only 8% of the backlog at
the end of 2QFY10.

Working capital and debt reduction remain below expectations
Working capital reduction of Rs1.3 bn since end-FY2010 is below expectations given the
management’s aim to reduce working capital by Rs10 bn in FY2011E (working capital has
increased since end-1QFY11 levels). Furthermore, gross external debt has increased by Rs5.5 bn
led by increase in working capital and capex related loans. The reduction in the total debt of
Suzlon’s wind business (by Rs6.2 bn) was primarily on account of conversion of promoter loans to
preference shares to the tune of about Rs11.75 bn.

Retain estimates and target price of Rs55/share; reiterate REDUCE
We retain our estimates of a loss of Rs0.8 and profit of Rs3.3 for FY2011E. Reiterate REDUCE
(target price Rs55) based on (1) low order inflow momentum led by company specific issues and
competition pick up, and (2) strained cash flows. Target price of Rs55 builds in execution of about
2,200 for FY2012E and depend upon resumption of order inflows (about 2,300 MW in FY2012E)