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Suzlon Energy Ltd (Overweight), : 1GW Caparo order improves domestic revenue visibility; need clarity on funding sources
• Suzlon signs the largest IPP deal in India with Caparo, but pricing a
tad lower. Suzlon signed a contract for 1GW of WTG for US$1.28B with
Caparo Energy India. 500MW is expected to be delivered by Mar-12 and
the balance by Mar-13. While this order has been talked about in the media
since May '10, the first contract has finally been signed and it seems likely
that Suzlon will be the preferred supplier going forward. At Rs57.6M/MW,
realizations are 11% lower than our estimate of Rs64.7M/MW for the India
business. However, owing to benefits of scale, Suzlon is confident of
maintaining gross profit margins of ~Rs20mn/MW. According to
management initial advance has been received from Caparo.
• Caparo’s balance sheet doesn’t seem adequate to fund its wind energy
plans. Caparo Energy India intends to own a 5GW portfolio of wind farms
in India by 2017, of which 3GW is to be completed by 2016. The holding
company listed on AIM in November 2010 and raised ~US$80M, adequate
to fund ~205MW, assuming 70:30 D/E ratio. Caparo has already tied up
debt financing for US$102M from IDFC. Potential delays in debt tie-up by
Caparo could lead to a lengthened working capital cycle for Suzlon.
• Improved revenue visibility for the India business reinforces our
confidence on domestic outlook. Since Oct '10 Suzlon has won 318MW of
domestic orders including the 150MW order from the Vedanta Group
deliverable by Sept-11. With an additional 500MW being deliverable to
Caparo by Mar-12 and given the current domestic OB of 693MW, we
currently estimate ~60% visibility for our 1,500MW sales estimate in FY12.
That said, Indian orders are considered to be mostly short-term, hence
majority orders for FY12 should come in that year itself.
• International order book not looking too bad either. Earlier this month,
Suzlon bagged its first international order in over 3 months with a 218MW
contract from Martifer, Brazil. Management has previously been
highlighting weakness in the US and EU markets on account of low gas
prices and the financial crisis respectively, and had identified China, South
Africa and Brazil to be key growth markets on account of various policy
initiatives. Based on our international order book as of Oct '10 (857MW),
new inflows (218MW) and our 2HFY11 sales estimates (461MW), in our
view, Suzlon has an 82% order book visibility for our 750MW FY12 sales
estimate.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Suzlon Energy Ltd (Overweight), : 1GW Caparo order improves domestic revenue visibility; need clarity on funding sources
• Suzlon signs the largest IPP deal in India with Caparo, but pricing a
tad lower. Suzlon signed a contract for 1GW of WTG for US$1.28B with
Caparo Energy India. 500MW is expected to be delivered by Mar-12 and
the balance by Mar-13. While this order has been talked about in the media
since May '10, the first contract has finally been signed and it seems likely
that Suzlon will be the preferred supplier going forward. At Rs57.6M/MW,
realizations are 11% lower than our estimate of Rs64.7M/MW for the India
business. However, owing to benefits of scale, Suzlon is confident of
maintaining gross profit margins of ~Rs20mn/MW. According to
management initial advance has been received from Caparo.
• Caparo’s balance sheet doesn’t seem adequate to fund its wind energy
plans. Caparo Energy India intends to own a 5GW portfolio of wind farms
in India by 2017, of which 3GW is to be completed by 2016. The holding
company listed on AIM in November 2010 and raised ~US$80M, adequate
to fund ~205MW, assuming 70:30 D/E ratio. Caparo has already tied up
debt financing for US$102M from IDFC. Potential delays in debt tie-up by
Caparo could lead to a lengthened working capital cycle for Suzlon.
• Improved revenue visibility for the India business reinforces our
confidence on domestic outlook. Since Oct '10 Suzlon has won 318MW of
domestic orders including the 150MW order from the Vedanta Group
deliverable by Sept-11. With an additional 500MW being deliverable to
Caparo by Mar-12 and given the current domestic OB of 693MW, we
currently estimate ~60% visibility for our 1,500MW sales estimate in FY12.
That said, Indian orders are considered to be mostly short-term, hence
majority orders for FY12 should come in that year itself.
• International order book not looking too bad either. Earlier this month,
Suzlon bagged its first international order in over 3 months with a 218MW
contract from Martifer, Brazil. Management has previously been
highlighting weakness in the US and EU markets on account of low gas
prices and the financial crisis respectively, and had identified China, South
Africa and Brazil to be key growth markets on account of various policy
initiatives. Based on our international order book as of Oct '10 (857MW),
new inflows (218MW) and our 2HFY11 sales estimates (461MW), in our
view, Suzlon has an 82% order book visibility for our 750MW FY12 sales
estimate.
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