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Multiple headwinds
F3Q11–a mixed bag
SUEL reported consolidated sales of INR44.3b (down 20.7% y-y, up 17.5% q-q) lower than our estimate of INR49.8b. Consolidated PAT came in better at (INR1.9b) versus our (INR2.96b). While Suzlon’s domestic business showed improvement, outlook for its international business and REpower remained subdued. REpower reported 16.6% y-y decline in sales in EURO terms and lowered its FY11 guidance.
Weak outlook for wind energy
We expect a difficult FY12 for global wind turbine vendors given that
growth will be largely driven by China & India along with significant
price pressures & raw material cost increases. While Suzlon's
domestic business is recovering, we believe sluggish order intake
from US & Europe will likely mean a protracted recovery.
Yet to see cost and working capital reduction targets
We didn’t take away any major cost reduction & working capital
reduction targets from the analyst conference call. Wind business'
Net operating working capital (NoWC)-to-sales ratio remains high at
(46-53%) over the last 5 quarters despite a significant mix shift to
India with no significant reduction in operating and other expenses
and employee costs (up 5.9%y/y for 9mths of FY11).
Key model changes
We are lowering our FY12 consolidated sales estimates by 3% and
EBITDA margin from 9.4% to 6.2% given lower REpower volumes
and higher commodity costs. Given hardening interest rate
environment we are raising our interest expense estimate to
INR11.4b from INR9.1b.Our FY12 EPS estimate is revised to
(INR1.31) from INR3.6.
Valuation and view-Stay away
Our cautious outlook on the stock reflects a) excessive leverage, b)
equity dilution risk on convertible bonds maturity, c) intensifying
competition with longer-than-expected weakness in developed
markets. We adjust our TP to INR 49.0/share based on an average of
fair values derived from DCF and EV/EBITDA based approach. Key
upside risks; higher-than-expected order intake from India and China
and faster-than-expected recovery in the developed markets.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Multiple headwinds
- ƒ 3Q:Improving domestic outlook,muted international recovery
- ƒ Reiterate negative view; weak FY12 for wind turbine vendors
- ƒ No major cost & working capital reduction targets
- ƒMaintain HOLD - Meaningful recovery postponed to FY13
F3Q11–a mixed bag
SUEL reported consolidated sales of INR44.3b (down 20.7% y-y, up 17.5% q-q) lower than our estimate of INR49.8b. Consolidated PAT came in better at (INR1.9b) versus our (INR2.96b). While Suzlon’s domestic business showed improvement, outlook for its international business and REpower remained subdued. REpower reported 16.6% y-y decline in sales in EURO terms and lowered its FY11 guidance.
Weak outlook for wind energy
We expect a difficult FY12 for global wind turbine vendors given that
growth will be largely driven by China & India along with significant
price pressures & raw material cost increases. While Suzlon's
domestic business is recovering, we believe sluggish order intake
from US & Europe will likely mean a protracted recovery.
Yet to see cost and working capital reduction targets
We didn’t take away any major cost reduction & working capital
reduction targets from the analyst conference call. Wind business'
Net operating working capital (NoWC)-to-sales ratio remains high at
(46-53%) over the last 5 quarters despite a significant mix shift to
India with no significant reduction in operating and other expenses
and employee costs (up 5.9%y/y for 9mths of FY11).
Key model changes
We are lowering our FY12 consolidated sales estimates by 3% and
EBITDA margin from 9.4% to 6.2% given lower REpower volumes
and higher commodity costs. Given hardening interest rate
environment we are raising our interest expense estimate to
INR11.4b from INR9.1b.Our FY12 EPS estimate is revised to
(INR1.31) from INR3.6.
Valuation and view-Stay away
Our cautious outlook on the stock reflects a) excessive leverage, b)
equity dilution risk on convertible bonds maturity, c) intensifying
competition with longer-than-expected weakness in developed
markets. We adjust our TP to INR 49.0/share based on an average of
fair values derived from DCF and EV/EBITDA based approach. Key
upside risks; higher-than-expected order intake from India and China
and faster-than-expected recovery in the developed markets.
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