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Suzlon Energy Ltd
Overweight
SUZL.BO, SUEL IN
Another loss making quarter, weak sales realization per MW a concern
• Weak Dec-q: Adjusted loss of Rs1.9B at consolidated level in Dec-q was
well below our est. of ~Rs0.98B profit and consensus est. of Rs1.26B loss.
The disappointment was led by- (A) 12.2% dip in sales realization per
MW to Rs54.4mn in Suzlon’s wind business. Dec-q sales volume of
461MW was slightly ahead of our 450MW est., but EBITDA margin
improvement to 6.9% lagged est. by 60bps, (B) Weak operating results in
REPower: The subsidiary reported EBITDA of just Rs90MM vs. our
expectation Rs2.28B for Dec-q. The cost pressure was led by higher
RM/sales. REPower has reported PAT loss of Rs820MM in Dec-q and
9MFY11 loss of Rs2.43B.
• Dip in realization a cause of concern: In 9MFY11 sales realization per
MW has dipped 8.4% in India and 13.3% in China, as compared to last
fiscal. These two markets constitute 91% of 9MFY11 MW sales and 80% of
our FY12 estimate. As per company presentation, overcapacity in China is
the key reason for the price dip. A sustainable dip in realizations is a key
risk to our FY12 wind business EBITDA margin estimate of 12.8% and
hence our earnings estimate.
• Deferral of deliveries in developed markets. In 9MFY11 Suzlon wind
business has sold only 31MW (2MW in past two quarters) in USA &
Europe. These geographies account for ~15.8% of current order backlog of
2,578MW.
• Order inflows in Dec-q strong. Suzlon reported 1488MW of new orders
since last update on 29th Oct, 2010. This includes 1255MW orders from
India and 225MW from South America, largely reported earlier, so no
element of surprise here.
• Conference call on 7th Feb, 16:30hrs IST (Dial in: +91-22-30650197):
Market reaction post weak results is expected to be negative on Monday. We
expect more clarity from management on- (1) outlook for price realizations
in wind, and (2) timeline for execution of Suzlon's overseas order backlog.
Price target
SOTP based Dec-11 PT of Rs64: PT includes- (1) ~Rs35 for wind business at 12x
FY12 EPS, @35%, discount to Vestas' multiple, (2) Rs25.6 for REpower (RPW GR)
stake at 20% discount to market price, (3) Rs3.3/share for Hansen (HSN LN)
at 20% discount to market price.
Risks to our call: (1) Little room for volume dip; ~490MW of overseas inflows
needed to meet FY12 overseas sales est. of 750MW; we draw comfort from track
record over FY08-10; (2) Famine of overseas orders continues till now, only 330MW
overseas over last 6 quarters, (3) Step up in domestic competition, global players
want to set up India shop.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Suzlon Energy Ltd
Overweight
SUZL.BO, SUEL IN
Another loss making quarter, weak sales realization per MW a concern
• Weak Dec-q: Adjusted loss of Rs1.9B at consolidated level in Dec-q was
well below our est. of ~Rs0.98B profit and consensus est. of Rs1.26B loss.
The disappointment was led by- (A) 12.2% dip in sales realization per
MW to Rs54.4mn in Suzlon’s wind business. Dec-q sales volume of
461MW was slightly ahead of our 450MW est., but EBITDA margin
improvement to 6.9% lagged est. by 60bps, (B) Weak operating results in
REPower: The subsidiary reported EBITDA of just Rs90MM vs. our
expectation Rs2.28B for Dec-q. The cost pressure was led by higher
RM/sales. REPower has reported PAT loss of Rs820MM in Dec-q and
9MFY11 loss of Rs2.43B.
• Dip in realization a cause of concern: In 9MFY11 sales realization per
MW has dipped 8.4% in India and 13.3% in China, as compared to last
fiscal. These two markets constitute 91% of 9MFY11 MW sales and 80% of
our FY12 estimate. As per company presentation, overcapacity in China is
the key reason for the price dip. A sustainable dip in realizations is a key
risk to our FY12 wind business EBITDA margin estimate of 12.8% and
hence our earnings estimate.
• Deferral of deliveries in developed markets. In 9MFY11 Suzlon wind
business has sold only 31MW (2MW in past two quarters) in USA &
Europe. These geographies account for ~15.8% of current order backlog of
2,578MW.
• Order inflows in Dec-q strong. Suzlon reported 1488MW of new orders
since last update on 29th Oct, 2010. This includes 1255MW orders from
India and 225MW from South America, largely reported earlier, so no
element of surprise here.
• Conference call on 7th Feb, 16:30hrs IST (Dial in: +91-22-30650197):
Market reaction post weak results is expected to be negative on Monday. We
expect more clarity from management on- (1) outlook for price realizations
in wind, and (2) timeline for execution of Suzlon's overseas order backlog.
Price target
SOTP based Dec-11 PT of Rs64: PT includes- (1) ~Rs35 for wind business at 12x
FY12 EPS, @35%, discount to Vestas' multiple, (2) Rs25.6 for REpower (RPW GR)
stake at 20% discount to market price, (3) Rs3.3/share for Hansen (HSN LN)
at 20% discount to market price.
Risks to our call: (1) Little room for volume dip; ~490MW of overseas inflows
needed to meet FY12 overseas sales est. of 750MW; we draw comfort from track
record over FY08-10; (2) Famine of overseas orders continues till now, only 330MW
overseas over last 6 quarters, (3) Step up in domestic competition, global players
want to set up India shop.
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