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Suzlon Energy (SUEL)
Industrials
Debt, operating cost and working capital remain high; retain REDUCE. Suzlon
reported 3Q sales of 461 MW versus our estimate of 400 MW primarily led by domestic
sales. International market remains sedate and is likely to face margin/pricing pressure
in an environment of excess capacity (corroborated by REPower in its 3Q result release).
Debt and working cap. levels continue to remain high potentially straining cash flows
(FY11E-end net WCap of Rs50-55 bn on sales of Rs95-100 bn). Retain REDUCE.
International market remains weak; potential headwinds of margin pressure
Suzlon reported MW sales of 461 MW versus our estimate of 400 MW sales. The company
reported wind business revenues of Rs25.2 bn, recording a marginal yoy growth (2.4%) and about
10% above our estimate of Rs22.8 bn. Suzlon reported an EBITDA margin of 5.4% in 3QFY11.
High interest and depreciation costs led to a net loss of Rs1.36 bn versus our estimate of a loss of
Rs2.4 bn. Sales were led by the domestic segment - about 461 MW of the 335 MW sales was in
the domestic market. We note that the company may face potential headwinds of margin pressure
in the international markets related to sedate demand and excess capacity environment
(highlighted by REPower in its recent quarter results release).
Increase inflows estimate on strong domestic, Caparo orders; execution may still have challenge
We increase our order inflow estimate in FY2011 to 2,300 MW (from 1,600 MW) based on strong
domestic inflows (1,255 MW reported in FY2011) led by 1,000 MW agreement signed with
Caparo Energy. International orders remain muted with only one single large order of 218 MW in
Brazil. We have adjusted our full-year execution estimates to 1,695 MW in FY2011E (from 1,830
MW) implying an execution requirement of about 655 MW in 4QFY11.
Working capital and debt levels remain very high
Suzlon reported high wind business net working capital levels of about Rs52.2 bn, about Rs2.5 bn
higher than 2QFY11-end levels; debtor levels increased by Rs8.8 bn since 2QFY11-end levels. We
note that about Rs95-100 bn of annual sales in the wind business (FY2011E estimate) would have
a very high year-end working capital level of Rs50-55 bn. Furthermore, gross external debt has
increased by Rs5.5 bn led by increase in working capital and capex related loans.
Revise estimates; reiterate REDUCE on high WCap and debt levels, potential margin pressure
We retain our estimates of a loss of Rs3.7 and profit of Rs3.5 for FY2011E and FY2012E,
respectively. Reiterate REDUCE (target price Rs45) based on (1) low traction in international
markets related to sales as well as margin pressure, (2) high working capital and debt levels, and
(3) strained cash flows.
International market remains weak; potential headwinds of margin pressure
Suzlon reported MW sales of 461 MW versus our estimate of 400 MW sales. The company
reported wind business revenues of Rs25.2 bn, recording a marginal yoy growth (2.4%) and
about 10% above our estimate of Rs22.8 bn. The wind energy market continues to witness
a slowdown with several customers delaying/ pushing back deliveries of orders especially in
the international markets. There has been some pick up in sales on a yoy as well as
sequential basis (Suzlon had reported sales of 404 MW in 3QFY10 and 361 MW in 2QFY11).
Suzlon reported an EBITDA margin of 5.4% in 3QFY11 versus marginal EBITDA margin of
0.2% in the previous quarter likely led by operating leverage due to the higher sales during
the quarter. However, high interest costs and depreciation led to a net loss of Rs1.36 bn in
the wind energy business - versus our estimate of a loss of Rs2.4 bn.
At the consolidated level, Suzlon reported 3QFY11 revenues of Rs44.9 bn, down 20% yoy
from Rs56.1 bn in 3QFY10. EBITDA margin was at 4% relatively flat on a sequential basis
about 100 bps lower than 3QFY10 margin of 5%. Suzlon has reported a net loss (excluding
exceptional items) of Rs2.5 bn at the consolidated level.
Potential headwinds of margin pressure - excess capacity market
There could be potential headwinds of margin pressure in the wind energy market as
demand in international markets remains relatively low. Even REpower in its 3Q results
release cited potential pricing and margin pressure with limited demand environment in an
excess capacity market. The management cited that an increasing numbers of projects are
being postponed, owing to outstanding funding commitments.
Domestic and emerging markets continue to dominate the sales
Of the total 461 MW of sales in 3QFY11, about 325 MW was sold in the Indian market and
73 MW in China. International markets continue to remain sedate both in terms of sales as
well as new order inflows.
International markets muted; company focus shifting to emerging geographies
Suzlon reported strong order inflows of about 1,488 MW in 2QFY11. Majority of these
order were from the domestic market to the tune of about 1,255 MW while inflows remain
sedate. International inflows primarily constituted of the 218 MW from Brazil’s Martifer
Renováveis Geração de Energia e Participações S.A. Indian market now contributes a
significant proportion (63%) of the total order backlog of the company versus only 21% of
the backlog at the end of 3QFY10. USA which contributed to 34% of the order backlog at
end-3QFY10 now contributes to 16% of the current backlog.
The management expects that going forward as well India and China are likely to drive the
order booking for the company.
Increase inflows estimate on strong domestic inflows, Caparo orders; however,
adjust near-term execution assumptions
We have increased our order inflow estimates to 2,300 MW in FY2011E (from 1,600 MW)
based on strong domestic inflows recorded in 3QFY11. Our inflows estimate is comprised of
1,650 MW domestic inflows and 650 MW of international orders. Suzlon has recently signed
a business partnership agreement with Caparo Energy India (wholly owned subsidiary of
Caparo Energy Ltd, UK). The agreement is for an order for 1,000 MW of wind power
projects to be developed in a phased manner by March 2013 (500 MW by March 2012 and
500 MW by March 2013). Our inflow assumptions build in orders from the Caparo deal over
the next two years FY2011 and FY2012. However, these orders may face delays/ execution
issues related to site/ land acquisition, project financing etc.
We have reduced our full-year execution estimates to about 1,695 MW in FY2011E (from
1,830 MW). This implies an execution requirement of about 655 MW in 4QFY11. These
estimates may actually have downside as visibility remains low. We believe that pick up in
order inflows for Suzlon would be visible with a time lag versus Vestas led by quality
perception of Suzlon.
Working capital, debt reduction remains below expectations
Suzlon reported very high wind business net working capital levels of about Rs52.2 bn,
about Rs2.5 bn higher than 2QFY11-end levels. Debtor levels have in fact recorded a
stronger rise of Rs8.8 bn since 2QFY11-end levels. We note that about Rs95-100 bn of
annual sales in the wind business (FY2011E estimate) would have a very high year-end
working capital level of Rs50-55 bn. We highlight that Suzlon has been operating with very
high working capital levels versus peers such as Vestas.
Working capital levels have remained relatively flat since end-FY2010 levels significantly
below expectations given the management’s aim to reduce the working capital by about
Rs10 bn by the end of the financial year.
Gross external debt increases versus FY2010-end levels
Suzlon reported gross external debt of Rs111 bn at end-9MFY11 versus Rs105 bn at end-
FY2010 level led by increase in working capital, capex and other debt. The total gross debt
has gone down by about Rs5.8 bn primarily on account of conversion of promoter loans (of
about Rs11.8 bn) into preference shares.
Retain REDUCE on low international traction, high WCap and debt
We revise estimates to loss of Rs3.7 (versus loss of Rs0.8) and Rs3.5 (versus Rs3.3 earlier) for
FY2011E and FY2012E based on changes to inflows and execution. Retain REDUCE with a
revised target price of Rs45 based on (1) low traction in international markets related to
sales as well as margin pressure, (2) high working capital and debt levels, and (3) strained
cash flows
Key risks originate from (1) continued negative execution surprises related to sectoral and
company specific problems; we highlight that Suzlon did not have strong execution track
record when sector scenario was buoyant, (2) Rupee appreciation may start to affect
competitiveness versus peers from FY2011E onwards. Further, over the long term
competitive intensity of sector would increase, with new players from China and other
industrial companies joining the renewable energy bandwagon.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Suzlon Energy (SUEL)
Industrials
Debt, operating cost and working capital remain high; retain REDUCE. Suzlon
reported 3Q sales of 461 MW versus our estimate of 400 MW primarily led by domestic
sales. International market remains sedate and is likely to face margin/pricing pressure
in an environment of excess capacity (corroborated by REPower in its 3Q result release).
Debt and working cap. levels continue to remain high potentially straining cash flows
(FY11E-end net WCap of Rs50-55 bn on sales of Rs95-100 bn). Retain REDUCE.
International market remains weak; potential headwinds of margin pressure
Suzlon reported MW sales of 461 MW versus our estimate of 400 MW sales. The company
reported wind business revenues of Rs25.2 bn, recording a marginal yoy growth (2.4%) and about
10% above our estimate of Rs22.8 bn. Suzlon reported an EBITDA margin of 5.4% in 3QFY11.
High interest and depreciation costs led to a net loss of Rs1.36 bn versus our estimate of a loss of
Rs2.4 bn. Sales were led by the domestic segment - about 461 MW of the 335 MW sales was in
the domestic market. We note that the company may face potential headwinds of margin pressure
in the international markets related to sedate demand and excess capacity environment
(highlighted by REPower in its recent quarter results release).
Increase inflows estimate on strong domestic, Caparo orders; execution may still have challenge
We increase our order inflow estimate in FY2011 to 2,300 MW (from 1,600 MW) based on strong
domestic inflows (1,255 MW reported in FY2011) led by 1,000 MW agreement signed with
Caparo Energy. International orders remain muted with only one single large order of 218 MW in
Brazil. We have adjusted our full-year execution estimates to 1,695 MW in FY2011E (from 1,830
MW) implying an execution requirement of about 655 MW in 4QFY11.
Working capital and debt levels remain very high
Suzlon reported high wind business net working capital levels of about Rs52.2 bn, about Rs2.5 bn
higher than 2QFY11-end levels; debtor levels increased by Rs8.8 bn since 2QFY11-end levels. We
note that about Rs95-100 bn of annual sales in the wind business (FY2011E estimate) would have
a very high year-end working capital level of Rs50-55 bn. Furthermore, gross external debt has
increased by Rs5.5 bn led by increase in working capital and capex related loans.
Revise estimates; reiterate REDUCE on high WCap and debt levels, potential margin pressure
We retain our estimates of a loss of Rs3.7 and profit of Rs3.5 for FY2011E and FY2012E,
respectively. Reiterate REDUCE (target price Rs45) based on (1) low traction in international
markets related to sales as well as margin pressure, (2) high working capital and debt levels, and
(3) strained cash flows.
International market remains weak; potential headwinds of margin pressure
Suzlon reported MW sales of 461 MW versus our estimate of 400 MW sales. The company
reported wind business revenues of Rs25.2 bn, recording a marginal yoy growth (2.4%) and
about 10% above our estimate of Rs22.8 bn. The wind energy market continues to witness
a slowdown with several customers delaying/ pushing back deliveries of orders especially in
the international markets. There has been some pick up in sales on a yoy as well as
sequential basis (Suzlon had reported sales of 404 MW in 3QFY10 and 361 MW in 2QFY11).
Suzlon reported an EBITDA margin of 5.4% in 3QFY11 versus marginal EBITDA margin of
0.2% in the previous quarter likely led by operating leverage due to the higher sales during
the quarter. However, high interest costs and depreciation led to a net loss of Rs1.36 bn in
the wind energy business - versus our estimate of a loss of Rs2.4 bn.
At the consolidated level, Suzlon reported 3QFY11 revenues of Rs44.9 bn, down 20% yoy
from Rs56.1 bn in 3QFY10. EBITDA margin was at 4% relatively flat on a sequential basis
about 100 bps lower than 3QFY10 margin of 5%. Suzlon has reported a net loss (excluding
exceptional items) of Rs2.5 bn at the consolidated level.
Potential headwinds of margin pressure - excess capacity market
There could be potential headwinds of margin pressure in the wind energy market as
demand in international markets remains relatively low. Even REpower in its 3Q results
release cited potential pricing and margin pressure with limited demand environment in an
excess capacity market. The management cited that an increasing numbers of projects are
being postponed, owing to outstanding funding commitments.
Domestic and emerging markets continue to dominate the sales
Of the total 461 MW of sales in 3QFY11, about 325 MW was sold in the Indian market and
73 MW in China. International markets continue to remain sedate both in terms of sales as
well as new order inflows.
International markets muted; company focus shifting to emerging geographies
Suzlon reported strong order inflows of about 1,488 MW in 2QFY11. Majority of these
order were from the domestic market to the tune of about 1,255 MW while inflows remain
sedate. International inflows primarily constituted of the 218 MW from Brazil’s Martifer
Renováveis Geração de Energia e Participações S.A. Indian market now contributes a
significant proportion (63%) of the total order backlog of the company versus only 21% of
the backlog at the end of 3QFY10. USA which contributed to 34% of the order backlog at
end-3QFY10 now contributes to 16% of the current backlog.
The management expects that going forward as well India and China are likely to drive the
order booking for the company.
Increase inflows estimate on strong domestic inflows, Caparo orders; however,
adjust near-term execution assumptions
We have increased our order inflow estimates to 2,300 MW in FY2011E (from 1,600 MW)
based on strong domestic inflows recorded in 3QFY11. Our inflows estimate is comprised of
1,650 MW domestic inflows and 650 MW of international orders. Suzlon has recently signed
a business partnership agreement with Caparo Energy India (wholly owned subsidiary of
Caparo Energy Ltd, UK). The agreement is for an order for 1,000 MW of wind power
projects to be developed in a phased manner by March 2013 (500 MW by March 2012 and
500 MW by March 2013). Our inflow assumptions build in orders from the Caparo deal over
the next two years FY2011 and FY2012. However, these orders may face delays/ execution
issues related to site/ land acquisition, project financing etc.
We have reduced our full-year execution estimates to about 1,695 MW in FY2011E (from
1,830 MW). This implies an execution requirement of about 655 MW in 4QFY11. These
estimates may actually have downside as visibility remains low. We believe that pick up in
order inflows for Suzlon would be visible with a time lag versus Vestas led by quality
perception of Suzlon.
Working capital, debt reduction remains below expectations
Suzlon reported very high wind business net working capital levels of about Rs52.2 bn,
about Rs2.5 bn higher than 2QFY11-end levels. Debtor levels have in fact recorded a
stronger rise of Rs8.8 bn since 2QFY11-end levels. We note that about Rs95-100 bn of
annual sales in the wind business (FY2011E estimate) would have a very high year-end
working capital level of Rs50-55 bn. We highlight that Suzlon has been operating with very
high working capital levels versus peers such as Vestas.
Working capital levels have remained relatively flat since end-FY2010 levels significantly
below expectations given the management’s aim to reduce the working capital by about
Rs10 bn by the end of the financial year.
Gross external debt increases versus FY2010-end levels
Suzlon reported gross external debt of Rs111 bn at end-9MFY11 versus Rs105 bn at end-
FY2010 level led by increase in working capital, capex and other debt. The total gross debt
has gone down by about Rs5.8 bn primarily on account of conversion of promoter loans (of
about Rs11.8 bn) into preference shares.
Retain REDUCE on low international traction, high WCap and debt
We revise estimates to loss of Rs3.7 (versus loss of Rs0.8) and Rs3.5 (versus Rs3.3 earlier) for
FY2011E and FY2012E based on changes to inflows and execution. Retain REDUCE with a
revised target price of Rs45 based on (1) low traction in international markets related to
sales as well as margin pressure, (2) high working capital and debt levels, and (3) strained
cash flows
Key risks originate from (1) continued negative execution surprises related to sectoral and
company specific problems; we highlight that Suzlon did not have strong execution track
record when sector scenario was buoyant, (2) Rupee appreciation may start to affect
competitiveness versus peers from FY2011E onwards. Further, over the long term
competitive intensity of sector would increase, with new players from China and other
industrial companies joining the renewable energy bandwagon.
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