Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Suzlon Energy Ltd.
Bottoming out on-track, Buy ahead of profits
„Focus on B(R)IC + REpower = Turnaround; Buy
Post meeting Suzlon at our Capital goods tour, we reiterate our recent upgrade to Buy
on a structural turnaround. Three catalysts: a) 25% CAGR till FY13E in the Indian wind
markets on higher feed-in tariffs (off-set rising interest cost/ low wind sites) and new
regulation leading to entry of IPPs, b) faster shift in production at REpower to low cost
India aiding its ability to cut prices without margin hit and scale-up in higher margin,
offshore wind and c) recovery of Rs10bn (27% of debtors) in 2HFY12 (Edison), to fund
growth and reduce liquidity concerns. Its back-to-basics strategy to has paid-off, with
YTD orders up 4x in India to 2.1GW. Risks to our non-consensus Buy call (6 of 27
brokers) are delivery push-back, currency and execution.
India - an island of growth on better regulation; Inflows ~4x
Suzlon supported our view that India WTG market new-add could grow to 3.6GW by
FY13E vs 2.4GW in FY11, on transformation caused by regulatory support to low wind
sites, and higher feed-in tariffs to shift markets to IPPs. Suzlon, a 50% leader, is the key
beneficiary with order wins from Vedanta (150MW) and new IPPs such as Caparo
(1GW), led by its ‘end-to-end’ model and launch of 2.1MW turbine. The shift toward a
profitable India (61% of FY12E MW vs. 47% in FY10) shall drive profit in 4Q'11 and
visibility. The 1st sign of turnaround is visible in 3Q'11 – EBITDA margin 7% v/s -3%.
Other catalysts: REpower shifting mix, Brazil & China
A) New products & pricing in China, b) new orders in Brazil and c) shift in product
mix to high-margin off-shore wind in FY12/13E and manufacturing to low-cost Asian
regions (>70% in 18 months of its largest selling 2MW turbine) to up REpower
competitiveness. Leveraging consol. D/E to support Suzlon’s high parent debt.
Orders picking up; B-T-B at 1.2x, but its still early days…
SUEL backlog of 2.6GW vs our 2.5GW in FY12 ex-REpower, address business
continuity concerns. Over-supply in global markets, delay in US RPS and weak US gas
/ power prices are concerns. Strong oil helps sentiments on renewables but gas is key.
Price objective basis & risk
Suzlon Energy (XZULF)
Our PO of Rs70 is based on our sum-of-the-parts analysis. We valued Suzlon's
wind business at 15x 1-year forward earnings, at Rs66 per share, which is set at
a 20% discount to Indian capital goods majors and in-line with European
comparables which is above its historical average. This we believe is fair given
Suzlon's long term growth led by BRIC countries, REpower and its return profile.
We value Suzlon's 26% stake in gearbox business of Hansen at Rs4 per share at
CMP of GBp53. Upside risk to our rating is de-leveraging by asset sale & pick-up
in USA market leading to new order wins. Downside risks: Headwinds for wind
turbine business on excess supply driving down ASPs and execution risk in the
land acquisition and grid connectivity in India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Suzlon Energy Ltd.
Bottoming out on-track, Buy ahead of profits
„Focus on B(R)IC + REpower = Turnaround; Buy
Post meeting Suzlon at our Capital goods tour, we reiterate our recent upgrade to Buy
on a structural turnaround. Three catalysts: a) 25% CAGR till FY13E in the Indian wind
markets on higher feed-in tariffs (off-set rising interest cost/ low wind sites) and new
regulation leading to entry of IPPs, b) faster shift in production at REpower to low cost
India aiding its ability to cut prices without margin hit and scale-up in higher margin,
offshore wind and c) recovery of Rs10bn (27% of debtors) in 2HFY12 (Edison), to fund
growth and reduce liquidity concerns. Its back-to-basics strategy to has paid-off, with
YTD orders up 4x in India to 2.1GW. Risks to our non-consensus Buy call (6 of 27
brokers) are delivery push-back, currency and execution.
India - an island of growth on better regulation; Inflows ~4x
Suzlon supported our view that India WTG market new-add could grow to 3.6GW by
FY13E vs 2.4GW in FY11, on transformation caused by regulatory support to low wind
sites, and higher feed-in tariffs to shift markets to IPPs. Suzlon, a 50% leader, is the key
beneficiary with order wins from Vedanta (150MW) and new IPPs such as Caparo
(1GW), led by its ‘end-to-end’ model and launch of 2.1MW turbine. The shift toward a
profitable India (61% of FY12E MW vs. 47% in FY10) shall drive profit in 4Q'11 and
visibility. The 1st sign of turnaround is visible in 3Q'11 – EBITDA margin 7% v/s -3%.
Other catalysts: REpower shifting mix, Brazil & China
A) New products & pricing in China, b) new orders in Brazil and c) shift in product
mix to high-margin off-shore wind in FY12/13E and manufacturing to low-cost Asian
regions (>70% in 18 months of its largest selling 2MW turbine) to up REpower
competitiveness. Leveraging consol. D/E to support Suzlon’s high parent debt.
Orders picking up; B-T-B at 1.2x, but its still early days…
SUEL backlog of 2.6GW vs our 2.5GW in FY12 ex-REpower, address business
continuity concerns. Over-supply in global markets, delay in US RPS and weak US gas
/ power prices are concerns. Strong oil helps sentiments on renewables but gas is key.
Price objective basis & risk
Suzlon Energy (XZULF)
Our PO of Rs70 is based on our sum-of-the-parts analysis. We valued Suzlon's
wind business at 15x 1-year forward earnings, at Rs66 per share, which is set at
a 20% discount to Indian capital goods majors and in-line with European
comparables which is above its historical average. This we believe is fair given
Suzlon's long term growth led by BRIC countries, REpower and its return profile.
We value Suzlon's 26% stake in gearbox business of Hansen at Rs4 per share at
CMP of GBp53. Upside risk to our rating is de-leveraging by asset sale & pick-up
in USA market leading to new order wins. Downside risks: Headwinds for wind
turbine business on excess supply driving down ASPs and execution risk in the
land acquisition and grid connectivity in India.
No comments:
Post a Comment