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Suzlon Energy
Domestic competition heating up
Event
�� We note competition for Suzlon in the domestic Indian market is heating up.
This is worrisome especially given that overseas markets remain dry. We
believe debt repayment from CY12 could see some pressure unless volumes
pick up meaningfully. Retain Underperform with a price target of Rs42.
Impact
�� Overseas markets remain dry, India is the saving grace: Suzlon’s reliance
on Indian orders has increased in FY11 with 90% of the orders announced
YTD coming from India. The bleak outlook for the wind industry in developed
markets (US and Europe) means that orders are unlikely to pick up
meaningfully in the near future, in our view.
�� Competition is picking up in the Indian market: Competition from foreign
companies is picking up in India with players like GE, Vestas, Siemens and
Gamesa looking to expand their manufacturing base. The recent
announcement of Gamesa to increase its capacity from 200MW to 800MW by
CY13 indicates the seriousness of foreign players in the Indian market.
Though we expect annual wind installations in India (currently at ~2,100MW)
to grow at ~20% annually over the next 2-3 years, strong capacity addition by
foreign players indicates pricing pressure is likely to continue for Suzlon.
�� Debt repayment to begin in CY12: Suzlon’s debt repayment begins in
CY12. With an outstanding debt of Rs97bn (excluding FCCBs), repayable
over 3-4 years, we believe annual principal repayment may be under pressure
unless there is a sharp pickup in volumes.
�� Promoters continue to sell down to extend debt to company: Promoters
have recently sold a 2.25% stake in the company to extend promoter loans,
highlighting that the debt situation of the company continues to be worrisome.
Earnings and target price revision
�� No change.
Price catalyst
�� 12-month price target: Rs42.00 based on a Sum of Parts methodology.
�� Catalyst: slowdown in Indian orders and further fall in pricing
Action and recommendation
�� Suzlon is still one of the more expensive WTG players: Suzlon is trading
at a significant premium vis-à-vis its global peers. Increasing competition for
Suzlon both in domestic and international markets raises questions on the
sustainability of its valuation premium. We retain our Underperform rating on
the stock with a target price of Rs42.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Suzlon Energy
Domestic competition heating up
Event
�� We note competition for Suzlon in the domestic Indian market is heating up.
This is worrisome especially given that overseas markets remain dry. We
believe debt repayment from CY12 could see some pressure unless volumes
pick up meaningfully. Retain Underperform with a price target of Rs42.
Impact
�� Overseas markets remain dry, India is the saving grace: Suzlon’s reliance
on Indian orders has increased in FY11 with 90% of the orders announced
YTD coming from India. The bleak outlook for the wind industry in developed
markets (US and Europe) means that orders are unlikely to pick up
meaningfully in the near future, in our view.
�� Competition is picking up in the Indian market: Competition from foreign
companies is picking up in India with players like GE, Vestas, Siemens and
Gamesa looking to expand their manufacturing base. The recent
announcement of Gamesa to increase its capacity from 200MW to 800MW by
CY13 indicates the seriousness of foreign players in the Indian market.
Though we expect annual wind installations in India (currently at ~2,100MW)
to grow at ~20% annually over the next 2-3 years, strong capacity addition by
foreign players indicates pricing pressure is likely to continue for Suzlon.
�� Debt repayment to begin in CY12: Suzlon’s debt repayment begins in
CY12. With an outstanding debt of Rs97bn (excluding FCCBs), repayable
over 3-4 years, we believe annual principal repayment may be under pressure
unless there is a sharp pickup in volumes.
�� Promoters continue to sell down to extend debt to company: Promoters
have recently sold a 2.25% stake in the company to extend promoter loans,
highlighting that the debt situation of the company continues to be worrisome.
Earnings and target price revision
�� No change.
Price catalyst
�� 12-month price target: Rs42.00 based on a Sum of Parts methodology.
�� Catalyst: slowdown in Indian orders and further fall in pricing
Action and recommendation
�� Suzlon is still one of the more expensive WTG players: Suzlon is trading
at a significant premium vis-à-vis its global peers. Increasing competition for
Suzlon both in domestic and international markets raises questions on the
sustainability of its valuation premium. We retain our Underperform rating on
the stock with a target price of Rs42.
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