Suzlon Energy - gaining momentum; visit note; Edelweiss

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Suzlon Energy (SUEL IN, INR 54, Not Rated)

Domestic wind energy space gaining momentum

Suzlon Energy (Suzlon) appeared positive on the Indian wind energy market, given positive dynamics in the renewable IPP (Independent Power Producers) space. Of the company’s total order book of 2.6 GW, ~1.6 GW is from India; order book (consolidated) stands at ~5 GW, including RE Power. The India wind energy market is expected to reach 3.0 GW by FY12 from 1.5 GW in FY10, with Suzlon having ~50% market share, followed by Enercon at ~22%.

Emerging markets to drive incremental business volumes

With no major growth seen recently in the US and European markets, Suzlon is clearly increasing its focus on high-growth markets like India, China and Brazil. While the US market is unlikely to grow beyond 5-6 GW per annum, Europe is expected to remain flat at 10 GW per annum over the next few years. China, on the other hand, is expected to add more than 18-19 GW annually over the next five years. Also, the Indian wind power market is likely to grow robustly from the current 3 GW annually to ~6 GW annually, going forward, given the country’s positive regulatory framework.

Synergies to play out post complete acquisition of RE Power

Post complete acquisition of RE Power, the management expects to further optimise its global operations, integrating RE Power’s European operations with Suzlon’s other entities in India and China, which are low cost manufacturing hubs. Due to stringent regulatory norms, Suzlon has been unable to garner the real potential of RE Power, which is expected to be achieved over the coming quarters.

Outlook and valuations: Positive; Not Rated

With domestic market witnessing pick up (owning to positive regulatory framework) and improving traction in emerging markets like China and Brazil, we believe Suzlon is well-placed to reap benefits, going forward, through its presence in these markets. Also, once Suzlon takes its ownership in RE Power from 95.2% currently to 100% in the next few quarters, its operating performance could improve, owing to further integration of RE Power’s business with Suzlon’s existing wind power business.