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Suzlon Energy Ltd.
REpower wins its largest
onshore order in Europe
„Wins 720MW onshore framework agreement; Buy Suzlon
REpower, a 95% subsidiary of Suzlon, entered its largest onshore framework
agreement for the supply of 240 wind turbines with total capacity of 720MW with Juwi
Group. Key takeaways: 1) it is REpower’s largest onshore agreement in Europe
indicating sign of recovery in its key market, 2) order is for REpower’s newly introduced
3.4 and 3.2MW turbines with high hub height, validating its new product strategy, 3) it
will add 15% to its 3QFY11 backlog including framework contracts of 4.7GW and 4)
deliveries of this order are during 2H11 to 2014, hence, improving REpower sales
visibility by ~10% for FY12-13E assuming proportionate allocation over the period.
Reiterate our recent upgrade to a Buy on Suzlon, on a structural turnaround. Risks to
our non-consensus Buy call are delivery push-back, currency and execution.
Three catalysts to Buy Suzlon – A turnaround story
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. Its
back-to-basics strategy to has paid-off, with YTD orders up 4x in India to 2.1GW.
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.
REpower shifting mix
REpower is aiming to shift in product mix to high-margin off-shore wind in FY12/13E
(see Chart 4 & 5) and manufacturing to low-cost Asian regions (>70% in 18 months of
its largest selling 2MW turbine) to up its competitiveness.
Orders picking up; B-T-B at 1.2x, but it’s 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.
REpower wins its largest
onshore order in Europe
„Wins 720MW onshore framework agreement; Buy Suzlon
REpower, a 95% subsidiary of Suzlon, entered its largest onshore framework
agreement for the supply of 240 wind turbines with total capacity of 720MW with Juwi
Group. Key takeaways: 1) it is REpower’s largest onshore agreement in Europe
indicating sign of recovery in its key market, 2) order is for REpower’s newly introduced
3.4 and 3.2MW turbines with high hub height, validating its new product strategy, 3) it
will add 15% to its 3QFY11 backlog including framework contracts of 4.7GW and 4)
deliveries of this order are during 2H11 to 2014, hence, improving REpower sales
visibility by ~10% for FY12-13E assuming proportionate allocation over the period.
Reiterate our recent upgrade to a Buy on Suzlon, on a structural turnaround. Risks to
our non-consensus Buy call are delivery push-back, currency and execution.
Three catalysts to Buy Suzlon – A turnaround story
rising interest cost/low wind sites) and new regulation leading to entry of IPPs. Its
back-to-basics strategy to has paid-off, with YTD orders up 4x in India to 2.1GW.
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.
REpower shifting mix
REpower is aiming to shift in product mix to high-margin off-shore wind in FY12/13E
(see Chart 4 & 5) and manufacturing to low-cost Asian regions (>70% in 18 months of
its largest selling 2MW turbine) to up its competitiveness.
Orders picking up; B-T-B at 1.2x, but it’s 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.
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