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Suzlon Energy Ltd.
New markets, new customers
add catalysts
„Improving visibility with new markets & customers; Buy
Led by its new products, improving regulation in India and focus on B(R)ICS
markets leading its entry into South Africa, Suzlon received 502MW (4% of
backlog) of firm / frame orders in last one month, adding 4% to FY12E sales and
strengthened business model. Reiterate our upgrade to a Buy on Suzlon, on a
structural turnaround. Risks to our non-consensus Buy call are delivery pushback, currency and execution.
„ Led by its new S97 turbine with ~15% higher energy, Suzlon Wind won its 1st
order in Canada from Sprott Power for 32MW wind turbines adding 4%
Suzlon wind’s international backlog and FY12E volumes.
„ Led by 17% hike in feed-in-tariffs, Suzlon won its 1st large order in the state
of Andhra Pradesh from NALCO for 50MW wind turbines adding 4% to its
domestic backlog. Key is diversification of states, as new players (>80% of
Gamesa MW) are focused on TN (~40% of India), which is getting saturated
and has weak SEB fisc. AP could a/c for ~10% of its sales over time.
„ It won a framework contract from African Clean Energy Developments
(ACED) for a potential 420MW wind turbines order worth ~US$900mn subject
to securing a PPA and funding (for details read Suzlon).
„ Separately, Moventas, a Finnish wind gear-box maker filed for bankruptcy
after 3 years of recession in wind power leading to weak orders from EU and
USA. This validates Suzlon's strategy of shifting HSN to low cost countries for
production and markets.
Three catalysts to Buy Suzlon – A turnaround story
1. 25% CAGR till FY13E in the Indian wind markets on higher feed-in tariffs (offset rising interest cost/low wind sites) and new regulation lead entry of IPPs.
Its back-to-basics strategy has paid-off - YTD orders up 4x in India to 2.1GW.
2. 28% PAT CAGR in REPower on shift in product-mix to high margin offshore
wind and production of its largest selling 2MW to low cost countries and
3. Recovery of Rs10bn (24% of debtors) in 2HFY12 (Edison), to fund growth.
Price objective basis & risk
Suzlon Energy (XZULF)
Our PO of Rs75 is based on our sum-of-the-parts analysis. We valued Suzlon's
wind business at 14x 1-year forward earnings, at Rs71 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
BofAML PO of GBp50.
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.
New markets, new customers
add catalysts
„Improving visibility with new markets & customers; Buy
Led by its new products, improving regulation in India and focus on B(R)ICS
markets leading its entry into South Africa, Suzlon received 502MW (4% of
backlog) of firm / frame orders in last one month, adding 4% to FY12E sales and
strengthened business model. Reiterate our upgrade to a Buy on Suzlon, on a
structural turnaround. Risks to our non-consensus Buy call are delivery pushback, currency and execution.
„ Led by its new S97 turbine with ~15% higher energy, Suzlon Wind won its 1st
order in Canada from Sprott Power for 32MW wind turbines adding 4%
Suzlon wind’s international backlog and FY12E volumes.
„ Led by 17% hike in feed-in-tariffs, Suzlon won its 1st large order in the state
of Andhra Pradesh from NALCO for 50MW wind turbines adding 4% to its
domestic backlog. Key is diversification of states, as new players (>80% of
Gamesa MW) are focused on TN (~40% of India), which is getting saturated
and has weak SEB fisc. AP could a/c for ~10% of its sales over time.
„ It won a framework contract from African Clean Energy Developments
(ACED) for a potential 420MW wind turbines order worth ~US$900mn subject
to securing a PPA and funding (for details read Suzlon).
„ Separately, Moventas, a Finnish wind gear-box maker filed for bankruptcy
after 3 years of recession in wind power leading to weak orders from EU and
USA. This validates Suzlon's strategy of shifting HSN to low cost countries for
production and markets.
Three catalysts to Buy Suzlon – A turnaround story
1. 25% CAGR till FY13E in the Indian wind markets on higher feed-in tariffs (offset rising interest cost/low wind sites) and new regulation lead entry of IPPs.
Its back-to-basics strategy has paid-off - YTD orders up 4x in India to 2.1GW.
2. 28% PAT CAGR in REPower on shift in product-mix to high margin offshore
wind and production of its largest selling 2MW to low cost countries and
3. Recovery of Rs10bn (24% of debtors) in 2HFY12 (Edison), to fund growth.
Price objective basis & risk
Suzlon Energy (XZULF)
Our PO of Rs75 is based on our sum-of-the-parts analysis. We valued Suzlon's
wind business at 14x 1-year forward earnings, at Rs71 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
BofAML PO of GBp50.
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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