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Suzlon Energy Ltd Neutral
SUZL.BO, SUEL IN
Still some time to become more positive; maintain N
Continued optimism on the India business: Despite competition,
management claimed it is the lowest-cost producer and is not seeing any
pricing pressure in India. It is confident of maintaining its 50% market share
in what it believes will be a growing market despite pressures such as
enforcement of the Direct Tax Code (strong demand from IPPs). Suzlon
currently has 800MW of new domestic orders under negotiation. We
estimate 1.6GW (+37% yoy) of sales from India in FY12, including
500MW from Caparo, of which 100MW is under construction. Our FY12
international sales volume estimate of 650MW from Suzlon wind is in line
with guidance of 500-700MW.
Guidance maintained; our estimates are conservative in comparison:
Suzlon has maintained its consol. FY12 guidance for sales of Rs240-260B
(JPMe of Rs227B) and EBIT margin of 7-8% (JPMe 6.6%). In the wind
business management maintained its view of achieving a Rs20M/MW gross
margin (JPMe Rs20.2M/W), a key risk to our estimates. However we do not
model repayment of Rs118B of standalone debt, which is an upside risk to
our FY13 estimate. We don’t forsee any significant redemption in FY12.
FCCB redemption plans: A key investor concern has been how Suzlon
will repay Rs25.6B of FCCBs maturing in FY13 (incl. redemption
premium). According to management it will be able to meet the payment
through a Hansen stake sale (Rs8.3B) + Edison receivables (Rs9.2B) +
operating cash flows (JPMe Rs12.6B in FY12). While management guided
to recovering receivables from Edison in 2H FY12 for ~200MW of sales, it
did not have confidence in when Edison would achieve financial closure for
the project. Suzlon also clarified on the conference call that it did not plan to
exercise the permission to raise Rs50B of capital in the near term.
Model housekeeping: We modestly increase our PT by Rs1 to Rs61 to
account for better benchmark pricing for RePpower squeeze out and the
cash from Hansen stake sale. We trim our FY12/13 estimates by 9%/6%,
removing associate income from Hansen from 2H FY12 onwards and
incorporating a loss in FY12 for the same. We see limited downside to
Suzlon from the current level; however, we stay Neutral on potential risks to
margin and sales volumes
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Suzlon Energy Ltd Neutral
SUZL.BO, SUEL IN
Still some time to become more positive; maintain N
Continued optimism on the India business: Despite competition,
management claimed it is the lowest-cost producer and is not seeing any
pricing pressure in India. It is confident of maintaining its 50% market share
in what it believes will be a growing market despite pressures such as
enforcement of the Direct Tax Code (strong demand from IPPs). Suzlon
currently has 800MW of new domestic orders under negotiation. We
estimate 1.6GW (+37% yoy) of sales from India in FY12, including
500MW from Caparo, of which 100MW is under construction. Our FY12
international sales volume estimate of 650MW from Suzlon wind is in line
with guidance of 500-700MW.
Guidance maintained; our estimates are conservative in comparison:
Suzlon has maintained its consol. FY12 guidance for sales of Rs240-260B
(JPMe of Rs227B) and EBIT margin of 7-8% (JPMe 6.6%). In the wind
business management maintained its view of achieving a Rs20M/MW gross
margin (JPMe Rs20.2M/W), a key risk to our estimates. However we do not
model repayment of Rs118B of standalone debt, which is an upside risk to
our FY13 estimate. We don’t forsee any significant redemption in FY12.
FCCB redemption plans: A key investor concern has been how Suzlon
will repay Rs25.6B of FCCBs maturing in FY13 (incl. redemption
premium). According to management it will be able to meet the payment
through a Hansen stake sale (Rs8.3B) + Edison receivables (Rs9.2B) +
operating cash flows (JPMe Rs12.6B in FY12). While management guided
to recovering receivables from Edison in 2H FY12 for ~200MW of sales, it
did not have confidence in when Edison would achieve financial closure for
the project. Suzlon also clarified on the conference call that it did not plan to
exercise the permission to raise Rs50B of capital in the near term.
Model housekeeping: We modestly increase our PT by Rs1 to Rs61 to
account for better benchmark pricing for RePpower squeeze out and the
cash from Hansen stake sale. We trim our FY12/13 estimates by 9%/6%,
removing associate income from Hansen from 2H FY12 onwards and
incorporating a loss in FY12 for the same. We see limited downside to
Suzlon from the current level; however, we stay Neutral on potential risks to
margin and sales volumes
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