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Suzlon Energy (SUEL)
Industrials
Stronger sales help deliver positive PAT; but inflows remain weak. Suzlon
reported strong wind business sales of 437 MW in 1QFY12, likely aided by spill-over
sales from 4QFY11. Strong EBITDA margin of 11.9% (on sales growth and forex gains)
led to a positive net PAT of Rs250 mn (versus a loss of Rs5.6 bn in 1QFY11). Inflows
remained weak leading to a sequential decline in the backlog to 2,030 MW (dominated
by domestic). WCap and debt levels continue to remain high. Retain REDUCE.
Strong sales likely boosted by spill-over from 4QFY11; leads to PAT-level breakeven
Suzlon’s wind business reported stronger-than-expected sales of about 437 MW in 1QFY12 versus
our estimate of 300 MW and more than double 1QFY11 sales. The sales are likely to have been
boosted by about 160 MW of spill-over sales from 4QFY11. Suzlon reported a strong EBITDA
margin of 11.9% in 1QFY12 vs. a loss of 20.3% in 1QFY11 primarily on higher sales and forex
gain of Rs570 mn in 1QFY12 (loss of Rs1.1 bn in 1QFY11). Suzlon wind business reported net PAT
of Rs250 mn in 1QFY12 versus a loss of Rs5.6 bn in 1QFY11 (our expectation of a loss of Rs2 bn).
Weak inflows lead to sequential decline in backlog; domestic market continues to dominate business
Suzlon reported weak order inflows 237 MW led by 205 MW of order inflows in the domestic
market. Weak order inflows led to sequential decline in the order backlog to 2,030 MW at end-
1QFY12. Domestic market continued to dominate the sales during the quarter with only 133 MW
(of the total 437 MW) sales in international geographies. This segment also contributes to a
majority (1,255 MW, about 62%) of the order backlog of the company (of 2,030 MW).
High working capital and debt levels (increases sequentially) likely to continue to strain cash flows
Suzlon reported very high wind business net working capital of about Rs41.5 bn, an increase of
about Rs4.6 bn versus FY2011-end levels. Furthermore, the company also reported marginally
higher gross external debt of Rs118 bn, about Rs6 bn higher than end-FY2011 levels led by higher
FCCBs (issued US$175 mn of FCCBs during the quarter).
Revise earnings estimates and target price to Rs60/share; reiterate REDUCE
We revise earnings estimates to a profit of Rs0.6 and profit of Rs4.0 (from a loss of Rs0.6 and
profit of Rs4.5) in FY2012E and FY2013E respectively. We reiterate our REDUCE rating with a
revised target price of Rs60/share (from Rs55/share) based on (1) low traction in international
markets related to sales as well as margin pressure, (2) high working capital and debt levels,
(3) strained cash flows, (4) potential India business headwinds of difficulty in scaling up wind
execution (land, clearance, transmission etc.), removal of accelerated depreciation, lack of full
adoption of RPO mandate among Indian states and low order inflow over last two quarters.
Spill-over from 4QFY11 likely boost quarter sales; leads to PAT-level break even
Suzlon reported MW sales of 437 MW in 1QFY12, significantly ahead of our estimates of
300 MW and more than double 1QFY11 sales of 207 MW. Suzlon reported 1QFY12 wind
business revenues of Rs26 bn, recording a strong growth of 80% yoy (versus our estimate of
Rs18 bn). The quarter sales were likely aided by some sales slippage from 4QFY11 in to this
quarter. In 4QFY11, Suzlon management had cited postponement of about 160 MW of
deliveries in India to 1QFY12 on account of logistical bottlenecks (unavailability of trailers).
Strong EBITDA margin of 11.9% partly on strong sales and forex gains
Suzlon reported a strong EBITDA margin of 11.9% in 1QFY12 (our estimate of 6%) versus a
negative margin of 20.3% in 1QFY11 and 14.7% in 4QFY11. The strong expansion in
EBITDA margin was primarily due to higher quarter sales and forex gain of Rs570 mn in
1QFY12 versus a loss of Rs1.1 bn in 1QFY11. Adjusted for forex gain/loss margins would
have been at about 9.7%.
The strong sales and EBITDA margin expansion led to a small positive PBT of Rs190 mn in
the quarter, versus our estimate of a loss of Rs2 bn and 1QFY11 loss of Rs5.8 bn. Suzlon
reported a tax rebate of Rs60 mn during the quarter (had also reported a tax rebate of
Rs600 mn in 4QFY11 on merger/ demerger of certain profitable subsidiaries against which a
tax provision was made earlier, reversal of which has led to the tax rebate during the
quarter). This led to a net PAT of Rs250 mn in 1QFY12 versus a loss of Rs5.6 bn in 1QFY11.
Order inflows remain weak - backlog declines sequentially
Suzlon reported weak order inflows 222 MW led by 190 MW of order inflows in the
domestic market. Weak order inflows led to sequential decline in the order backlog to 2,030
MW at end-1QFY12.
Domestic sector dominates sales and order backlog
Domestic market continued to dominate the sales during the quarter with only 133 MW (of
the total 437 MW) sales in international geographies. We note that contribution from the
domestic market has increased from about 27% in FY2009 to about 77% of sales in
FY2011. Domestic market also contributes to a majority (1,255 MW) of the order backlog of
the company (of 2,030 MW). Indian market now contributes a significant proportion (about
62%) of the total order backlog of the company versus only 39% of the backlog at the end
of 1QFY11.
Working capital, debt reduction remains below par; WCap increases sequentially
Working capital reduction has remained below par at Suzlon, with the company in fact
reporting some deterioration in working capital levels in 1QFY12. Wind business net
working capital increased by about Rs4.6 bn to Rs41.5 bn at end-1QFY12 from about Rs37
bn at end-FY2011. Working capital levels have remained relatively flat since end-FY2010
levels significantly below expectations given the management’s aim to reduce the working
capital by about Rs10 bn by the end-FY2011. Working capital levels are significantly higher
versus FY2009-end levels of about 100-110 days of sales.
Revise earnings estimates and target price to Rs60/share; reiterate REDUCE
We revise estimates to profit of Rs0.6 (versus a loss of Rs0.6) and a profit of Rs4.0 (versus
Rs4.5 earlier) for FY2012E and FY2013E respectively based on marginal changes to margin
assumptions led by other expenses. We have also made marginal reduced Repower
assumptions for FY2012E and FY2013E, contributing to earnings and target price change.
We correspondingly revise our SOTP-based target price on the company to Rs60 (from Rs55
earlier). Target price changes are accentuated by large amount of debt as equity value is a
small proportion of the total enterprises value of the business. So a relatively small change in
enterprise value leads to a large change in equity valuation.
We retain our REDUCE rating on the company based on (1) low traction in international
markets related to sales as well as margin pressure, (2) high working capital and debt levels,
(3) strained cash flows, (4) headwinds in India business originating from difficult y in scaling
up annual execution (land acquisition, transmission etc.), lack of full regulatory support (non
implementation of RPO mandate by some states), likely withdrawal of accelerated
depreciation etc.
Key risks originate from (1) continued negative execution surprises related to sectoral and
company specific problems; we highlight that Suzlon did not have strong execution track
record when sector scenario was buoyant, (2) Rupee appreciation may start to affect
competitiveness versus peers. Furthermore, over the long term competitive intensity of
sector would increase, with new players from China and other industrial companies joining
the renewable energy bandwagon.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Suzlon Energy (SUEL)
Industrials
Stronger sales help deliver positive PAT; but inflows remain weak. Suzlon
reported strong wind business sales of 437 MW in 1QFY12, likely aided by spill-over
sales from 4QFY11. Strong EBITDA margin of 11.9% (on sales growth and forex gains)
led to a positive net PAT of Rs250 mn (versus a loss of Rs5.6 bn in 1QFY11). Inflows
remained weak leading to a sequential decline in the backlog to 2,030 MW (dominated
by domestic). WCap and debt levels continue to remain high. Retain REDUCE.
Strong sales likely boosted by spill-over from 4QFY11; leads to PAT-level breakeven
Suzlon’s wind business reported stronger-than-expected sales of about 437 MW in 1QFY12 versus
our estimate of 300 MW and more than double 1QFY11 sales. The sales are likely to have been
boosted by about 160 MW of spill-over sales from 4QFY11. Suzlon reported a strong EBITDA
margin of 11.9% in 1QFY12 vs. a loss of 20.3% in 1QFY11 primarily on higher sales and forex
gain of Rs570 mn in 1QFY12 (loss of Rs1.1 bn in 1QFY11). Suzlon wind business reported net PAT
of Rs250 mn in 1QFY12 versus a loss of Rs5.6 bn in 1QFY11 (our expectation of a loss of Rs2 bn).
Weak inflows lead to sequential decline in backlog; domestic market continues to dominate business
Suzlon reported weak order inflows 237 MW led by 205 MW of order inflows in the domestic
market. Weak order inflows led to sequential decline in the order backlog to 2,030 MW at end-
1QFY12. Domestic market continued to dominate the sales during the quarter with only 133 MW
(of the total 437 MW) sales in international geographies. This segment also contributes to a
majority (1,255 MW, about 62%) of the order backlog of the company (of 2,030 MW).
High working capital and debt levels (increases sequentially) likely to continue to strain cash flows
Suzlon reported very high wind business net working capital of about Rs41.5 bn, an increase of
about Rs4.6 bn versus FY2011-end levels. Furthermore, the company also reported marginally
higher gross external debt of Rs118 bn, about Rs6 bn higher than end-FY2011 levels led by higher
FCCBs (issued US$175 mn of FCCBs during the quarter).
Revise earnings estimates and target price to Rs60/share; reiterate REDUCE
We revise earnings estimates to a profit of Rs0.6 and profit of Rs4.0 (from a loss of Rs0.6 and
profit of Rs4.5) in FY2012E and FY2013E respectively. We reiterate our REDUCE rating with a
revised target price of Rs60/share (from Rs55/share) based on (1) low traction in international
markets related to sales as well as margin pressure, (2) high working capital and debt levels,
(3) strained cash flows, (4) potential India business headwinds of difficulty in scaling up wind
execution (land, clearance, transmission etc.), removal of accelerated depreciation, lack of full
adoption of RPO mandate among Indian states and low order inflow over last two quarters.
Spill-over from 4QFY11 likely boost quarter sales; leads to PAT-level break even
Suzlon reported MW sales of 437 MW in 1QFY12, significantly ahead of our estimates of
300 MW and more than double 1QFY11 sales of 207 MW. Suzlon reported 1QFY12 wind
business revenues of Rs26 bn, recording a strong growth of 80% yoy (versus our estimate of
Rs18 bn). The quarter sales were likely aided by some sales slippage from 4QFY11 in to this
quarter. In 4QFY11, Suzlon management had cited postponement of about 160 MW of
deliveries in India to 1QFY12 on account of logistical bottlenecks (unavailability of trailers).
Strong EBITDA margin of 11.9% partly on strong sales and forex gains
Suzlon reported a strong EBITDA margin of 11.9% in 1QFY12 (our estimate of 6%) versus a
negative margin of 20.3% in 1QFY11 and 14.7% in 4QFY11. The strong expansion in
EBITDA margin was primarily due to higher quarter sales and forex gain of Rs570 mn in
1QFY12 versus a loss of Rs1.1 bn in 1QFY11. Adjusted for forex gain/loss margins would
have been at about 9.7%.
The strong sales and EBITDA margin expansion led to a small positive PBT of Rs190 mn in
the quarter, versus our estimate of a loss of Rs2 bn and 1QFY11 loss of Rs5.8 bn. Suzlon
reported a tax rebate of Rs60 mn during the quarter (had also reported a tax rebate of
Rs600 mn in 4QFY11 on merger/ demerger of certain profitable subsidiaries against which a
tax provision was made earlier, reversal of which has led to the tax rebate during the
quarter). This led to a net PAT of Rs250 mn in 1QFY12 versus a loss of Rs5.6 bn in 1QFY11.
Order inflows remain weak - backlog declines sequentially
Suzlon reported weak order inflows 222 MW led by 190 MW of order inflows in the
domestic market. Weak order inflows led to sequential decline in the order backlog to 2,030
MW at end-1QFY12.
Domestic sector dominates sales and order backlog
Domestic market continued to dominate the sales during the quarter with only 133 MW (of
the total 437 MW) sales in international geographies. We note that contribution from the
domestic market has increased from about 27% in FY2009 to about 77% of sales in
FY2011. Domestic market also contributes to a majority (1,255 MW) of the order backlog of
the company (of 2,030 MW). Indian market now contributes a significant proportion (about
62%) of the total order backlog of the company versus only 39% of the backlog at the end
of 1QFY11.
Working capital, debt reduction remains below par; WCap increases sequentially
Working capital reduction has remained below par at Suzlon, with the company in fact
reporting some deterioration in working capital levels in 1QFY12. Wind business net
working capital increased by about Rs4.6 bn to Rs41.5 bn at end-1QFY12 from about Rs37
bn at end-FY2011. Working capital levels have remained relatively flat since end-FY2010
levels significantly below expectations given the management’s aim to reduce the working
capital by about Rs10 bn by the end-FY2011. Working capital levels are significantly higher
versus FY2009-end levels of about 100-110 days of sales.
Revise earnings estimates and target price to Rs60/share; reiterate REDUCE
We revise estimates to profit of Rs0.6 (versus a loss of Rs0.6) and a profit of Rs4.0 (versus
Rs4.5 earlier) for FY2012E and FY2013E respectively based on marginal changes to margin
assumptions led by other expenses. We have also made marginal reduced Repower
assumptions for FY2012E and FY2013E, contributing to earnings and target price change.
We correspondingly revise our SOTP-based target price on the company to Rs60 (from Rs55
earlier). Target price changes are accentuated by large amount of debt as equity value is a
small proportion of the total enterprises value of the business. So a relatively small change in
enterprise value leads to a large change in equity valuation.
We retain our REDUCE rating on the company based on (1) low traction in international
markets related to sales as well as margin pressure, (2) high working capital and debt levels,
(3) strained cash flows, (4) headwinds in India business originating from difficult y in scaling
up annual execution (land acquisition, transmission etc.), lack of full regulatory support (non
implementation of RPO mandate by some states), likely withdrawal of accelerated
depreciation etc.
Key risks originate from (1) continued negative execution surprises related to sectoral and
company specific problems; we highlight that Suzlon did not have strong execution track
record when sector scenario was buoyant, (2) Rupee appreciation may start to affect
competitiveness versus peers. Furthermore, over the long term competitive intensity of
sector would increase, with new players from China and other industrial companies joining
the renewable energy bandwagon.
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