Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Suzlon Energy (SUEL)
N(V): Turning the corner, but some uncertainties remain
Suzlon has finalised the squeeze-out of minorities in REpower
and the sale of its stake in Hansen
We estimate the company will return to profitability this year
and has sufficient liquidity to make loan repayments in FY13
Remain N(V), but raise target price to INR60 from INR50
Corporate transformation nearing completion. Suzlon, India’s biggest maker of wind
turbines, is finalising the buyout of minority shareholders in its German unit REpower as well
as the sale of its 26% stake in Belgium-based Hansen Transmissions to ZF Friedrichshafen.
If confirmed, the two transactions will result in a net inflow to Suzlon of around INR4.2bn
(USD95m). This comes as Suzlon has reported surprisingly strong Q1 FY12 numbers,
driven primarily by improved gross margins and increased sales volume. We believe these
developments are in the share price, which has moved up c7% over the past 10 days (20 July
to 1 August; Sensex down 1% over the same period).
Balance sheet issues persist, but can be managed. Suzlon remains highly leveraged and
has loan repayments of INR25bn due in FY13, including up to cINR17bn in foreign currency
convertible bond (FCCB) repayments. Therefore, free cash flow during the current year is
important. According to our estimates, Suzlon should be able to meet its loan repayments.
However, achieving either a further renegotiation of the FCCB conversion price or the
repatriation of cash from REpower upon full integration on favourable terms would provide
more certainty on cash flows. These are achievable milestones but, while uncertainty persists,
we remain somewhat cautious.
Valuation. We change our valuation methodology from blended Economic Value Added
and PB-based relative valuation to DCF. Using a WACC of 12%, we derive fair values of
INR67.5 and INR71.9 per share, using our two different DCF methodologies – the HSBC
four-stage ROIC-based DCF and a ‘classic’ FCF-based DCF. This gives us an average
price of INR70, to which we apply a 15% discount to get our new target price of INR60
(rounded). Our discount highlights the above-mentioned risks related to the financial
credibility of the company; removing the discount would provide another c17% potential
return. For FY12, our net profit forecast is 19% below consensus, and we are below the
company’s guidance on revenue. For FY13e net profit, we are 23% lower than consensus.
Potential catalysts. We believe continued new order flow momentum in 2011 and a margin
recovery from improving financial performance over the next few quarters will drive a
share price recovery. As we note above, this recovery is likely to be driven by measures to
repair the balance sheet and strong FCF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Suzlon Energy (SUEL)
N(V): Turning the corner, but some uncertainties remain
Suzlon has finalised the squeeze-out of minorities in REpower
and the sale of its stake in Hansen
We estimate the company will return to profitability this year
and has sufficient liquidity to make loan repayments in FY13
Remain N(V), but raise target price to INR60 from INR50
Corporate transformation nearing completion. Suzlon, India’s biggest maker of wind
turbines, is finalising the buyout of minority shareholders in its German unit REpower as well
as the sale of its 26% stake in Belgium-based Hansen Transmissions to ZF Friedrichshafen.
If confirmed, the two transactions will result in a net inflow to Suzlon of around INR4.2bn
(USD95m). This comes as Suzlon has reported surprisingly strong Q1 FY12 numbers,
driven primarily by improved gross margins and increased sales volume. We believe these
developments are in the share price, which has moved up c7% over the past 10 days (20 July
to 1 August; Sensex down 1% over the same period).
Balance sheet issues persist, but can be managed. Suzlon remains highly leveraged and
has loan repayments of INR25bn due in FY13, including up to cINR17bn in foreign currency
convertible bond (FCCB) repayments. Therefore, free cash flow during the current year is
important. According to our estimates, Suzlon should be able to meet its loan repayments.
However, achieving either a further renegotiation of the FCCB conversion price or the
repatriation of cash from REpower upon full integration on favourable terms would provide
more certainty on cash flows. These are achievable milestones but, while uncertainty persists,
we remain somewhat cautious.
Valuation. We change our valuation methodology from blended Economic Value Added
and PB-based relative valuation to DCF. Using a WACC of 12%, we derive fair values of
INR67.5 and INR71.9 per share, using our two different DCF methodologies – the HSBC
four-stage ROIC-based DCF and a ‘classic’ FCF-based DCF. This gives us an average
price of INR70, to which we apply a 15% discount to get our new target price of INR60
(rounded). Our discount highlights the above-mentioned risks related to the financial
credibility of the company; removing the discount would provide another c17% potential
return. For FY12, our net profit forecast is 19% below consensus, and we are below the
company’s guidance on revenue. For FY13e net profit, we are 23% lower than consensus.
Potential catalysts. We believe continued new order flow momentum in 2011 and a margin
recovery from improving financial performance over the next few quarters will drive a
share price recovery. As we note above, this recovery is likely to be driven by measures to
repair the balance sheet and strong FCF.
No comments:
Post a Comment