15 June 2015

Suzlon Energy - Enthused by Sector Uptick; Setting the House in Order:: Edelweiss

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We met Suzlon’s top management to get a medium to long term perspective on the company’s WTG business. Key highlights of our interaction  were: (1) management attributes the current liquidated damages (LDs) issue primarily to financial strain/working capital (WC) rather than technical/performance; (2) Dilip Sanghvi Associates (DSA) will extend WC support for 1200MW p.a. over the next 2-3 years, apart from additional support for 450MW, which Suzlon is developing with it in a JV; (3) Suzlon does not anticipate any material dip in current INR14bn fixed cost (including services business); (4) estimates significant (2-3x) ramp up in  volumes in FY16-17 led by industry expansion and improved WC post recent equity infusion; and (5) O&M business likely to sustain robust 20% plus CAGR led by strong installed base (~15GW India + overseas).
Favourable sector dynamics potent growth catalyst
WTG commissioning picked up in FY15 to 2.3GW (2.1GW in FY14) spurred by improving demand riding restoration of AD and GBI benefits in Budget 2014. Demand has revived stemming from conventional AD customers as well as fresh IPPs, which Suzlon perceives as catalysts that will double the market to 4GW plus over the next 2 years. Post the Senvion and DSA deals, the company’s debt has dipped to ~INR100bn (INR170bn earlier) apart from INR39bn (1200MW) WC commitment from DSA, which includes exposure to the 450MW JV project. We perceive a change in the current competitive landscape-compared to limited players in FY05-07, we believe competition, especially from Gamesa, Inox Winds etc., will remain one of the key challenges for Suzlon as it sets its sights on higher volumes.


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