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Suzlon Energy
Stronger Domestic … Slower
International Business
What's Changed
Price Target Rs71.50 to Rs59.80
Transforming into local play; Remain EW. While
Suzlon stands to benefit from stronger-than-expected
domestic wind market, its international business will
likely remain weak. As a result, we reduce our shipment
estimates for F2011 and F2012. With growing
competition from emerging lower cost turbines from
China, we believe competition for international market
share will remain intense. Despite, significant
underperformance, the stock trades at 1.5x P/B on
F2011e, which we do not find compelling.
Healing is underway: While Suzlon has lowered net
debt/equity to 1.4x via promoter loan conversion (via
equity raising), further action may be required to bring it
down further. With the successful restructuring of bonds
and other outstanding debt, we see no risk of breach of
covenants. Suzlon also improved its cost structure, as
reflected in 2Q results.
Leveraged on India Wind Market: We expect growth
in the Indian wind market to rebound from last year. This
is due to incremental incentives such as higher PPA
tariffs, REC credits and improving credit availability.
After contracting to 1.3 GW last year, we expect a
market size of 2.4 GW in 2010 and 3.0 GW in 2011.
While new entrants such as GE, Gamesa and Siemens
would eventually limit Suzlon’s market share, we do
expect Suzlon to retain its 50%+ local market share.
Slow recovery of international business: Suzlon’s
international order intake remains weak. In the US, low
power price has resulted in a significant slowdown. In
China, aggressive price competition from domestic
competitors and near exclusion from national
concession projects, limits share. Brazil is competitive,
with new players willing to reduce pricing. As a result,
recovery at Suzlon could be slow and gradual.
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