Suzlon Energy -Volumes in international business lag:: Religare

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Suzlon Energy Ltd
Volumes in international business lag

Suzlon Energy’s (SUEL) Q2FY11 results fell short of our estimates as execution
remained below expectations. Suzlon Wind’s order backlog remained flat YoY,
at 1,550MW (Rs 82.85bn) compared to 1,484MW (Rs 81.3bn) at FY10-end.
Even as Q2FY11 results are an improvement over Q1FY11, the business, in our
view, is still struggling to attain the scale it touched in FY09. Accordingly,
profitability continues to be under pressure. We therefore maintain SELL on the
stock with target price of Rs 45.



Order flows in India provide a respite: In terms of order flows, the momentum of
Q1FY11 carried into Q2FY11 for the Indian geography. In Q2FY11, order flows
from this market were at 403MW, increasing the total order inflows for H1FY10
by a whopping 278% YoY to 889MW. However, this included a single contract
of ~202MW from Techno Electric and Engineering (TEE). Moreover, order flows
from the international geography remained subdued at 50MW, negating the
impact of strong growth seen in the Indian geography.

Order book flat: Suzlon Wind’s order backlog stands at 1550MW (Rs 82.85bn,
flat YoY) compared to 1,484MW (Rs 81.3bn) at FY10-end. Moreover, orders of
693MW were from India and 857MW from the international market. Since the
margin realisation on Indian orders is much higher than international ones, the
company intends to scale up operations in India. REpower had an order backlog
of 2,254MW at Q2FY11-end.

International geography negates execution in the domestic market: SUEL’s net
revenue for the quarter stood at Rs 38.2bn, falling short of our expectations by
27%. However, Q2FY11/H1FY11 volumes were up 27.5%/ 40.1% YoY to
361MW/ 569MW. While there is a visible improvement in domestic volumes,
execution and order backlog in the international geography remain soft.
Associates pull down group profit: The impact of associate losses in the quarter
was of Rs 94 mn. Although REpower was profitable in Euro terms but weakening
of Euro against Rs resulted in net loss due to RE power on group PnL.
Valuation: At the current price levels, the stock is trading at a PE of 34.8 for
FY12. Limited visibility on account of a flat order backlog leads us to maintain
our SELL rating on the stock.