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Suzlon Energy Ltd.
Weak 2Q on translation losses
But domestic market bounce
In red on weak REpower; Focus on India pay-off; Underperform
Suzlon 2Q had Rec Loss of Rs3.8bn +14% on Rs1.2bn forex translation loss at
REpower, Rs1.3bn def. tax despite losses and uneconomical operations on
dwindling backlog (ex-REpower) and lower domestic ASP Rs56mn/MW -14%.
Suzlon’s back to basics strategy to survive weakness in USA & EU markets has
paid-off with inflows +68%yoy led by doubling of India orders & 125%YoY growth
in 2Q domestic sales. Maintain UPF on continued weakness in US gas / power
prices (Chart 3 & 4) leading to delay in delivery, longer order conclusion cycle.
Maintain PO despite IDFC dilution leading to 2-5% cut in FY11-13E EPS on rollforward.
UPF. Upside risk to our rating is pick-up in global wind markets.
India sales rebound +125% but weak REpower; Inflows ~2.2x
While its International volume fell 54%YoY, Suzlon’s domestic volume +125%YoY
& order inflow’s grew 2.2x on its efforts to sensitize regulatory environment,
support of Govt. cos, launch of 2.1MW & low base. REpower had weak 2Q11 on
weak execution (sales -24%) led EBIT Rs677mn -66%YoY while its backlog
+72% to 2.2GW was a positive. Ex-forex losses / gains Suzlon turnaround –
EBITDA of Rs2.6bn v/s loss 390mn in 2Q10. Balance sheet improved QoQ (2Q
net debt / equity 1.49 v/s 1.7) on rights issue.
Cut EPS on IDFC dilution
Business continuity remains our key concern for Suzlon and flat 2QFY11 order
book (<1 year sales) support it. Delay in USA RPS, weak gas and power prices
indicate no recovery in-sight. This coupled with weak commentary by HSN /
Vestas at its 3Q call and over-supply in global WTG markets drive our UPF. We
cut EPS 2-5% to factor-in stock swap with IDFC.
Order not enough; B-T-B at 0.65 but inflows give some hope…
In our view, Suzlon’s backlog is not enough to address business continuity
concern as Suzlon has backlog of 1.6GW (B-T-B of 0.65 – see chart 5) vs our
volumes of 2.2GW in FY11E ex-REpower. However, we note 68% growth in 2Q
inflows led by 2.2x growth in domestic market as the only hope.
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