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Suzlon Energy Ltd.
Shift in Indian market to IPPs
visible; A strategic order win
„Won 3
rd
Renewable IPP order from competitor’s IPP; Buy
Suzlon won Rs6.5bn order (7% of domestic backlog) from Orient Green Power
(OGPL, a renewable IPP) for the supply of 101MW wind turbines, validating our
argument of improved regulation shifting Indian market to IPPs vs tax breaks
(read Suzlon). This is Suzlon’s 3
rd
order from a renewable IPP after Caparo 1GW
and Techno 202MW order and improves sales visibility by 2% of FY12E domestic
sales and 4% of FY13E. Led by Suzlon’s competitive advantages of end-to-end
model and new S95 2.1MW product, OGPL, which is part of the group which
produces gear-less WTG, Leitner Shriram, still order on Suzlon. Reiterate our
upgrade to a Buy on Suzlon, on a structural turnaround. Risks to our nonconsensus Buy call are delivery push-back due to weak macro, currency and
execution.
Won 101MW order worth Rs6.5bn from OGPL
Suzlon Wind has won 101MW WTG order worth Rs6.5bn (Rs65mn / MW) from
OGPL for its projects of 50.4MW each in Gujarat and Karnataka. The order
includes the delivery of 48units of its newly introduced 2.1MW S95 wind turbines.
The projects likely to be commissioned by May and June 2012 respectively.
Three catalysts to Buy Suzlon – A turnaround story
1. 25% CAGR till FY13E in the Indian wind markets on higher feed-in tariffs (offset rising interest cost/low wind sites) and new regulation lead entry of IPPs.
Its back-to-basics strategy has paid-off - YTD orders up 4x in India to 2.1GW.
2. 28% PAT CAGR in REPower on shift in product-mix to high margin offshore
wind and production of its largest selling 2MW to low cost countries and
3. Recovery of Rs10bn (24% of debtors) in 2HFY12 (Edison), to fund growth as
the project is commissioned in 4QFY11 and is eligible for ITC incentives.
Price objective basis & risk
Suzlon Energy (XZULF)
Our PO of Rs75 is based on our sum-of-the-parts analysis. We valued Suzlon's
wind business at 14x 1-year forward earnings, at Rs71 per share, which is set at
a 20% discount to Indian capital goods majors and in line with European
comparables, which is above its historical average. This, we believe, is fair given
Suzlon's long-term growth led by BRIC countries, REpower and its return profile.
We value Suzlon's 26% stake in the gearbox business of Hansen at Rs4 per
share at BofAML's PO of GBp50.
Upside risk to our rating is de-leveraging by asset sales and a pick-up in USA
market, leading to new order wins. Downside risks: Headwinds for wind turbine
business on excess supply driving down ASPs and execution risk in the land
acquisition and grid connectivity in India.
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