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

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Suzlon Energy :Wind with chance of sun; initiate w/Buy Strategic corporate moves fuel turnaround story: Nomura Research

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Technicals: BASF, Suzlon, Balrampur Chini, IRB, Gujarat NRE Coke, Alok Ind:: Business Line

Suzlon Energy (SUEL) UW(V): Third consecutive year of loss on missed guidance 􀀗 HSBC

Stock strategy: Consider short straddle on Suzlon, short India Cements :: Business Line

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Suzlon Energy: The long-term outlook remains negative for Suzlon Energy. However, in the short-term, the stock could move in a narrow range. It finds immediate resistance at Rs 22.5 and the next one at Rs 27. It finds crucial support at Rs 18.5 and a close below that could weaken the stock sharply. In that event, it could even go to Rs 12-13 levels breaching its all-time low of Rs 17.2.

F&O pointers: Despite smart gains on Friday, the Suzlon May futures saw heavy unwinding of open interest. Option trading indicates a neutral view as both puts and calls shed open interest positions.

Strategy: Traders can consider short straddle on Suzlon futures. Short straddle strategy is best suited when one expects the underlying stock to move in a narrow range. Maximum profit in this strategy is the premium collected, while the loss could be unlimited. Besides, writing option involves higher margin commitments. This strategy is suggested only for traders who can withstand wild swings.

This can be initiated by selling 20-strike call and put on Suzlon. They closed on Friday at Rs 1.1 and Re 1 respectively. Maximum profit occurs (about Rs 16,000) if Suzlon closes at Rs 20 at the time of settlement. Loss will start to escalate if Suzlon closes above Rs 22 or below Rs 18. Market lot is 8,000 units a contract. Hold the position till expiry.

India Cements: The outlook remains weak for India Cements. The stock finds support at Rs 67 and resistance at Rs 77. A close below the support has the potential to trigger a big sell-off. In that event, the fall could be steep and swift. India Cements finds next support at Rs 40. Only a close above Rs 135 will change the outlook to positive for the stock.

F&O pointers: The stock accumulated fresh short positions on Friday. Options are not active.

Strategy: Traders can consider going short on India Cements with a stop-loss at Rs 77 for an initial target of Rs 64. Market lot is 2,000 units.

Follow-up: Last week, we had advised short strangle on Reliance Industries using 680 put and 720 call. The position is marginally in-the-money. Traders can consider holding it for one more week.

We had also advised shorting Bata India with a stop-loss at Rs 863. Though the stock moved on expected lines initially, it recovered sharply to hit the stop-loss.

Good show by L&T, SBI, Suzlon in tough times :Business Line

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Larsen and Toubro managed 21 per cent year-on-year growth in sales and 14 per cent growth in profits in the March quarter. In a difficult operating environment when most other infrastructure players have seen weakening sales growth or even a dip in sales, L&T's double digit growth was due its focus on on-time execution. This was enabled by the company reducing the proportion of government orders and focussing more on private orders which have limited scope for delays. The company's strategy of keeping revenue ticking has enabled it to weather a turbulent year for the sector.

But the company could not escape pressure on orders flows and profit margins. New orders in the engineering and construction segment fell 32 per cent in the March quarter over the same period last year. This mainly led to company's total order inflows for FY-12 dipping 12 per cent to Rs 70,600 crore. This was the first annual order flow dip for L&T in at least five years. Yet, the company's increased focus on the export market and its diversification across sectors helped mitigate the fall in new orders, compared with other players.

Higher input costs, higher staff costs and mark-to-market provision caused L&T's operating margins for the full year to decline by 1 percentage point to 11.8 per cent. The L&T scrip closed around 1.8 per cent higher on Monday after the result announcement.

SBI surprises the street

The country's largest bank, State Bank of India, sprung a positive surprise on the market by delivering higher-than expected profits of Rs 4,050 crore in the March quarter. The bottom-line growth was a whopping 192 times over the profits of Rs 21 crore clocked in the same period last year. This strong performance was driven by higher interest income (up 45 per cent on a year-on-year basis) and lower provisioning for bad loans (down 13 per cent).

Bucking the industry trend of rising bad loans, SBI improved its asset quality in the March quarter. Its gross non-performing ratio (NPA) fell from 4.6 per cent in December 2011 to 4.44 per cent in March 2012. This improvement was achieved after five consecutive quarters of rising NPA ratios.

The bank's standard asset slippage into the NPA category in the March quarter – Rs 4,300 crore - was the lowest since December 2010. Net interest margins also improved partly due to credit-deposit ratio rising from 76.3 per cent in March 2011 to 78.5 per cent in March 2012.

The markets gave a thumbs-up to the bank's performance and the SBI stock was up 5.8 per cent in Friday's trade.

Suzlon gets a breather

Power equipment maker Suzlon Energy is in the process of obtaining refinance to repay its $200-million zero coupon convertible bonds and $35-million 7.5-per cent foreign currency convertible bonds (FCCBs) which fall due in June. Post market close on Friday, the company announced that the bond-holders will meet in June to provide extension for the company's repayment of debt up to July 27. According to the company, this should enable it to complete documentation work to raise up to $300 million from its consortium of 18 banks.

The fresh loans, if extended, will give breathing space to Suzlon on its impending debt obligations. It will also quell market rumours about the company being required to sell its German subsidiary, REpower, to meet its debt liabilities. Suzlon's consolidated order book and balance sheet have benefitted from REpower, an offshore wind equipment specialist. Market sentiment would have been negatively impacted, if Suzlon had been forced to sell this asset before reaping benefits.

The likely fresh funding facility, along with around $40 million cash raised by Suzlon Energy from the sale of non-critical assets such as wind farms may help mitigate its current difficult financial position

Kotak Sec:: PDF link: Coal India, SBI, Sun Pharma, RPower, Cipla, suzlon, CESC, Castrol, IDFC, Cummins,

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily14022012.pdf


Contents
Special Reports
Initiating Coverage
Cummins India: Very strong business positioning but valuations cap
incremental upside

Daily Alerts
Results
Coal India: E-auctions continue to drive realizations, costs contained
State Bank of India: Margin improvement yet to boost earnings
Sun Pharmaceuticals: Higher margin leads to higher PAT; remains our top
pick
Reliance Power: Extant operations stable, fuel woes continue for future
capacities
Cipla: Poor results on all counts
Suzlon Energy: Tardy execution reflects risk, FY2013E holds hope; balance
sheet stretched
CESC: Pending tariff finalization dents earnings
Results, Change in Reco
Castrol India: Volumes continue to disappoint
Company
IDFC: Retain positive stance on the back of superior performance
Sector
Energy: Mayday, Mayday, Mayday
Industrials: Cycle may have bottomed out; improvement would be gradual

Kotak Sec:: PDF link: Diamond Power Infrastructure, GE Shipping, IDFC, SBI, suzlon, Castrol,

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight14022012.pdf


DIAMOND POWER  INFRASTRUCTURE LTD
RECOMMENDATION: BUY
TARGET  PRICE:  RS.195



GE SHIPPING COMPANY (GESCO)
RECOMMENDATION: ACCUMULATE
TARGET  PRICE:  RS.270


IDFC
RECOMMENDATION: BUY
TARGET  PRICE:  RS.165


STATE BANK OF  INDIA (SBI)
RECOMMENDATION: BUY
TARGET  PRICE:  RS.2381


SUZLON ENERGY LTD
RECOMMENDATION: REDUCE
TARGET  PRICE:  RS.21


CASTROL  INDIA LTD. (CIL)
RECOMMENDATION: REDUCE
TARGET  PRICE:  RS.451

Stock Strategy: SBI, Suzlon face resistance ::Business Line

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State Bank of India (Rs 2,160): Thanks to the recent surge in the share price, the stock of SBI was able to arrest its bearish trend. However, it may face resistance going forward as the recovery was too sharp. SBI faces key resistance at Rs 2,264 while the support is placed at Rs 1,960. A close below the support can even drag the stock towards Rs 1,805. On the other hand, continuation of the current trend can push the stock towards Rs 2,568. We expect the stock to correct.

F&O pointers: Fresh shorts were initiated on SBI on Friday. Option trading indicates that SBI could move in Rs 1,900-2,200 range as lower strike puts and higher strike calls witnessed heavy accumulation of open interests.

Strategy: Traders can short SBI with a stop-loss at Rs 2,264 (spot price on a closing day basis). Market lot is 125 shares a contract. Alternatively, traders can sell 2,200 call, which closed at Rs 57 on Friday. While maximum profit in the strategy is the premium collected, loss could be unlimited if SBI moves up sharply above Rs 2,200. This strategy, therefore, is for traders with a high-risk appetite only. SBI is coming out with its quarterly numbers on February 13.

Suzlon (Rs 31): After hitting life-time low in January, Suzlon Energy has recovered sharply. However, it now faces strong resistance. It finds immediate resistance at Rs 33.5 and a key one at Rs 36.4. A close above the latter level would trigger a fresh rally in the stock, which may take it to Rs 45. On the other hand, a close below Rs 30 (spot price) will trigger a fresh sell-off. In that event, Suzlon can reach Rs 24.4 though in between it faces resistance at Rs 26.3.

F&O pointers: Suzlon saw heavy unwinding of open interest positions on Friday, along with a fall in share price. This indicates that traders are not willing to rollover their positions. Option trading indicates a neutral view as both calls and puts added open interest. Trading in call option indicates that Suzlon would face strong resistance at Rs 32.5 and Rs 35 levels. Puts were not that active.

Strategy: Traders can short Suzlon with a stop-loss at Rs 33.5 for an initial target of Rs 26. Stop-loss can be shifted to Rs 30, if it dips below that level. Risk-averse traders could wait till it closes below Rs 30.

Traders could also consider selling (writing) 32.5 call, which closed on Friday at Rs 1.35. This strategy for traders who can afford to take a risk, as loss could be unlimited if Suzlon reverses direction and surges sharply. The maximum profit could be the premium collected. Market lot is 8,000 shares/ contract.

Follow-up: Last week we had recommended a long on Alok Industries with a stop-loss at Rs 20. As expected, the stock moved in positive zone. Traders can now consider holding the position with a revised stop-loss at Rs 22.4. We had also advised traders to write 20 put in the counter. Traders can consider closing out the position, as the put closed at 15 paise, netting neat profits. We had also recommended a long on Biocon. Traders can hold the position with a revised stop-loss at Rs 280 (spot price on a closing day basis).

Reduce SUZLON ENERGY; Target: RS.20:: Kotak Sec

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SUZLON ENERGY LTD
PRICE: RS.18 RECOMMENDATION: REDUCE
TARGET PRICE: RS.20 FY13E P/E: 6.0X
q Depreciating INR trend likely to magnify FCCB liability of the company;
further renegotiation of FCCB conversion price seems unlikely. FCCB conversion
price stands at significantly higher level than the current market
price.
q Competition has been intensifying in wind energy space globally mainly
from Chinese players. Pricing pressure exists across the value chain; from
suppliers to project management companies.
q Order intake in Suzlon wind remains sluggish. Company's order book at
the end of 1HFY12 stands at 2042 MW (ex-RE Power) vis-à-vis our breakeven
level estimate of 1900 MW.
q We reduce our earnings estimate for FY13 to factor in margin pressure
on account of 1) higher raw material pressure 2) lower realizations 3)
higher finance charges for FY12.
q We expect further de-rating of the sector and the company due to 1)
slack in overall business activity in wind energy space globally 2) government
in European region likely to remain reluctant in providing subsidy
and tax incentives due to their already stretched fiscal deficits 3) higher
debt levels of the company.
q We continue to remain cautious on company's stock and maintain our
'Reduce' rating on with one year forward revised target price of Rs 20 (Rs
43 earlier).
Competition has been intensifying in wind energy space globally;
aggressive price cuts from Chinese players and regulatory
uncertainty in key European and US markets adds up to further
Industry woes
n Competition has been intensifying in wind energy space globally mainly driven
by lower prices quoted by Chinese turbine players.
n USA, which is considered as second largest wind market after Europe, has been
observing maximum pricing pressure. Pricing pressure exists across entire value
chain viz. from suppliers to project management companies.
n Business outlook in European region appears sluggish and fresh order bookings
remained elusive in 1HFY12. Government of various countries within EU is reluctant
in dealing with subsidy and tax incentives issues due to their stretched fiscal
deficits position.
n Suzlon claims that the introduction of REC's and other such incentives are likely
to provide thrust to the domestic wind market. However, we believe that this
would be achievable in longer term after things get materialized in terms of policies
and infrastructure.
n Domestic wind industry has been observing a lot of action from the internationals
players like Gamessa and GE trying to gain market share in India posing a threat
to Suzlon that currently enjoys dominant position locally.

Suzlon Energy Ltd (SUEL IN) N(V): Profits return but EPS cut on intensified uncertainties  HSBC Research

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Suzlon Energy Ltd (SUEL IN)
N(V): Profits return but EPS cut on intensified uncertainties
 We expect Suzlon to return to profitability this year but cut
volume and margin assumptions on tighter project financing
 We see limited share price downside from current levels
although a steep INR depreciation adds to Suzlon’s woes
 We retain our N(V) rating but reduce our TP to INR20 from
INR60 on forecast cuts and higher uncertainty discount

Suzlon (XZULF, Buy) BofA Merrill Lynch,

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Suzlon (XZULF, Buy)
Bear Case: What can go wrong
􀂄 In our bear case, we expect a slowdown in wind energy capex especially in
international markets. We assumed a 15-16% cut in Suzlon group WTG
volume over FY13-14E leading to 1%YoY fall in FY13E volume.
􀂄 Consequently, we expect 2%YoY fall in FY13E sales and 23% growth in
FY14E. Further, expect 11-25bps cut in base case margin over FY13-14E.
􀂄 Expect interest rate to go up, hence, we increase interest rate (ex-FCCB) by
50bps in FY13-14E.
􀂄 Hence, we expect 50-35% cut in our base case EPS over FY13-14E leading
to 37% earnings CAGR over FY12-14E. We have not built-in REpower
integration synergy benefit of Euro200mn in FY13E as well.
􀂄 Lower cash-flows, could impact repayment of FCCBs.
􀂄 We expect Suzlon to de-rate in-line with global comps and trade at lower PE
multiple of 8x.
Base Case: Turn to profitability on-track
􀂄 In the base case, we expect Suzlon group WTG volume to grow at 18% in
FY13E and 21% in FY14E.
􀂄 Consequently, we estimate 15-20% growth in consol. sales over FY13-14E.
Expect margin to improve to ~11.2-11.3% over FY13-14E (10.5% in FY12E).
􀂄 We expect an EPS CAGR of 71% over FY12-14E on a low base.
􀂄 We expect Suzlon to de-rate in-line with its global peers / markets, hence we
cut our multiple to 11x (13x) 1-yr forward EPS which is in line with European
comparables and cut our PO by 15% to Rs55 (from Rs65).
Risk-Reward: Favorable given visible turn
􀂄 In the bear case, we expect Suzlon to trade at Rs23 per share based on
based on 8x 1-year forward consol EPS less premium on FCCBs
redeemable after FY14E.
􀂄 In the base case, we value Suzlon at Rs55 per share based on 14x 1-year
forward consol EPS less premium on FCCBs redeemable after FY14E.
􀂄 Overall, the risk-reward appears favorable

Suzlon Energy: Positive on sales, inflows; but still high debt, working capital cause concern: Kotak Sec,

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Suzlon Energy (SUEL)
Industrials
Positive on sales, inflows; but still high debt, working capital cause concern. Suzlon
reported strong wind business sales of 421 MW and revenues of Rs26.7 bn, broadly in
line); though higher other expenses and interest cost led to a net loss of Rs2.36 bn,
higher loss versus our estimate of a loss of Rs383 mn. Inflows of 432 MW (entirely from
domestic) surprised positively. However, balance sheet remains strained with high
working capital (up Rs4.8 bn from end-FY2011) and debt (up Rs11.7 bn). Retain REDUCE.

UBS: Suzlon Energy 2QFY12: Reported profit due to reversal of provision

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UBS Investment Research
Suzlon Energy
2QFY12: Reported profit due to reversal of
p rovision
􀂄 2Q FY12 – Rs829m loss on a recurring basis
In 2Q FY12, Suzlon’s operating income increased 34% YoY to Rs51.3bn and
EBITDA was Rs4.8bn (with 9.3% margins, a decline 70bps QoQ). Reported profit
was Rs480m (vs. Rs3.7bn loss in 2QFY11) and post adjustment for Rs2.2bn
reversal of provision and Rs884m Forex loss, the recurring loss was Rs829m (vs.
Rs3.8bn loss in 2QFY11). UBS-e for PAT was Rs390m for 2QFY12.
􀂄 508MW new orders for Suzlon in 2Q FY12
Suzlon has won 508MW of new orders in 2Q FY12 (432MW in India and 76MW
in North America). The Suzlon order (including REPower) book decreased
marginally to 4,734MW (vs. 4,739MW as of 1Q FY12). The Suzlon’s group order
book also increased to Rs323bn (vs. Rs293bn as of 1Q FY12) and includes
Rs205bn order book of REPower.
􀂄 Conference call on Monday, 24th October 2011 at 4:00pm IST
We expect to receive more details on Suzlon’s business performance and near-term
outlook in the call. However, the key developments for 1H FY12 are; a) REPower
‘squeeze out’ process is on track with Suzlon’s offer of Euro142.77/share for
acquiring remaining shares, the total ‘squeeze out’ costs to be ~Euro63m, b)
Hansen stake sale to generate Rs8.7bn, exit from Hansen has been completed.
􀂄 Valuation: Sell rating with a DCF based PT of Rs41
We have a Sell rating on Suzlon and see no near-term catalysts.

Suzlon Energy: Small volume miss, large bottomline miss ::JP Morgan

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Sept-q shows Suzlon’s cash flow vulnerability to small volume slip-ups.
The company reported a loss, as against our expectation of a sustained
turnaround. Notwithstanding recent stock underperformance, we think
concerns on shortfall in operating cashflow to meet debt obligations,
would constrain stock performance going forward
 Sep-q sales volumes below estimate, resulting in a loss. Suzlon reported a
Sep-q consolidated loss of Rs829M (adj for forex losses, Hansen stake sale
vs. our profit estimate of Rs931M). The wind business reported an adj. loss
of Rs1.7B, as against our turnaround expectation. Volume slip-up caused
the miss - 420MW vs our estimate of 495MW, 1Q 437MW. Barring 25MW
sold in China, there were no international sales or fresh orders. Gross profit
margins at Rs24.3/MW were up 18% yoy due to higher realizations.
 Suzlon’s shift to domestic market visible. YTD, Suzlon reported 670MW
of inflows down 33% yoy. 95% of the new orders and 82% of YTD sales
have been in India. YTD Suzlon has achieved 38% of our sales estimate for
FY12, with India largely on track with 44% of FY12E of 1.6GW achieved.
But international sales estimate of 650MW remains at risk.
 REPower had a relatively better quarter. REpower reported PAT of
Rs1.03B vs. 1QFY12 PAT of Rs0.8B and 2QFY11 loss of ~Rs310M.
Similar to last quarter, REPower benefited from FX gain on translation of
COGS in 2Q as well. With a $4.1B OB, REPower has good revenue
visibility with inflows picking up in Europe and Developed Markets.
 FY12 guidance maintained: Suzlon has maintained its consol FY12
guidance of Rs240-260B sales (JPMe of Rs227bn, 2H asking rate Rs133B
+115% yoy) and EBIT margin of 7-8% (JPMe 6.6%, 2H asking rate Rs9.9B
i.e. 7.4% mgn). Notwithstanding the slippage in 2Q, we think Suzlon is
banking on making up lost volumes in 2H.
 Leverage and its costs increase. Consol Net D/E increased to 1.7x as of
Sep-11 compared to 1.4x at the end of FY11 as acquisition loans (possibly
for acquisition of balance stake in REPower) and FCCBs (given the recent
$175M issue) increase. In the Sep-q interest costs were up 34% yoy and
20% qoq, and 1H expenses are now tracking ahead of our estimate for
FY12.

Consider short strangle on ICICI Bank, long on Suzlon :Business Line,

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ICICI Bank (Rs 825.7): Despite a smart recovery on Friday, the medium-term outlook for ICICI Bank remains negative.

The stock faces stiff resistance at Rs 876. A close above that level would take the stock towards Rs 958.

On the other hand, if weak trend sustains, then the stock could reach Rs 734.

The next halt could be at Rs 632, which is major support zone.

A close below that could change the outlook for ICICI Bank to bearish. It appears the stock is heading towards this support level.

F&O pointers: The ICICI Bank futures saw a marginal accumulation of long positions on Friday and closed with minor premium only over the spot closing price.

Option trading suggests narrow movement as out-of-the money put and call options saw emergence of option writers.

Strategy: Traders could consider short strangle on ICICI Bank. This can be initiated by selling 850 call and 750 put. They closed at Rs 21 and Rs 10.5 respectively.

This would result in a net premium collection of about Rs 8,000/contract. (Market lot of ICICI Bank is 250).

Short strangle strategy is best suited when one considers that the underlying equity is likely to move in a narrow range till expiry.

While the maximum profit is the premium collected, loss could be unlimited if ICICI Bank breaches 850 or closes below Rs 750.

Maximum profit occurs if ICICI Bank closes between these strikes at the time of expiry.

Writing options involve higher margin commitments. So this strategy is best suited for traders, who have the wherewithal to withstand the swings.

Alternatively, traders with penchant of risk could consider going short on ICICI Bank futures with a stop loss at Rs 876, for an initial target of Rs 734.

They could even consider rolling it over, if it closes below Rs 734 emphatically for a target of Rs 632. In that event, they should shift the stop loss to Rs 734.

Suzlon (Rs 36.4): The immediate outlook turned positive for Suzlon Energy. After ruling near its all-time low level of Rs 34, the stock bounced back on Friday.

It appears the stock is likely to sustain the positive trend.

While the immediate resistance appears at Rs 42, a close above would take Suzlon towards Rs 52, though Rs 48 could act as a minor resistance zone.

Only a close below Rs 34 would trigger a fresh sell-off.

Having said this, the long-term outlook still remains negative for the stock. The outlook would change to positive only if Suzlon closes above Rs 98 conclusively.

F&O pointers: Despite sharp gains on Friday, the Suzlon futures witnessed unwinding of long positions, as traders booked profits.

Option trading also indicates that it could hover around Rs 35, as both put and call options of that strike saw heavy accumulation of open interest positions.

Strategy: Consider going long on Suzlon futures for an initial target of Rs 43 with a stop loss at Rs 34. Market lot is 8,000.

Suzlon Energy::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Operating performance turns around; Suzlon on track to achieve guidance
 Suzlon Energy's (SUEL) consolidated order book was USD6.6b, up 42% YoY (Suzlon
Wind USD2.5b, up 13% YoY; REpower USD4.1b, up 69% YoY). In terms of volumes
the order book was 4.7GW (Suzlon Wind, 2GW, REpower, 2.71GW). SUEL received
fresh orders of 160MW in August 2011.
 The management expects consolidated sales of INR240b-260b (Suzlon Wind, INR14b-
16b; REpower INR9b-10b) and FY12 EBIT margins are expected to be 7% (v/s 8%
in 1QFY12). It also expects gross margins to improve to 30% from 22-23%, driven
by full realization of synergies from Repower operations by the end of FY13-14.
 In Suzlon Wind over 60% (1.2GW, up 116% YoY) of the orders were from India,
which posted strong growth in 1QFY12. Out of total orders of 2GW in Suzlon Wind
1.4-1.5GW are to be delivered in FY12. In 1QFY12 SUEL delivered 437MW of turbines,
and therefore there is clear visibility of 1,800-1,900MW (437MW plus 1,400MW) in
FY12. SUEL expects to have FY12 sales of 23GW (out of this 1.8GW will be in India).
Emerging markets drive market outlook
 The cost of wind power has fallen considerably in the recent past and now is almost
equal to other economical sources of energy. Regulatory changes, generation-based
incentives (GBI) and a rise in the cost of traditional sources of electricity have brought
the cost of wind energy to an economic and viable level.
 In FY11 there was a record number of installations in China, dominated by domestic
players. However, recently China has removed compulsory local content requirement
and import duties which will benefit international players. The 12th Five Year Plan
targets 90GW of wind installations by 2015. Experts estimate that Indian market will
grow to 2-2.2GW in 2011 and 2.6-3GW 2012. Brazil, where half the installations are
supplied by SUEL, is expected to grow from 700MW to 6GW by 2019.
 US markets are low due to low gas prices and the Canadian market is affected by
low PPA prices. However markets show improved prospects for 2011-12, compared
with the lows of 2010.
 European markets are stable but more saturated and hence growing slowly. SUEL
sees growth potential in countries like Sweden, Poland and Romania. Other growing
markets include Germany, Belgium and Denmark.
Other takeaways
 The management will increase stake in REpower to 100% by acquiring the remaining
5% stake for Euro63m. SUEL will also sell its 26% stake in Hansen, which will fetch
GBP150m (a 96% premium to the market price).
 The company is expected recover INR10b from Edison (24% of debtors) in 2HFY12.

Suzlon Energy - Option led weakness over; India orders pick-up; Buy ::BofA Merrill Lynch,

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Suzlon Energy Ltd.
   
Option led weakness over;
India orders pick-up; Buy
„F&O volatility behind, 214MW order win up visibility; Buy
Suzlon stock fell 30% in Aug despite a surprise 1Q turnaround reported in July. Apart
from global weakness & shift to defensives, we attribute the excessive fall to a) stock
being in market wide limit in derivative segment (no long allowed) and b) future traded
at large discount in F&O on Aug 16/17 (see Chart 3), led by triggering of margin calls,
which impacted the stock. However in business, visibility has improved with Suzlon
group winning 214MW of orders in last two weeks, adding ~5% to 1Q consol. backlog.
Of which, 163MW of orders were won in India adding ~13% to 1Q domestic backlog &
REpower, won a 51MW order, adding ~2% to its backlog. Buy Suzlon, on a structural
turnaround – reinforced in 2QFY12. Risks to our non-consensus Buy call are delivery
push-back due to weak macro esp. in US/EU, currency and execution.
Won 163MW order in India and 51MW  in Canada
„ 85MW orders which include 15MW repeat order from GAIL and balance from
Khatau & Co, Oswal Group, KRBL Ltd & Varun Industries.
„ 48MW repeat order from IOC for 23x2.1MW S88 units to be installed at AP
„ 30MW 6th  order from Malpani Group - 5x2.1MW S95 & 7x2.1MW S82
„ REpower won 51MW order from WindWorks Power Corp for 25x2.05MW
MM92 wind turbines for its wind farms spread across Ontario, Canada.
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 - FY11 India orders up 2.7x to 2.3GW.
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 4QFY12 (Edison), to fund growth as
the project is commissioned in 4QFY11 and is eligible for ITC incentives.

Stock Strategy: Consider shorting L&T and Suzlon : Business Line,

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L&T : Friday's fall triggered a fresh weakness in Larsen & Toubro. The stock now finds crucial support at Rs 1,511 and the next one at Rs 1,407, which is a crucial one. A fall below the crucial support will change the outlook to negative.

Now only a close above Rs 1,785 would change the outlook to positive for the stock. L&T now finds immediate resistance at Rs 1,641.

F&O pointers: The L&T August futures added fresh short positions.

The counter witnessed a rollover of about 16 per cent to the September series. Options of the September series also indicate a negative bias, as 1,550 put saw heavy unwinding in open interest even as 1,650 call saw heavy accumulation.

Strategy: Consider going short on L&T August futures with a tight stop-loss at Rs 1,511 (spot price on a closing day basis) for an initial target of Rs 1,407. Traders can even consider rolling over the position till the target is achieved. Market lot of L&T is 250.

Alternatively, traders can consider writing 1,650 Sept call, which closed around Rs 25 on Friday. While maximum profit in the strategy is the premium collected (i.e. 25 * 250 market lot), loss could be unlimited if L&T starts moving up swiftly. Besides writing a call involves margin commitments. So this strategy is for traders who can afford to bear such high risks.

Suzlon: The long-term outlook remains negative for Suzlon. However, in the medium-term it could move in a range of Rs 34-45. Only a break from this range would set a clear direction for the stock. Suzlon finds an immediate support at Rs 36 and resistance at Rs 42.2.

However, a close below Rs 34 would trigger a fresh selling in the stock, which could set a new low.

F&O pointers: The Suzlon futures (market lot 8,000) saw a strong rollover of over 31 per cent to the September series.

However, it seems most of the rollovers were on the short side.

Strategy: Traders can consider setting a short strangle on Suzlon using 37.50 put and 40 call of August series. While the former closed at Rs 1.15, the latter ended at Rs 0.3. The maximum profit in this strategy is total premium collected (i.e. 1.15 + 0.3 * 8000). Loss, however, can be unlimited if Suzlon either jumps above Rs 40 or slumps below Rs 37.5 decisively.

This strategy is for traders who are willing to take high risks.

The maximum profit zone would be hit only if the stock settles between Rs 37.5 and Rs 40 at the time of expiry. Writing options also involves high margin commitments

UBS:: Suzlon Energy 1 Q FY12: Results better than expectations

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UBS Investment Research
Suzlon Energy
1 Q FY12: Results better than expectations
􀂄 1Q FY12 – Rs66m PAT on a recurring basis
In 1Q FY12, Suzlon’s operating income increased 82% y/y to Rs43.8 and EBITDA
was Rs4.9bn (with 11.2% margins). Reported profit was Rs601m (vs. Rs9.1bn loss
in 1Q FY11) and post adjustment for Rs535m forex gain, the recurring profit was
Rs66m (vs. Rs7.3bn loss in 1Q FY11). The results are significantly ahead of UBS
estimates (UBS-e of Rs1bn loss for 1Q FY12). The key reason was strong MW
delivery in 1Q FY12 (437MW vs. 207MW in 1Q FY11) from Suzlon.
􀂄 237MW new orders for Suzlon in 1QFY12, Order book decline is a worry
Suzlon has won 237MW of new orders in 1Q FY12 (205MW in India and 32MW
in North America) and after strong sales in 1Q, the Suzlon order book has declined
to 2,030MW (from 2,231MW as of end FY11). There is also a marginal decline in
Suzlon’s group order book to Rs293bn (from Rs301bn as of end FY11). The group
order book includes Rs180bn order book of REPower.
􀂄 Conference call on Monday, 1st August 2011 at 4:00pm IST
We expect to receive more details on Suzlon’s business performance and near-term
outlook in the call. However, the key developments for 1Q FY12 are as follows; a)
REPower ‘squeeze out’ process is on track with Suzlon’s offer of
Euro142.77/share for acquiring remaining shares, the total ‘squeeze out’ costs to be
~Euro63m, b) Hansen stake sale to generate Rs8.3bn, exit from Hansen has been
completed.
􀂄 Valuation: Sell rating with a DCF based PT of Rs50
We have a Sell rating on poor order inflow from overseas markets for Suzlon and
no near-term catalysts.