We retain our ‘overweight’ rating on Suzlon Energy and raise our medium-to-long-term forecasts based on the observed performance in FY14. Our forecasts are primarily driven by an increase in our volume sales assumptions, though we lower our margin assumptions.
Our revised EPS forecasts for FY16/FY17 are R1.55/R3.26 (R1.11/R2.17 earlier). Our numbers are significantly above consensus. Using DCF valuation, we get a stock fair value of R37.18. We also remove the 10% discount to our DCF value, which was earlier provided for poor visibility on cash generation from asset sales. This gives us our rounded target price of R37 per share (R18 earlier).
After seven quarters of consecutive losses, Ebitda and Ebit were positive in Q4FY14, reflecting early signs of a turnaround. Also, in May 2014, Suzlon announced it had reached an agreement with foreign currency convertible bonds (FCCB) holders on the bond restructuring. The restructuring is likely to conclude in the next two months, enabling the company to be technically out of ?default?.
We earlier mentioned that a recovery in investor sentiment post elections would support Suzlon?s asset sale programme. Suzlon is now targeting R1,000 crore of asset sales in FY 15 (April 2014 to March 2015). We expect the new government to provide a boost to the country?s renewable sector. This will help improve liquidity at Suzlon, thereby supporting the company?s turnaround.
HSBC
