Windy days again: 'Overweight' ratings on Suzlon Energy shares, says HSBC

Jun 16 2014, 09:29 IST
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SummaryReprieve from default; focus on offshore wind market to help margins

5.3GW ($7.6bn), which is nearly at the last year level of 5.6GW ($7.5bn). The current order book includes offshore orders of $1.2bn.

Geographic distribution: The order book includes $1.3bn of emerging market order book (India, Brazil, Turkey and Uruguay) and the remaining $6.3bn is from developed markets. The developing market order book will be serviced by Suzlon and the remaining by Senvion.

2,275MW of orders received during the year: On a y-o-y basis, the new orders of 2,275MW reflect a decline of 33%. Total orders during H2 of the current year were 1,524MW versus 751MW during H1. Home countries Germany and India continue to have the largest share in terms of order book. We expect to see new orders in India during the H2.


Liquidity likely to improve: We earlier mentioned that a recovery in investor sentiment post-elections would support Suzlons asset sale programme. Suzlon is now targeting R10 bn of asset sales in FY15. We expect the new government to provide a boost to the countrys renewable sector. This will help improve liquidity at Suzlon, thereby supporting the companys turnaround. Further, Suzlon CFO recently mentioned in an interview that the company is looking to list Senvion (erstwhile REpower) by March 2015.

Order book continues to be strong: During the year, the group received new orders of 2,275MW. The improvement in liquidity will enable Suzlon to deliver on its current order book and also get new orders, which have dried up after the FCCB default.

New target price of R37: Based on the observed performance in FY14, we raise our medium- to long-term forecasts. This is 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); we retain our OW(V) rating.


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