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Improving Outlook, maintain BUY

Suzlon Energy Ltd (Suzlon) reported 2QFY24 net revenue of INR 14bn (flat YoY, -3% JMFe); led by dispatches of 132MW of Wind Turbine Generator (WTG) and stable O&M revenue. EBITDA for the quarter came in at INR 2.2bn (+32% YoY, +4% JMFe) reflecting a 15.8% EBITDA margin (11.8% in 2QFY23). Adjusted PAT came in at INR 1.4bn (+139% YoY, +23% JMFe) facilitated by better margins and a reduction in interest cost. We expect Suzlon to deliver revenue and EBITDA CAGR of 38% and 43% respectively over FY23-26E. We have revised our estimates for FY25E/26E upwards driven by healthy order inflow, better execution visibility and an improving product portfolio. We mainta our BUY rating on the stock with a revised TP of INR 37/sh (based on a 25x Sept’25E EPS).

* Industry Outlook: The 2030 GOI target of 500GW of non-fossil fuel-based capacities includes a healthy mix of wind and solar capacities. Under the uniform renewable tariff mechanism, wind capacity will come up in all 8 windy states, significantly opening up the availability of land and evacuation infrastructure. The MNRE has also announced a renewable energy projects bidding trajectory of 50GW per annum for FY24-28, which includes at least 10GW of wind. Hybrid projects and the C&I market shall further drive up the demand for wind, which will be over and above this 10GW p.a. plan.

* Healthy and diversified order book: The company has an order book of 1,613MW as of 30th Sep’23 of which 62% is for 3.xMW turbines, the supply of which will start in 4QFY24. Additionally it has won 50MW announced subsequently. The company continues to focus on high value quality orders (better margins) with a strong counterparty. Currently the industry has a pipeline of 13GW renewables (including hybrid) projects which includes 11GW of the wind energy component. The share of the 3.xMW series in the order book is gradually increasing with new orders coming in for highercapacity turbines. The company prefers non-EPC orders (equipment supplies along with associated commissioning) along with in built O&M contracts which have better margins and lower execution risk. Given the higher activity in the C&I segment, the share of orders from the C&I has increased from 55% in 1QFY24 to 64% in 2QFY24. Their service business continues to do well with 14.3GW capacity under service.

* Project execution: Suzlon delivered 132MW/267MW of net volumes in 2QFY24/1HFY24 as compared to 162MW/312MW of net volumes in 2QFY23/1HFY23. YTDFY24, 1.5GW of wind capacity has been added in the country. The management has guided for doubling of dispatches in 2HFY24 vis-à-vis 1HFY24 (JMFe – 800MW for FY24). Going forward the company expects annual addition of 4-5GW in FY24E and 6-7GW in FY25E in the country.

* Product development: The company has installed the first prototype of its S144-140/160 – 3.xMW turbine at 160mts hub height in Gujarat. Going forward, the company’s focus remains on executing its current order book and commercialization of its 3-3.15MW series turbine in FY24. It has already dispatched 5-6 nos. of 3.xMW turbines with major dispatches expected in 4QFY24. The order book will continue to have a similar mix of 2.1MW and 3.xMW turbines in FY25 and FY26 due to lower LCOE.

Other key highlights:

- The company’s balance sheet strength has improved with a positive consolidated net worth of INR 34bn as of 30th Sep’23 primarily due to debt repayment over the last year.

- Post the QIP, there is no residual debt in the company, except for a nominal debt of INR1.2bn in one of the subsidiaries of the company. The company has a net cash balance of about close to INR 6bn, with a gross cash balance of about INR 7.2bn.

- There was a 55% YoY reduction in the finance cost on account of repayment of debt. Going forward, the interest cost is expected to sharply reduce thus improving the profitability. The full benefit will start flowing in from 3QFY24.

- The capex plan for moulds (required for new 3.xMW turbines) is on track. Currently, 3 moulds are in operation while the balance will be online by 4QFY24.

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SEBI Registration Number is INM000010361