Buy Suzlon Energy Ltd For Target Rs.60 by Motilal Oswal Financial Services Ltd
Weak 2Q margin; strong deliveries in 2H
* Margin disappoints: Suzlon Energy (SUEL)’s consolidated revenue stood at INR48.8b, 4% above our estimate as deliveries came in 7% higher than our est. at 710MW. EBITDA came in at INR7.2b, 7% below our estimate, with EBITDA margin of 14.8% (vs. 15.5%/18.6% in 1QFY27/2QFY26). The YoY margin contraction was led by non-recurring opex of INR0.5b (~100bp), customer/scope mix (150-180bp), and forex/commodity inflation driven by the West Asia crisis (~50bp). APAT was INR3.9b, 14% below our estimate.
* Key things we liked about the result:
1) delivery momentum remained strong with 1.2GW WTG delivered in 1HFY27, up 21% YoY
2) installation pace picked up, with 1HFY27 installations surging 168% YoY to 723 MW, with an erected stock of 1.25-1.3GW awaiting grid commissioning
3) management guided India wind installations to surpass 10GW in the near term and to reach 15GW by FY31.
* Key monitorables:
1) progress toward FY27 WTG contribution margin guidance of 22-23% amid commodity and forex volatility, customer and project mix changes
2) commencement of order inflows from export markets and wind repowering projects
3) the pace of fresh order inflows, project deliveries, and installations across FY27/FY28
* Valuation and view:
We moderately cut our FY27E/28E EBITDA margin to 15.5%/16.0% (vs. 17.1%/16.9% earlier), resulting in a 9%/5% cut in our FY27E/28E EBITDA. We arrive at our TP of INR60 by applying a target P/E of 30x to FY28E EPS. Reiterate BUY.
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