Ventura Research Report – Suzlon Energy
Based on our interactions, we have marginally upgraded our target on Suzlon by 4% to Rs 44.5 (12xFY20EV/EBIDTA). Our confidence in the sector has been bolstered given India’s recent commitment (at the Plenary Session of St. Petersburg International Economic Forum (SPIEF 2017) to cut back on carbon emissions. In addition Suzlon is also looking to monetize its assets (via IPO for its O&M subsidiary) and this gives confidence to the fact that the company is moving forward on its stated objective of debt reduction. Key takeaways of our interactions is as under:
1. The company delivered volumes of 1573MW in wind and 109MW in Solar for FY16-17 which is 49% higher than the volumes of FY16. The wind power volume for Q4FY17 stood at 554MW as against our estimation of 720MW. The company was able to clock revenues of Rs 12,714 crore as against our estimate of Rs 12917 crore as the realizations were far higher than our initial assumption. However, we continue to build in lower realizations over the forecast period given that reverse bidding will lead to lower IRRs for the IPP. This in turn would be passed on to vendors.
2. The gross margins came in at 40.6% and EBIDTA margins were 17.3% which was in line with our expectations. However the higher margins may not be able to sustain in future and would come down as the industry shifts to reverse bidding from FIT regime. The company reported EBIDTA of Rs 2248.3 crore against our estimates of Rs 2202.5 crore. The interest costs were 32 crores less than our estimates of Rs 1319.7 crore. The depreciation number was in line with the projections. However the company reported PAT of Rs 839.5 crore beating our expectation of Rs 601.1 crore. This was mainly due to forex gain of Rs 296.9 crore due to MTM of forex loan portfolio.
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