Brokerage ICICI Securities on June 29 initiated coverage on Suzlon Energy with a target price of Rs 22, indicating an upside of 49 per cent from the current market price of Rs 14.76.
The brokerage said Suzlon Energy is getting back into shape after a ‘rollercoaster’ journey over the last decade due to a slump in industry volumes and high leverage led by the acquisition of Repower in 2008. However, after a series of debt restructuring, net debt has declined sharply from Rs 13,000 crore in FY20 to Rs 1,200 crore as of Mar’23. In addition, the industry is looking at a revival led by a slew of policy actions.
On a year-to-date basis, shares of the company have gained 39 per cent to Rs 14.76 on June 28 against Rs 10.61 on December 30 last year. However, Suzlon Energy is still down around 97 per cent from its all-time high level of Rs 422.26, scaled on January 9, 2008.
ICICI Securities further added that the Indian power grid needs more wind in its mix. The need to enhance wind capacity addition (post-subdued activity in the recent past) has finally dawned upon the stakeholders.
“Grids are looking for a solution to meet demand effectively while containing carbon emissions. The supply of renewables can be increased by setting up a mix of wind, solar and battery storage capacities. Optimal solutions for the grid to meet demand by using renewables includes higher wind in the mix (of around 8GW per annum) led by the complementary nature of generation and cost curves of the wind,” ICICI Securities said.
As a result, India has launched a series of policy initiatives which include single-stage closed bidding (vs reverse e-auction), 10GW of wind auction per annum and wind-specific renewable purchase obligations (RPOs), among others.
“These policies are likely to generate tailwinds for the industry and, we believe, Suzlon Energy, the market leader, is best suited to reap the benefits of the same. The company has reduced leverage by restructuring its debt and by raising money through a rights issue. As a result, leverage is now merely 1x debt/EBITDA. Thus, the company has got all the right ingredients to benefit from industry tailwinds,” ICICI Securities said in a report.
Of late, Suzlon Energy posted a standalone net profit of Rs 2,162.76 crore for the year ended March 31, 2023, against a loss of Rs 912.66 crore a year ago. This was the first standalone profit for Suzlon Energy after FY17. On the other hand, net sales of the company declined around 11 per cent YoY to Rs 3,538.14 crore in FY23 against Rs 3,975.41 crore last year.
“We expect revenue CAGR of 37 per cent to around Rs 11,200 crore over FY23-FY25, EBITDA CAGR of 37 per cent to Rs 1600 crore with an EBITDA margin of 14 per cent,” ICICI Securities said.
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