Suzlon Energy's Q1FY19 results (Outperformer) - Guidance withdrawn on near term headwinds
Q1FY19 result highlights
- Suzlon executed 155MW of Wind equipment in Q1FY19 (vs 324MW in Q1FY18). Consequently, Suzlon reported EBITDA of mere Rs0.8bn (est of Rs1bn) in Q1 FY19, a decline of 84%yoy led by negative operating leverage. As a result, Suzlon adjusted loss in Q1FY19 was Rs3.2bn (vs est of loss of Rs2.5bn). Reported loss came in at Rs5.7bn on account of MTM losses on foreign currency loans
- EBITDA margin for Q1FY19 was mere 6% led by lower execution of 155MW during the quarter
- Order book: Suzlon order book was 1134MW. In addition, it has 700MW of orders where PPA has been signed but awaiting approval from regulator. As a result, total order back log is 1.9GW. The total order wins by Suzlon so far in the auctions is 1.4GW. Note that 20% of auction winners (~1.5GW) have not awarded the equipment yet
- Suzlon withdrew its FY19 guidance of Rs130-140bn of revenue and EBITDA margin of 14% in light of continued delays in transmission access for the SECI I-IV auction capacities. The delay in transmission access has created uncertainty on execution and resultant revenue for FY19. Moreover, the delay in regulatory approval for 700MW feed in tariff PPAs (now likely by Oct 2018) has further delayed execution of these orders as well
Key positives: Maintained guidance of debt reduction by 30-40%
Key negatives: Withdrawal of guidance for FY19
Impact on financials: Downgrade our earnings estimates for FY19E/FY20E to a loss of Rs4bn/PAT of Rs4.2bn in view of high uncertainty in FY19 earnings
Valuations & view
A strong order backlog of 1.9GW (0.7GW under framework), strong auction pipeline of >10GW and strong competitive positioning, we expect Suzlon to garner reasonable market share in upcoming auctions leading to a sharp rise in execution in FY20 and FY21. Moreover, we expect the asset monetisation will help Suzlon to reduce its long term debt by 30%-40% before end of FY19. Considering the impending asset monetisation, sharp correction in the stock price and the progress on getting regulatory approvals for transmission access and tariffs, we believe Suzlon's stock is cheap at 9x FY20E earnings. As a result, we reiterate outperformer with a revised target of Rs12/share (15xFY20).
Suzlon Energy is a wind power company based in India. Co. is engaged in the provision of efficient and customized wind power solutions and services. Co. operates across the wind energy supply chain, manufacturing Wind Turbine Generators (600kW to 2.1MW capacity wind turbines) and its components. Co. maintains operations across the Americas, Asia, Australia and Europe and has a fully integrated supply chain with manufacturing facilities in three continents. Co. maintains a presence in 21 countries: Australia, Belgium, Brazil, Canada, China, Denmark, Germany, Greece, India, Italy, New Zealand, Nicaragua, Portugal, Romania, Spain, Sri Lanka, The Netherlands, Turkey, Ukraine, U.K. and the U.S.A.
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