Suzlon Energy's Q2FY19 results (Outperformer) - Slow execution
Q2FY19 result highlights
- Suzlon executed mere 115MW of Wind equipment in Q2FY19 (vs 103MW in Q2FY18). Consequently, Suzlon reported EBITDA of mere Rs1.2bn (est of Rs1bn) in Q2 FY19, +7.5% yoy. As a result, Suzlon adjusted loss in Q2FY19 was Rs2.8bn (vs est of loss of Rs3bn). Reported loss came in at Rs6.3bn on account of MTM losses on foreign currency loans
- EBITDA margin for Q2FY19 was mere 9.5% led by lower execution of 115MW during the quarter
- Order book: Suzlon order book was 1057MW. 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 1.8GW. The total order wins by Suzlon so far in the auctions is 1.4GW. Besides, Suzlon has received LoI of 484MW, likely to convert into firm order in next 2 to 3 months. Note that 30% of auction winners (~3GW) have not awarded the equipment orders yet.
- 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: Slow execution
Impact on financials: Downgrade our earnings estimates for FY19E to a loss of Rs6bn due to continued uncertainty in execution in H2FY19 and maintain a profit estimate of Rs4.2bn in FY20E
Valuations & view
A strong order backlog of 1.8GW (0.7GW under framework) and 0.5GW of LoI, 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 8x FY20E earnings. As a result, we reiterate outperformer with a 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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