Suzlon Energy's Q3FY19 results (Outperformer) - Strong order backlog
Q3FY19 result highlights
- Suzlon executed mere 67MW of wind equipment in Q3FY19 (vs 256MW in Q3FY18). Consequently, Suzlon reported EBITDA of Rs726m (est of Rs1.5bn) in Q3FY19, -71% yoy. As a result, Suzlon adjusted loss in Q3FY19 was Rs3.3bn (vs est of loss of Rs2.1bn).
- Suzlon order book was 1.4GW. 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 2.1GW. The total order wins by Suzlon in the auctions is 1.7GW. Note that 30% of auction winners (~3GW) have not awarded the equipment orders yet.
- Despite a healthy order book of on the back of auction of 11 GW in last 18 month, order execution is marred by evacuation challenges and land allotment issues, which has led to a delay in SECI order execution.
- Going forward with Gujarat finalizing land allotment policy and increased transmission evacuation capacity being commissioned by Mar19, we expect a pickup in execution in FY20E
- Besides, the delay in regulatory approval from APERC for Suzlon 700MW feed in tariff PPAs (now likely by March/ April 2019) 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 Rs12bn due to continued uncertainty and revise our profit estimate to Rs2.7bn in FY20E; introduce profit of Rs4.9bn in FY21E
Valuations & view
A strong order backlog of 2.1 GW (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% over next 6 months. 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 revised target of Rs8/share (15xFY19).
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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