Suzlon Energy's Q4FY18 results (Outperformer) - Strong order backlog
Q4FY18 result highlights
- Suzlon executed 259MW of Wind and 70MW of Solar in Q4FY18 & 942MW of wind (decline of 40% yoy) and 231MW of Solar in FY18 (vs 109MW in FY17). The decline in execution of wind capacity was due to market disruption in wind industry on account of transition from Feed In Tariff regime to auction regime. Suzlon commissioned 626MW in FY18, a market share of 36% (+349bps). It regained its pole position in Indian wind market.
- Consequently, Suzlon reported EBITDA of Rs3.3bn (est of Rs3.8bn)/Rs11.5bn in 4Q FY18/FY18, a decline of 55%/48% yoy. As a result, Suzlon adjusted losses in Q4FY18/FY18 was Rs1bn (vs est of profit of Rs345m)/Rs4.1bn(vs profit of Rs2.9bn/Rs6bn in Q4FY17/FY17).
- EBITDA margin for Q4FY18/FY18 was 14.5%/13.8%, flat/320bps yoy. We are estimating EBITDA margin of 14%/14% in FY19E/FY20E on account of competitive pressure under auction regime.
- Order book: Suzlon order book at end of May 18 was 1203MW. 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. 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.
Key positives: Healthy order backlog of 1903MW; Highest market share in Indian wind market; Guidance of long term debt reduction by 30-40%
Key negatives: Decline of 40% in execution in FY18 (MW terms)
Impact on financials: Downgrade our earnings estimates for FY19E/FY20E by 42%/29% to Rs3.2bn/Rs5.3bn on back of higher interest cost and margin of 14% in FY19E and FY20E (earlier 14.8%)
Valuations & view
Suzlon’s competitive product portfolio, strong execution, huge land bank and 20 years of experience in the Indian markets have led to gain in market share in FY17 and FY18. Moreover, a strong order backlog bodes well for execution in FY19. The stock is trading at attractive valuations (15x/9xFY19E/FY20E P/E and 8xFY19EV/EBITDA) considering improved positioning of the Suzlon in Indian market and strong rebound in earnings. We value Suzlon at 15xFY20 P/E considering growth in earnings and medium term earning visibility. We reiterate Outperformer rating with a revised target price of Rs15 .
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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