Suzlon Energy's Q4FY19 results (Outperformer) - Potential Deal and resolution plan will improve execution
Q4FY19 result highlights
- Indian wind industry has faced multiple headwinds in last two years a) the abrupt end to the auction regime b) the teething issues with auction regime c) delays in transmission evacuation d) delays in land allocation in Gujarat. As a result, the Indian wind Industry has shrunk from 5.5GW in FY17 to 1.5GW in FY19 (FY18 as 1.8GW). Besides, the situation has further worsened by the liquidity situation at Suzlon (led by leverage) affecting the execution of its strong order book.
- Despite various headwinds, Suzlon commissioned 529MW in FY19, a market share of 39%. It has maintained its pole position in Indian wind market for last two years.
- As a result, Suzlon reported Sales/EBITDA of Rs14.5bn (est of Rs22bn)/Rs149mn in 4Q FY19/FY19,. As a result, Suzlon adjusted losses in Q4FY19/FY19 was Rs3.5bn (vs est of loss of Rs3bn)
- Note that the Company is working towards a resolution plan with the lenders and has received a nonbinding offer from a potential investor.
- Order book remains strong: Suzlon order book at end of March 2019 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 1.5GW. Note that 28% of auction winners (~1.5GW) have not awarded the equipment yet.
Key positives: Healthy order backlog of 2.1GW; Highest market share in Indian wind market
Key negatives: Delay in asset monetisation and resolution plan
Impact on financials: Downgrade our earnings estimates due to delay in asset monetisation affecting execution (potential resolution is critical)
Valuations & view
Suzlon’s attempt to resolve the liquidity situation led by its asset monetisation/equity infusion should improve the execution of its strong order book of 2.1GW. Given Strong auction pipeline of >10GW and strong competitive positioning, we expect Suzlon to be able to finalise a resolution plan and create shareholder value in medium term. Note that Suzlon has occupied numero uno position for last two years. As a result, we reiterate Outperformer with a target of Rs8/share (12xFY21).​
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.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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