Suzlon Energy's Q3FY18 results (Outperformer) - Strong execution in a challenging environment
Q3FY18 result highlights
- Suzlon reported execution of 256 MW(est of 100MW) of wind power in Q3FY18, an increase of 125% QoQ and decline of 71% yoy. In addition, it executed solar power of 60MW (NIL in Q3FY17). The execution has improved with Feed in Tariff PPAs getting approval of the regulator during 3QFY18.
- Suzlon reported revenue from wind turbines business of Rs13.4bn, a decline of 53% yoy and revenue from O&M services at Rs4.5bn, an increase of 5% yoy. Consequently, Suzlon reported an overall revenue of Rs22bn, a decline of 33% yoy and adjusted loss of Rs433m in Q3FY18 (vs loss est of Rs4.0bn in Q3FY18)
- Order book and order inflow: Suzlon has segregated order book of 1.1GW into two parts a) PPA backed orders of 677MW (Auction orderbook at 502MW) b) Framework agreement of 455MW where PPA’s are awaiting regulatory approval. During Q3FY18, 185MW of framework agreement were approved by the regulator.
- Overall, Suzlon's gross term debt is Rs66bn and working capital debt of Rs39bn. Suzlon has repaid Rs8bn of long term debt since March 16.
Key positives: Strong execution of 256MW wind and 60MW Solar; strong pipeline of auction at 4.5GW
Key negatives: Losses in the quarter
Impact on financials: Revise our FY18E loss estimates downward to Rs3bn from Rs0.5bn of loss on account for higher working capital debt. Minor changes in FY19/FY20E estimates. .
Valuations & view
Suzlon’s competitive product portfolio, strong execution, huge land bank and 20 years of experience in the Indian market has led to gain in market share (37%)in FY17. We believe Suzlon’s better product (higher PLF) portfolio will help the company to navigate the transition of wind market from Feed in Tariff to auction regime relatively much better than competition. Moreover, a strong order book and framework agreement bodes well for strong execution and earnings recovery in FY19. The stock is trading at attractive valuations (13.1xFY19EP/E and 9.5xFY19EV/EBITDA) considering the sharp earnings recovery in FY19E and FY20E. We value Suzlon at 20xFY20 P/E considering medium term earning visibility and strong earnings momentum. We reiterate outperformer rating with a price target on Suzlon with a revised target price of Rs21
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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