Motilal Oswal Financial Services initiates coverage on Suzlon Energy with a ‘Buy’ rating and a target price of INR 70 per share. The brokerage sees a 21% upside from the current market price of INR 58 per share. This is a big thumbs up for India’s renewable energy story and Suzlon’s ability to ride on it.
A Global Wind Energy Leader with Deep Domestic Roots
Suzlon Energy is a global wind energy leader with 20.9 GW of installed capacity across 17 countries. Domestically, Suzlon is the largest wind energy service provider with ~15GW of installed capacity. Its vertically integrated business model includes wind turbine generator (WTG) manufacturing, project execution, foundry and forging components and operations and maintenance (O&M) services.
The acquisition of Renom Energy Services has strengthened Suzlon’s O&M footprint, and now it can offer multi-brand turbine servicing. This diversified approach will help the company to capture opportunities across the wind energy value chain.
India’s Wind Energy Landscape
Wind energy will be the key to India’s renewable energy story, with the government aiming to reach 100 GW by 2030 from the current 48 GW. Wind penetration in India is lower than in the US, Germany and the UK, so there is huge growth potential.
Suzlon expects India’s annual wind installations to grow from 4 GW in FY25 to 6 GW in FY26 and 7- 8 GW from FY27 onwards. As firm and dispatchable renewable energy (FDRE) models – wind, solar and battery storage – gain traction, Suzlon is well placed to lead the charge.
Financials
Motilal Oswal expects Suzlon to grow strongly, with revenue, EBITDA and adjusted PAT growing at CAGRs of 51%, 52% and 63% respectively between FY24 and FY27. EBITDA margins to be 14-16%. Suzlon has a huge tax shield of INR 6,100 crore as of FY24 from accumulated losses and depreciation, which will protect cash flows till at least H1FY27.
Execution Strength
Despite the competition, Suzlon has an edge due to its established supply chain and market presence. While global players like GE and Vestas don’t enter the EPC space due to low margins, Chinese players are largely inactive in India’s EPC market. Domestic players like Inox Wind and recent entrants like Envision Energy are still small.
Suzlon’s EPC and OMS business will see strong execution with order book deliveries expected to scale up from 710MW in FY24 to 3.2GW by FY27.
Balance Sheet Improvements
Suzlon has done well to deleverage, from net debt to EBITDA of 6.6x in FY22 to net cash in FY24. This will improve further with controlled capex (INR 350 – 400 crore annually) and increasing operating cash flows. As execution volumes increase, fixed costs per unit will reduce and profitability will improve.
Suzlon Energy At Attractive Valuations
Motilal Oswal’s TP of INR 70 is at 34x Dec’26E EPS, a modest premium to Suzlon’s historical 2-year forward P/E of 27x. The premium is justified as Suzlon’s growth is higher than domestic capital goods majors like ABB India (23%), Siemens (20%), Thermax (17%) and CG Power (26%). Suzlon’s PEG ratio of 0.6x is very attractive, lower than peers like Thermax (2.5x), ABB India (6x) and CG Power (1.9x).
Currently, Suzlon’s share is trading at INR 57.5 per share. On 28 July 2022, it was trading at INR 5.45 per share and reached its 52-week high of INR 86.04 per share (reflecting a 1,487.45% return)
Key Risks to Monitor
While the outlook is positive, Motilal Oswal highlights risks:
- Competition from Chinese and European OEMs.
- Pricing pressure and margin compression in the WTG segment.
- ISTS waivers.
- Technological changes leading to product obsolescence.
- Execution delays and project-related uncertainties.
- Raw material and operational cost fluctuations.
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