Suzlon Energy shares have been skyrocketing, creating fresh 52-week highs over the last week. In today's trade, the stock recorded another new 52-week high of ₹23.50. In the current month alone, the shares have soared 24%.
This upward momentum has been persistent since April 2023, with the stock's value skyrocketing by an impressive 183%, surging from ₹8.30 per share to ₹23.50.
Moving forward, the ongoing upward surge in the stock's performance is expected to be sustained, according to JM Financial. In a recent note, the global brokerage firm has initiated coverage on the stock with a 'buy' rating and set a target price of ₹30 apiece. This implies an upside of nearly 28% for the stock.
Suzlon is one of the leading global renewable energy solutions providers. Over the past 26 years, the group has installed over 20.1 GW of wind energy in 17 countries across six continents. It commands a 33% market share in the Indian market. However, the company has suffered its fair share of setbacks in its journey.
With industry tailwinds in place, a deleveraged balance sheet, and a robust order book, the brokerage anticipates a strong pick-up in the company’s performance going forward.
Building its Wind Turbine Generator (WTG) order book
The order book of Suzlon is on an upward trajectory. It grew from 652 MW in Q4 FY23 to 1,582 MW as of Q1 FY24, providing good visibility of revenue over the next 2 years. With the government targeting 10 GW per annum wind auctions in utilities, the brokerage stated, adding that Suzlon is strategically positioned to capitalise on this favorable market cycle.
It expects 3–4 GW of annual installations in the near term. Moving past the painful period, Suzlon still has a 30–35% market share in the domestic market, JM Financial underscored.
Highlighting developments, the brokerage said a total of 16 tenders have been announced in YTDCY23. Among them, 3.9 GW of pure wind tenders have been launched, with 930 MW already allocated, while 4.7 GW of solar-wind hybrid projects have also been tendered, with 150 MW designated.
With Suzlon's market share projected to remain steady at 33%, the brokerage expects order wins of 3-3.5 GW per annum over the next 4–5 years.
Turnaround in financial performance
The brokerage stated that company had to undergo a restructuring exercise in the past as it had failed to fulfil its debt obligations. However, in the last year, the company has refinanced its existing debt, replacing 16 lenders with two new lenders (REC Limited and Indian Renewable Energy Development Agency Limited). Suzlon also converted its entire OCDs and CCPS, which helped in bringing down its debt, it said.
Further, the brokerage said the company has completed a rights issue of ₹12 billion and utilised ₹9 billion to prepay its entire outstanding debt obligations. The company had negative net worth due to past losses, but net worth recently turned positive, primarily on account of the rights issue and the gain from the de-recognition of OCDs and CCPS, it highlighted.
With debt reduction, lower interest costs, and a better financial risk profile, the company is in a good position to capitalise on the tailwinds in the wind sector.
In 2QFY24, the company raised funds worth ₹20 billion via a qualified institutional placement (QIP). Approximately Rs15 billion will be used towards debt repayment, and the balance will be used towards working capital and capex requirements. Post-QIP, the company is on the path to becoming net-debt-free, according to the brokerage.
As the company is on its way to becoming net-debt-free, the brokerage expects the company to deliver revenue and an EBITDA CAGR of 31% and 38%, respectively, over FY23–26E and forecasts Suzlon’s EPS to reach ₹1.4 in FY26.
Better visibility on execution
Timely execution remains the key to Suzlon’s turnaround. The company's project services range from conceptualisation to commissioning, including overall project management and complex front-end engineering and design.
The company's expertise covers an entire gamut of wind project planning and execution services, including wind resource assessment, infrastructure and power evacuation, technical planning, and execution of wind power projects.
Strong industry tailwinds
"As the generation mix is shifting towards renewables particularly in favour of solar, bringing diversity into the supply mix by enhancing the share of wind is imperative. This will help in partly addressing grid challenges along with cost advantages and support to domestic manufacturing."
“Discontinuation of the reverse auction, better demand visibility with bidding trajectory, upcoming repowering policy, open access policy, waiver of ISTS charges, introduction of wind specific RPOs and finally improvement in technology resulting in higher productivity has revived the momentum in the wind sector,” said JM Financial.
The brokerage sees the current market size of 5-6GW per annum of wind opportunity (utility-scale + commercial and industrial (C&I) sectors + repowering) growing to 11-12GW per annum by FY27E.
02 analysts polled by MintGenie on average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.