Shares of renewable energy firm Suzlon Energy have given exceptional returns to its investors, witnessing a strong up-move in recent times.
The stock hit its 52-week high of ₹16.86 in intra-day deals today, July 3, 2023. It is currently trading over 210 percent higher than its 52-week low of ₹5.43, hit on July 28, 2022.
The stock has given multibagger returns in the last 1 year, up 147 percent, while it has surged 58 percent in 2023 YTD. The stock has given positive returns in 4 of the 7 months of the current calendar year so far. The stock has jumped over 112 percent since April 2023.
It jumped 10 percent in today's deals, the first session of July, extending gains for the fourth straight month. The stock rallied 30 percent in June, 41.5 percent in May and 5 percent in April. However, it was in the red for the first 3 months of the year. It fell 3.6 percent in March, 16.3 percent in February and 7.5 percent in January.
In the long-term as well, the stock has performed surprisingly well. It has soared 262 percent in 3 years to ₹15 currently from ₹4.6 in June 2020. Meanwhile, in the last 5 years, the stock has advanced 143 percent from ₹6.8 in June 2018.
However, one must note that the stock crashed over 96 percent from its all-time high of ₹431, hit in January 2008.
Reasons for the recent rally
The recent rally in the stock comes on the back of strong financial performance in the June quarter as well as a series of new project wins which will aid in growth.
Earlier last month (June), the company announced that it has surpassed 20 GW in wind energy installations. It stated that 20 GW wind energy installations were accomplished through the deployment of 12,647 wind turbines across 17 countries, spanning six continents.
Currently, Suzlon has a 33 percent market share in India's cumulative wind energy installations.
Meanwhile, in May, the company won three very significant projects as well.
It won a 99-MW wind energy project from Vibrant Energy. "Suzlon Group has received an order from Vibrant Energy for 33 wind turbine generators featuring its new 3 MW (each) series with a Hybrid Lattice Tubular tower for a 99 MW wind power project which is expected to be commissioned by FY25," the group said in an exchange filing.
It also bagged a 204 MW wind energy project from Serentica Renewables. "Suzlon Group has bagged a significantly large order for its 3 MW series of wind turbines from Serentica Renewables - a decarbonization platform that seeks to accelerate the energy transition for energy-intensive industries," the company announced.
Further, the firm won a major order from Torrent Power to develop a 300 MW wind power project.
Meanwhile, in the March quarter, Suzlon Energy posted a consolidated net profit of ₹319.99 crore led by lower expenses versus a net loss of ₹205.52 crore in the year-ago period. However, its total income from operations fell 31 percent to ₹1,699.96 crore in Q4FY23 from ₹2,478.73 crore a year ago.
In FY23 as well, the firm posted a consolidated net profit of ₹2,887.29 crore against a net loss of ₹176.55 crore in FY22 and its total income in the fiscal declined 9 percent to ₹5,990.16 crore in FY23 from ₹6,603.97 crore in FY22.
ICICI Securities sees a 46 percent upside
On the back of the recent order wins, the company turning profitable and the up-move in stock prices, brokerage house ICICI Securities initiated coverage on the stock with a ‘buy’ call and a target price of ₹22, indicating an upside of over 46 percent.
It believes Suzlon is best equipped to benefit from industry tailwinds and expects a sharp uptick in earnings from FY24E onwards.
The brokerage noted that India has launched a series of policy initiatives: 1) single-stage closed bidding (vs reverse e-auction), 2) 10 GW of wind auction per annum, and 3) wind-specific RPOs, etc. These policies are likely to generate tailwinds for the industry and, ICICI Securities believes, Suzlon Energy, the market leader, is best suited to reap the benefits of the same. Also, the ‘net debt/EBITDA’ ratio on Suzlon’s balance sheet has declined to 1x from 10x in FY22, it added.
Suzlon has enjoyed a market share of 33 percent in India’s domestic market (based on total installations) and has 20 GW of operational wind power capacity globally and is well ahead of its competitors, it further informed.
It also pointed out that Suzlon has reduced leverage by restructuring its debt and by raising money through a rights issue. As a result, leverage is now merely 1x debt/EBITDA. Thus, the company has got all the right ingredients to benefit from industry tailwinds.
“Suzlon is getting back into shape after a ‘rollercoaster’ journey over the last decade due to a slump in industry volumes and high leverage led by the acquisition of Repower in 2008. However, after a series of debt restructuring, net debt has declined sharply from Rs130bn in FY20 to Rs12bn as of Mar’23. In addition, the industry is looking at a revival led by a slew of policy actions. The company has been investing in R&D and has kept pace with innovations in Indian markets. Moreover, major positive changes on the regulatory, policy and eventually business front bode well for prospects of the wind industry. The government has decided to tender out at least 10GW of wind capacity every year with a pickup in demand from commercial and industrial entities for round-the-clock power supply. Suzlon, being the market leader in the wind turbine industry, is the natural beneficiary of this shift, in our view,” it explained.
The brokerage expects a revenue CAGR of 37 percent to ₹11,200 crore over FY23-FY25E, EBITDA CAGR of 37 percent to ₹1,600 crore with an EBITDA margin of 14 percent, and PAT at ₹1100 crore in FY25E.
“Our P/E-based target price is Rs22, valuing the business at 24x FY25E EPS of Rs0.9/share. We assign a multiple of 24x (vs capital goods coverage universe average of 31x FY25E) based on a strong rebound in earnings and strong industry outlook,” it said.
Suzlon Energy is a provider of renewable energy solutions. The company is a producer of wind turbines. It offers a range of solar energy solutions, such as solar irradiance assessment, land acquisition and approvals, infrastructure and power evacuation, supply chain, installation and commission and life cycle asset management.