Suzlon Energy vs Inox Wind: Which is a better stock for the long term?

India's renewable energy sector is undergoing remarkable growth, positioning it as one of the fastest-expanding industries in the country. Presently, India boasts a total renewable energy capacity of approximately 170 GW. To further accelerate progress, the government has unveiled a comprehensive plan to add 250 GW of renewable energy capacity over the next five years, aiming to achieve a total of 500 GW of clean energy by 2030.

On the back of a strong growth outlook in the future and countries moving more towards renewable energy, let's analyse, between Suzlon Energy and Inox Wind, which stock has better opportunities in the long term.

Stock price trend

In the last one year, Suzlon Energy has outperformed Inox Wind, however, both stocks have given multibagger returns in this time. While Suzlon has surged almost 215 percent, Inox has rallied 143 percent during this period.

Meanwhile, in 2023 YTD, Suzlon has advanced over 68 percent giving positive returns in 4 of the 7 months in the current calendar year. Inox, on the other hand, has outperformed in this period, soaring over 96 percent in 2023 YTD, with positive returns in 5 of the 7 months so far.

Suzlon has jumped over 16 percent in July so far, extending gains for the fourth straight month. Meanwhile, it added 30 percent in June, 41.5 percent in May and 5 percent in April. However, it shed 3.6 percent in March, 16.3 percent in Feb and 7.5 percent in Jan.

Whereas, Inox has skyrocketed 38.5 percent in July so far, extending gains for the 4th straight month as well. It rose 9.8 percent in June, 31.7 percent in May and 13.8 percent in April. However, it shed 8 percent in March. It was also up 6.4 percent in Feb but lost 12 percent in Jan.

Meanwhile, in the long term, 3 years, Inox has emerged as the winner. The stock soared over 515 percent from ₹34.6 in July 2020 to ₹213 currently while Suzlon has surged 352 percent from ₹3.95 in July 2020 to ₹17.85 currently.

About the firms

Suzlon Energy is a renewable energy solutions provider. The company is engaged in the business of manufacturing of wind turbine generators (WTGs) and related components of various capacities. It operates in approximately 17 countries across Asia, Australia, Europe, Africa and the Americas. Its services include operations and maintenance services, leadership, optimisation and digitalisation, value-added services and products, and multi-brand operation and maintenance services.

Inox Wind is an India-based integrated wind energy solutions provider. The company is engaged in the business of manufacture and sale of wind turbine generators (WTGs). It also provides engineering, procurement and commissioning (EPC), operations and maintenance (O&M) and common infrastructure facilities services for WTGs and wind farm development services.

Earnings

In the June quarter, Suzlon Energy reported a 95.8 percent year-on-year (YoY) decline in net profit at ₹100.90 crore as against a profit of ₹2,392.87 crore in the same quarter last year. However, one must note that the numbers in the June 2022 quarter were inflated by exceptional items. Excluding exceptional items, Suzlon Energy would have reported a loss of ₹66 crore in the corresponding quarter last year. Meanwhile, on a QoQ basis, the company's net profit was down 64 percent.

Revenue from operations also fell 2 percent YoY to ₹1,347.52 crore for the quarter under review from ₹1,377.58 crore in the same quarter last year. The company further stated that its cumulative orders stood at nearly 1.6 GW. Also, the Ebitda margin for the quarter stood at 15.4 percent.

After a sustained effort to reduce debt in FY23 that resulted in a healthier and sustainable balance sheet for the company, Suzlon Energy said its focus in FY24 remains on funding its operations and fulfilling its commitments to customers and other stakeholders.

Inox Wind, on the other hand, has not yet reported its June quarter numbers. But in the March quarter, its consolidated net loss narrowed to ₹88 crore against a loss of ₹157 crore in the March quarter of the previous fiscal. However, total revenue rose over 59 percent to ₹162 crore in Q4FY23 against ₹102 crore in the year-ago period.

However, recently, the firm has been in the news after the company’s board approved a merger with its subsidiary company Inox Wind Energy. Under the scheme of the arrangement, 158 equity shares of Inox Wind will be issued for every 10 shares held in Inox Wind Energy.

Which stock has better long-term investment opportunities?

Vinit Bolinjkar, Head of Research - Ventura Securities, has chosen Suzlon Energy.

Suzlon would be a better stock for long-term investment. The company has enjoyed a market share of 33 percent in India’s domestic market (based on total installations). It has 20GW of operational wind power capacity globally and is well ahead of its competitors. Note that its existing orderbook at 1.5 GW bodes well for execution through the next 2 years. 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. (Vs 10x in FY22).

Meanwhile, Inox Wind's promoters, through their family office, have invested approximately ₹700 crore in the company and are optimistic about seizing opportunities in the renewable energy sector. They expect to generate a Free Cash Flow (FCF) of ₹600-1000 crore per annum starting from FY25. In terms of profitability, Inox Wind expects its next year's performance to triple, maintaining an EBITDA margin of 15-16% and becoming net debt-free soon. The management observes substantial interest in the sector, with stabilised power tariffs ranging from ₹2.0 to ₹3.5. Overall, the company's prospects in the renewable energy industry appear promising, and they are ready to leverage growth opportunities.

Sanjay Moorjani, Research Analyst, SAMCO Securities, also prefers Suzlon Energy.

Of these two, Suzlon Energy has recently seen a turnaround in its financials. The operating financials of Suzlon are much better than the Inox group. The company has turned its net worth into positive numbers for the first time after a decade. In fact, Suzlon has even reduced its debt by 90 percent from FY20 numbers, the impact of which can be seen in the PAT numbers. In the recent Q1FY24 results, PAT fell 96 percent YoY. However, on a deeper inspection, the PAT of Q1FY23 was inflated due to one-time exceptional items. If those are to be excluded, the company had posted a loss in Q1FY23 and has now turned into a positive PAT of ₹101 crore in Q1FY24. The company has seen a dramatic increase in order book which now stands at Rs.1,582 crores. With the government’s impetus towards renewable energy, the market of this segment is expected to grow at a rapid pace and Suzlon Energy, having a market share of 33 percent, remains a major beneficiary.

Suman Bannerjee, CIO, Hedonova, as well, has picked Suzlon Energy.

I think between Inox Wind and Suzlon Energy, Suzlon Energy seems to have shown significant growth and interest in its shares. The stock has reached a nearly six-year high and has performed well in the last one month and one year, gaining 44.67 percent and 191.74 percent, respectively. Suzlon's efforts to reduce leverage and the potential for a mix of wind, solar, and battery storage capacities in a decarbonised grid are some positive factors that can make it a good pick for the long term.

In a contrarian view, Shrey Jain, Founder and CEO of SAS Online, likes Inox Wind better.

The two leading players in the renewable energy space, Inox Wind and Suzlon Energy, have significantly contributed to the sector's growth. Both Inox Wind and Suzlon Energy offer promising investment opportunities for the long term. Suzlon Energy has yielded impressive returns of over 200 percent, while Inox Wind has also performed well with returns exceeding 140 percent. Investors holding shares in these companies would be extremely satisfied at this juncture.

However, when comparing the two, Inox Wind holds several advantages over Suzlon Energy. It enjoys a stronger balance sheet and possesses a healthy order book. Moreover, Inox Wind maintains a more concentrated focus on the Indian market, making it an attractive investment choice for those seeking exposure to India's burgeoning renewable energy market.