Suzlon Energy shares have surpassed Morgan Stanley’s target price of Rs 73 after the company bagged a 1,166 MW order from NTPC Green Energy, a subsidiary of NTPC Limited
Suzlon Energy shares touched their 52-week high Thursday, September 12. The wind turbine manufacturer has seen its share price rise 250 per cent over the past year. At the time of writing the stock was priced at Rs 86.04, surpassing its August 13 high of Rs 84.40.
The past two sessions have seen the stock hit consecutive upper circuits of 5 per cent and record gains of 10 per cent in two days. The rally comes on the back of positive investor sentiment driven by global brokerage Morgan Stanley’s overweight stance on the renewable energy sector.
The stock is now trading at five-day, 10-day, 20-day, 30-day, 50-day, 100-day, 150-day and 200-day moving averages.
Suzlon Energy shares have surpassed Morgan Stanley’s target price of Rs 73 after the company bagged a 1,166 MW order from NTPC Green Energy, a subsidiary of NTPC Limited. Under the contract, the company will install 370 S144 wind turbine generators (WTGs) each with a rated capacity of 3.15 MW.
This is the largest wind energy order in India’s history, which is slated to power three million households. The installation will take place across three locations in Gujarat, according to the company’s filing to the exchanges.
The wind turbine manufacturer’s return to obtaining PSU orders, following an extended period of ineligibility due to its negative net worth, is a significant development for the company. The global brokerage notes that this substantial contract improves Suzlon Energy’s earnings visibility for FY26-27.
Strong Recovery Fuels Investor Optimism
From a 52-week low of Rs 21.70 on September 13, 2023, Suzlon’s stock has rallied 296 per cent to hit a 52-week high of Rs 86 on Thursday, September 12, 2024. On a year-to-date (YTD) basis, the stock has surged over 112 per cent so far.
The stock’s price-to-earnings (PE) ratio stands at 551.44 times and the price-to-book value (PB) ratio is at 30.88 as of September 11, 2024, according to data from Capitalline.
According to analysts, the renewed optimism in the stock after a decade-long hiatus is driven by an improved balance sheet, regulatory tailwinds and strong order book boost in the renewable energy sector.
Avishek Datta, research analyst at Anand Rathi Institutional Equities says Suzlon stock has gone up as it is one of the key beneficiaries of sector tailwind as players rush to add renewable energy capacities. In addition, net cash balance sheet and healthy order book of 5GW provide growth visibility in the medium term.
On a consolidated basis, Suzlon Energy’s total income has increased almost three times from Rs 2,531.35 crore in FY2020 to Rs 6,612.24 crore in FY24.
It witnessed a turnaround from net loss of Rs 2,691.39 crore in FY20 to net profit of Rs 660.35 crore in FY24. In FY23, the company reported a consolidated net profit of Rs 2,887.29 crore.
According to a recent report by ICICI Securities, Suzlon is back in shape after a tumultuous decade. Over the past three years, the company has reduced its debt significantly through various debt-to-equity conversions.
With that, the company has recently become net cash positive with a cash reserve of Rs 13 billion as of June 2024, after a successful equity raise worth Rs 20 billion in the July-September quarter of FY24 for debt reduction.
The company’s total debt has reduced from Rs 11,962.32 crore in FY20 to Rs 666.85 crore in FY24.
As of June 30, 2024, it boasted a net cash surplus of Rs 1,197 crore, positioning it well for timely capital expenditures, particularly for blade moulds.
In addition, major regulatory changes in regulatory policy and eventually on the business front bode well for the wind industry. The government has decided to auction at least 10 GW of wind power capacity annually due to increased demand from commercial and industrial sectors for 24-hour power supply.
“Suzlon, being the market leader in wind turbine industry, is the natural beneficiary of this shift,” ICICI Securities said.
The company enjoys a 32 per cent cumulative market share in India. Its installed capacity base in India stands at 14.7 GW and provides O&M services for all of its fleet. It has over 1,900 customers in the industry, and subject to certain exceptions, they are able to maintain a renewal rate that is close to 100 per cent for O&M service agreements.
Suzlon’s order book increased to 4GW which is the highest in its history. According to experts, there is enough opportunity to add a sizeable order inflow in FY25.
“We expect the order book to expand as PSUs, commercial and industry (C&I) customers ramp up green energy capacities. We have modelled deliveries of 1.5/2.0GW for FY25/26 vs 0.7 in FY24,” Datta said.
“Its current order book provides visibility of execution for next 2 years. Also, a large number of orders of 1.5GW from public sector entities are yet to be finalised,” according to ICICI Securities.
Market experts expect strong order inflows due to a favourable government tendering and interest from C&I customers. However, key challenges like delays in transmission infrastructure, land acquisition, reverse bidding reintroduction, delay in auction of renewable, increasing market share of IPPs, lack of transmission evacuation and right-of-way issues persist.
“Despite these risks, we estimate a 53 per cent revenue CAGR driving a 66 per cent EPS CAGR, with ROE improving from 18.2 per cent in FY24 to 26.9 per cent in FY26E,” Geojit Financial Services said in a report.
Geojit forecasts the consolidated revenues of Suzlon to grow at 53 per cent CAGR in the FY 24-26 period. Wind Turbine Generator (WTG) segment revenues are expected to exhibit a 72 per cent CAGR driven by higher delivery volumes.
Improved executions, cost optimization from better workforce management, & better pass-through of commodity prices are expected to enable WTG margin improvement from 2 per cent in FY24 to 7 per cent in FY26.
“In the FY24–26E period, Suzlon’s revenue CAGR & ROE are expected to surpass those of the industry peers. We anticipate order inflows to be strong in this period, supported by strong government tendering and from C&I customers,” Geojit said.
Aamar Deo Singh, Head Advisory, Angel One Ltd says the company has come out of its slumber over the past decade, but the big question still remains, will it be able to learn from its past and ensure that it does not repeat the same in future.
The company has returned to the path of profitability, with sales growth at 25 per cent CAGR over the past 3 years and almost 45 per cent CAGR growth in profits over the similar period.
“Going forward, a lot would depend on the execution capability of the projects and competition from other sources of energy, in terms of pricing. Investors need to stay alert and cautious going forward,” Deo said.
India’s wind energy outlook
India’s onshore wind energy is ready to grow after a long pause. As of March 31, 2024, India’s total installed capacity is 45,866 MW, up 8 per cent from the previous year. In FY24, the new wind capacity was added in Gujarat (1,744 MW), followed by Karnataka (725 MW), Tamil Nadu (586 MW), and Maharashtra (195 MW).
Currently, Gujarat has the highest total installed wind capacity of 11.72 GW, closely followed by Tamil Nadu (10.60 GW), Karnataka (6.02 GW), Maharashtra (5.20 GW), Rajasthan (5.19 GW), Andhra Pradesh (4.09 GW), and Madhya Pradesh (2.84 GW), according to Suzlon’s FY24 annual report.
The outlook for India’s wind energy industry remains positive over the medium to long term, as 10 GW of wind auctions are expected to be floated over FY23-27.
Going forward, India has a large potential for wind energy, with estimates ranging from 302 GW at 100 meters above ground level (AGL) to 695 GW at 120 meters AGL. Given that our current wind energy capacity as of July 2024, stood at 47.07 GW, the potential for companies operating in the wind energy space is huge.
Additionally, given the increasing complexity of renewable energy power projects from plain vanilla solar or wind to Hybrid, RTC and now FDRE, wind may play a crucial role in renewable energy generation going ahead.