With his current interview with CNBC, Tulsi Tanti sounds positive as ever. But a clear message one can read is that 2018 is a transformational year for wind energy (in a very neutral sense). Some of the salient points discussed and my personal views on them is stated hereunder:
-
Mr. Tanti says that there is no renegotiation on PPAs contrary to what the states have been demanding. This contradictory statement, from what the States have mentioned, probably stems from his proximity to central government who he expects to convince the state govts to honor the PPAs. Based on the assumption that there won’t be any renegotiation, Tanti is confident of achieving 15% EBITDA margin. In my opinion, this would be the single most important issue which will decide Suzlon’s stock performance in FY2018. If the PPAs stay the way they are and if Suzlon is able to deliver 15% EBITDA margins, then their orderbook is strong enough to sail through this transitory phase without much impact.
-
Tanti is confident of gaining 40% marketshare in FY18 but he stood non-committal on volume growth. The volumes he said are dependent upon the bidding process and would be a prerogative of Center/State govt. For the reverse auction to succeed in progressing the wind energy sector in India, higher volumes from auctions for non-windy states would be critical. This I believe is a short-term complication which soon enough will be negotiated and resolved by the government. However, the uncertainty remains for FY18. If govt. is able to resolve matters in current year, then we could see wind sector making good progress in this year itself. If not, then I am quite sure than FY19 would be a breakout year for wind energy sector in India.
-
Suzlon is sitting comfortable on debt. I see them holding foreign currency debt of $600ml for long term (till 2023). It does not harm them either as the cost of debt is merely 3 percent odd. Offcourse they would be exposed to currency risk but with stronger rupee and improving balance of trade with US, I see it working out positively for them in near future.
-
Going forward Suzlon has much to benefit from its accelerated R&D where they are already working on products to increase PLF to 45% (from 42% currently) from wind turbines and PLF of 50% from hybrid technology. The lower LCOE would in turn improve margins and improve their competitiveness in the market.
-
Lastly the FCCB conversion is almost half way through and will continue till the end of FY18. With most estimates already accounting for these conversions, there won’t be a major impact on Suzlon, if only their operational performance treads the growth trajectory. Again if they continue to execute their orderbook without negotiation and get the payments in desired time, there will be enough retail interest to absorb FCCB selloffs.
-
And I find a sudden mum on CDR exit issue which I believe is becoming a procedural hassle for Suzlon. They have left it upon the banks to complete all compliance and have decided to refrain from giving any guidance due the nature of event being uncontrollable for them.
In conclusion, my conviction on long term performance of both the renewable sector and Suzlon stays bullish with a neutral stance on short-term performance. Since it is a transitory phase, it might get frustrating for stakeholders. There could be delay in policy formation. Also I see delay in next phase initiatives of formulating hybrid policy and offshore policy which I feel might see some action in 2019 furthering the growth of the sector in 2020 and thereafter.