Is Suzlon a turnaround story after FY16

Stock Opportunities Special Situations
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I have had an opportunity to grasp on exceptionally excellent quality information about Suzlon here. Hats off to you all and I must say you all have covered Macro/Micro, Local/World level prospects including but not limited to Fundamental/Technical analysis and future possibilities. Latest information provided by all once again emphasizes that present government policy/s working in the direction of warding off cheap foreign competition in case of Suzlon. Going through the research reports I felt most reports give a pass to year 2019-20 and I considered this year as crucial as FCCB gets closed here and tried to work on it.

SUZLON: A real investment case? May be not so soon yet…
My rough calculation with many assumptions (debatable) has given me;
Equity capital:
Rs Cr FY17 FY18 FY19 FY20
Paid up share capital 1004.88 1,025.59 1,046.31 1,198.08
#of shares 502.44 512.79 523.16 599.04
Revenue, Net Profit, EPS, PE:
Rs Cr FY17 FY18 FY19 FY20
Revenue 12,803.19 13,918.28 14,691.52 15,492.21
NP 599.79 621.71 711.71 851.71
EPS 1.19 1.21 1.36 1.42
PE @ 20/share price 16.75 16.50 14.70 14.07
Note: EPS Rs.1.19 is direct effect of consolidated NP published by Suzlon. (PE @20/share price)
Balance sheet:

Sales/Revenue Estimates:
Rs Cr FY17 FY18 FY19 FY20
MW sales 1573 1800 2000 2220
Rs Cr/MW 8.14 7.73 7.35 6.98
Downward Y-o-Y revenue factor used to factor in technological advancements and recent lower bid patters. Rs Cr/MW is direct division of 2017 revenue by 1,573 (without any other considerations).

Conculsion: Considering the numbers outcome as above, I personally feel Suzlon will continue to carry over the burden of debt pas 2020. PE too is not improving too soon in this case. However exponential growth may alter the situation within few years.

Few other positive notes from web sources are below:
https://www.ft.com/content/44ed7e90-3960-11e7-ac89-b01cc67cfeec

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Disclosure: Tracking but not invested yet
By the way, this is my first post after joining couple of days back. Comments are much appreciated.

Note: I have created pdf however can’t upload here as this is my first post. (No complains here).

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Quick moves by Suzlon
Subsidiary IPO this year.
First footprints in largest renewable market, China, through a JV in 600MW unit.
Capacity Expansion complete. Total capacity in India = 3600MW
Interesting part is that there is not a word about CDR exit. Is it assumed as almost done or there’s more to it?!!

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IMO as investors this can be assumed as a done deal only at our own peril esp. when there is not a word from mgmt on the same. There seems to be a definite silence from mgmt on the issue and is quite concerning.

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On 17 January 2017 - Suzlon Energy achieved 10,000 megawatts installed wind energy milestone in India. Suzlon’s 10,000 MW of wind installation is capable of powering over 5 million households per annum and offsets approximately 21.5 million tonnes of Carbon Dioxide (CO2) emission annually which is equivalent to planting over 1500 million trees

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Tariffs are being renegotiated which is not good for the sector. Even in Solar three PPAs have been cancelled. This is not good for the sector and impacts the credibility of the contracts. With reverse auctioning, players should see their margins reducing going forward. That said, ownership of attractive land sites and technology to improve PLFs is key for any incumbent here and Suzlon checks on both these aspects.

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Would you prefer a high margin business with stagnant market size or a lower margin business with growing market size? For the former, you can look at a company like Hawkins. Second category is a company like Amazon in its early years.

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Environmentalists also fear the ripple effect Trump’s decision might have on other major polluters, such as China and India, who have reiterated their commitment to the accord but could be emboldened to walk away in the face of similar action by the US.
https://www.theguardian.com/environment/2017/may/31/donald-trump-withdraw-paris-climate-change-agreement

Trump’s decision to withdraw from the Paris agreement is being received with much criticism from within and outside of US. He is unable to build consensus on the issue among his own close associates. Its encouraging to see a combined reprimanding from all corners, including the allies of US, against this kneejerk business-man like approach, which lacks the spirit of global leadership expected from the biggest economy of the world. And it is reassuring not just as investors and believers of the renewable energy story, but also as responsible citizens of the mother earth that no country has shown signs of following Trump’s footstep so far.

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Ventura Securities says…
“Based on our interactions, we have marginally upgraded our target on Suzlon by 4% to Rs 44.5 (12xFY20EV/EBIDTA). Our confidence in the sector has been bolstered given India’s recent commitment (at the Plenary Session of St. Petersburg International Economic Forum (SPIEF 2017) to cut back on carbon emissions. In addition Suzlon is also looking to monetize its assets (via IPO for its O&M subsidiary) and this gives confidence to the fact that the company is moving forward on its stated objective of debt reduction.”
https://www.ventura1.com/WebAdmin/stockideas/636322738267101673_Suzlon%20Energy.pdf

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positive analysis

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This suggest cut-throat competition right? How is suzlon poised for this?

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Hi Mehnaz , haven’t seen you posting a while here. (post q4) . Any new observations from you in a while…
regards
Raghu

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He is Moid, writes under his daughters name @Mehnazfatima and currently enjoying his holidays!!

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Execuse me for my misundesranding. @Mehnazfatima @narender

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this will have any impact ?

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There seems to be some issues between the State Govt. and Central govt. Piyush Goyal openly criticizing Karnataka Govt. has raised a few eyebrows. But it looks like a temporary matter and would hopefully be resolved soon.

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Now AP Discoms want PPA to be renegotiated. What would be the impact on suzlon?

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The AP electricity regulator has fixed a tariff of around 4.5 rupees per unit for wind energy on the basis of PLF of wind turbines @23%. But the IPPs have purchased WTG having 35+% PLF. To that extent there is an element of undeserved gain for IPP at the cost of Discoms. It may be noted that AP is a high wind speed state, therefore WTG in AP have a higher PLF.

Thus the demand from Discom for lowering of Tariff is not without merits.

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Thanks for the response. I hence infer that the impact will be for IPP if any.

There is a lot of news on solar/wind and in general power sector. Tarffs have come down. There seems to be excess capacity in few areas. I am not able to understand beause there were power cuts an year back. And huge capacity is getting built also.

How will these affect different players? How will it affect lenders like PTC fin services? Would love to hear your thoughts.

Dis: significant position in suzlon and ptc fin services.

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