Similar to Mint article recently published on PPA re-nego by state govt, attached BusinessLine article also recounts similar story. However, most worrying part according to me, is the de-growth projected in wind power installations for current year 1000MW as against 5400MW last year. If this is to be believed, good days may be distant dream for Suzlon at al.
Disc: Only a tracking position, my views may be biased.
Very good analysis.
Few questions…
- Overseas subsidiary valuation 9000 cr. Are they planning to sell? Recent Brazilian exit - is this one of the subsidiary? If yes, at what valuation it was sold?
- with new bidding process, tarrif are expected to go down. Wouldn’t this squeeze margins on turbines? Have we factored in these changes?
- even if eps tripples by 2022, this would give 30 to 35% cagr returns.
- export not considered. So enough margin of saftey i think? There is high probability of Suzlon getting export orders.
https://cleantechnica.com/2017/08/01/tamil-nadu-india-generates-record-wind-power-forced-shut-thermal-plants/ Tamil Nadu, India, Generates Record Wind Power, Is Forced To Shut Down Thermal Plants
Would be great if someone can share more details and the potential impact of the labor strike on regular operations.
With the wind power tariff coming down due to reverse auctions, the unthinkable is happening. State govts are going back on their word on their signed Power Purchase Agreements. Govt want to renegotiate the tariff downwards because of new discovery of low tariff in auctions. This can cripple the sector.
Already wind power assets are put up for sale.
Wind power assets for sale
Would like to hear others opinion on this development.
it’s good for suzlon
less competition
Additionally, the new machines with high PLF of 42% would change the dynamics for Suzlon. The FCCBs are getting converted and hence the pressure on the stock. The second half should be much better.
@maheshkumar how is it good for Suzlon?
@Vulture yes, high PLF machines are a game changer. But the recent pressure in my view is because of regulatory disarray. This might lead to very few auctions this year, which will lower the order book and with high fixed costs, suzy might see red bottomline again.
Discl sold off recently.
They have 1.7 gw order book. Assuming they will execute additional 300 to 500 mw this year, Suzlon should post higher revenue and profit this year.
yes, almost the same as last years execution volumes… so, no issues for next couple of quarters for the income statement but lack of order inflow is a big risk and if not now, markets will later take this factor into account. as an investor, i prefer to be on sidelines here, waiting for further clarity to buy.
and yes, to be fair, below was just my guess. nobody can be certain of any reasons…
There is more than one factor that can create uncertainty in short run but the long-term story still looks intact and bullish. Govt. processes can be slow but ultimately even they have a steep target to chase. So the lost ground of one or two quarters can be easily covered in subsequent quarters. There are only two ways one can approach Suzlon. One, be a trader and sell around 19-21 levels and re-enter lower levels at 14-16. Two, be a very long term investor (atleast till 2022) without much concern for short-term events.
I have sold my stake in Suzlon couple of days back because I hate what the govt. is doing. They are playing with the clean energy cess money to compensate states for GST. Its a despicable thing to do. Won’t be surprised if this cess is used next year to dole out election freebies instead of being used for GBI and AD.
Do take a look at this https://scroll.in/article/844528/india-diverts-rs-56700-crore-from-the-fight-against-climate-change-to-goods-and-service-tax-regime
I would take articles from scroll with a pinch of salt. If indeed funds have been diverted, it is not a wise decision from the government and for the solar and wind sector in bigger perspective.
I don’t think scroll is neutral either but when I dug up further, I noticed articles on business standard, hindu business line among others much, much earlier as well.
These are from way back in April!
From Sanghvi Movers’ investor presentation, I found this part interesting. (Wind energy contributes 71% of Sanghvi movers’ revenue). They think installations could drop from 5400 MW to 1000MW-1500 MW YoY for the whole sector. To put it in perspective, Suzlon alone did 1700 MW or so in FY16.
BUSINESS OUTLOOK -
Wind Mill Sector has played a dominant role in the revenue contribution of the company
since last 7/8 years. Due to recent change in business conditions and more particularly
Government of India’s policies towards wind mill sector, we expect slow down in our
business volume and therefore expect decrease in the Turnover and Profitability of our
company during the current financial year. Wind mill sector has contributed more than 70%
of our revenue during last financial year. It is pertinent note here that India has installed
more 5400 MW Wind Mills during last fiscal year i.e. FY 2016-17. However, due to reduction
in Accelerated Depreciation from 80% to 40% from the current financial year and withdrawal
of Generation Based Incentive (GBI), there has been a huge reduction in wind mill
installation in the current financial year. Furthermore, due to change in method of signing
PPAs for Wind Mill Sector from feed-in-tariff based system to auction based system, this
sector expects huge amount of drop in the business volume for the current financial year. As
per the industry estimates, India as a whole may end up 1000 MW to 1500 MW wind mill
installation in the current financial year as against 5400 MW in the previous financial year.
This drop in the wind mill installation is beyond our expectation and would likely impact our
business volume and profitability in the current financial year.
Considering above facts, the company is planning to substantially reduce its Capex Plan for
FY 2017-18 by cancelling the order for balance cranes. Company has already initiated the
discussions with its supplier for cancellation of balance 19 Nos. cranes. If this happens, the
company may end up doing net Capex of roughly around Rs. 60 Crores (i.e. after adjusting
the sale proceeds of existing cranes + sale of cranes through Trade-in-Agreements with its
suppliers).
We are hopeful that business conditions may review in the next financial year.
http://www.bseindia.com/xml-data/corpfiling/AttachLive/14c2052f-eae3-4934-969b-9e740d8ab327.pdf
Suzlon Results and Investors Presentation… http://www.bseindia.com/xml-data/corpfiling/AttachLive/d0a93f70-d4a9-4097-825b-fc6c5b69c891.pdf
@yudiagg Bro, people were investing even when EPS was negative 
.
Jokes apart, few takeaways from the Q1FY18:
-
Overall good numbers for a “low” quarter
-
Good traction in maintenance business
-
Newer products gaining market share
-
Higher inventory and working capital
and finally, FCCB overhang to continue