After a long time in wilderness, wind energy sector is coming on its own now, due to favourable policies and actions of Modi Sarkar.
We have seen a successful completion of 1000mw auction. According the reports, two more auctions for a total of additional 4000mw are to be completed in next few months.
Suzlon already has excess manufacturing capacity but still it has built plants in Andhra and Rajasthan. Similarly, Gamesa and Inox wind too are going for capacity expansion. This is indicative of the nature of demand in the coming years.
If we go through the reports on Sanghvi movers, they are anticipating demand for 140 meters cranes. This may again give us an idea that after the successful deployment of 120 meters turbine having a PLF of 40%…wiind turbine makers are moving towards 140 meters.
While it is true that margins may fall a bit, but the absolute increase in volume will cause the companies to post better eps numbers. This is more particularly the case with companies with higher manufacturing capacity, who can easily meet the increase in demand for WTG.
Suzlon has 40% share in indian market, and a good land bank plus contacts. It will benefit hugely from this new demand. Growing @ 20% CAGR as predicted by Tulsi Tanti should not be a big issue.
Then addituonally, there is another source of demand growth…repowering of the old wind energy sites which are occupying best wind sites but with low capacity generators. These wind turbines are akready 20 years old and are reaching the end of their operational life. In the next few years, they will be replaced by either 120 meters or even 140 meters turbines. Here too, suzlon has a huge advantage over its competitors.
Suzlon has always been a high p/e multiple stock…in fy 2018, it may have an eps of around 2.5 rupees or even 3 rupees. So we can just speculate as to how much highee the stock price can go from here onwards.
Howard marks talks about investing on the basis of position in industry cycle and pendulum of investor sentiment. In case of Suzlon / inox, the wind energy sector is coming out of a six years of down cycle…and the market sentiment towards these stocks is extremely negative. Thus, most of the negatives are priced in and hence the downside risk is quite low.
If you buy both suzlon and inox wind…you get about 65% of indian wind energy capacity (now in profits) for just 1.5 billion dollars. If this is not just throw away price, dont know what else it is.
Very good technical bottom formation on long term charts is an added bonus…
