Suzlon Energy up 4%; HDFC Sec initiates coverage with buy

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Moneycontrol Bureau

Shares of Suzlon Energy gained 4.4 percent intraday on Tuesday after brokerage house HDFC Securities initiated coverage with a buy on the stock and set a target price of Rs 34 apiece.

Having faced multiple crises over FY09-14, the brokerage believes Suzlon is on the cusp of a turnaround. Suzlon has aggressively reduced debt from its heavily levered balance sheet by divesting its German subsidiary Senvion (for Euro 1 billion) and via a preferential issue of Rs 1,800 crore to Dilip Shanghvi and Associates (DSA).

"These developments will enable the company to not only reduce debt but also provide much needed working capital to ramp up business in the rapidly growing Indian wind energy market," said HDFC Securities in its note.

With the NDA government’s ambitious plans for renewable energy, the brokerage expects favourable policy environment for wind power to continue, adding it is among a handful of listed companies levered to India’s fast growing renewables industry.

The Indian wind energy market is set for a big leap as accelerated depreciation (AD) and generation based incentives (GBI) have been re-introduced. The NDA government has ambitious plans of adding 38GW over FY15-22.

Suzlon has the best overall product offering and it lost market share primarily owing to funding constraints.

Aided by significant operating and financial leverage, HDFC Securities expects Suzlon’s earnings to grow manifold over the next few years.

"As 25 percent of Suzlon’s expenses are fixed in nature (FY16E), we expect a quantum jump in profits as volumes ramp up. We expect Suzlon to achieve profit before tax break-even in FY16E (1,250MW of sales, 150 percent increase over FY15E), which implies 35 percent market share. This looks plausible, given the company’s order book of 1,147MW. With a capacity of 3.6GW, Suzlon can further ramp up volumes without incurring significant capex," it explained.

At 14:37 hours IST, the scrip of Suzlon Energy was quoting at Rs 26.55, up Rs 0.55, or 2.12 percent on the BSE.

Posted by Sunil Shankar Matkar