Morgan Stanley positive on Suzlon's Renom Energy acquisition, sees 10% upside

The first tranche involves the acquisition of a 51 percent stake for a consideration of Rs 400 crore, Suzlon said.

International brokerage Morgan Stanley gave Suzlon's acquisition of a 76 percent stake in Renom Energy Services a thumbs up.

Suzlon Group said on August 6 that it has signed definitive agreements for the acquisition of a 76 percent stake in Renom Energy Services Private Limited, in two tranches, from the Sanjay Ghodawat Group (SGG).

The brokerage maintained its 'overweight' call on Suzlon, with a price target of Rs 73.4 per share, indicating a 10.8 percent upside from the last closing price.

According to Morgan Stanley, Suzlon's acquisition serves as a strategic entry into the multibrand OMS (operations and maintenance services). Renom is a market leader with 2.5 GW of contracted capacity, with a presence in seven windy states. The firm also has experience maintaining turbines of 14 different makes.

The implied valuation of 4x price to sales makes Renom Energy cheaper than its listed peer, added Morgan Stanley.

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The first tranche involves the acquisition of a 51 percent stake for a consideration of Rs 400 crore, Suzlon said in a press release.

In the second tranche, Suzlon will acquire an additional 25 percent stake within 18 months from the acquisition of the first tranche for a consideration of Rs 260 crore.

"This strategic acquisition will help unlock Renom’s core potential and position it from a place of strength to become a leading Independent Service Provider (ISP) and custodian of multi-brand renewable energy assets. This deal will also enable Renom to leverage the massive opportunity of targeting over 32 GW of non-Suzlon wind energy assets in the country today," Suzlon said in the press release.

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