Recommendation On Heavy Electrical Equipment Sector

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   .....

HERE IS WHY
Pan-India Offtake.
Traction in non-windy states
Shift of industry towards renewable power.

Suzlon Energy Ltd., one of the leading renewable energy solutions providers in the world has installed around 17GW of wind energy capacity globally and has one of the largest in-house R&D set ups with facilities in Germany, the Netherlands, Denmark and India. It is a producer of wind turbines and also offers a range of solar energy solutions.

Wind market in India is currently under the transition phase, moving from an incentive regime to a completely auction based market which argurs well for the industry from volume point of view. Further, expansion of canvas from 9 Windy states to 29 Windy states opens up a huge potential.

FY17 came out to be the first year in which growth in renewables exceeded thermal capacity addition at a delta of 14.4GW. Q4FY17 and FY17 remained an exceptional quarter and it is a significant year for Suzlon because it recorded an all time high commissioning of 98 per cent, by installing 1779MW taking its cumulative installations toover 11GW in India and 17GW globally. This phenomenal growth was possible due to: a). Growth in the overall market size touching 61% in FY17 and b). Continuous increase in its market share.

On the financial front, the company’s revenue has grown 55.11% toRs4993 crore and thereon operating profit has grown 62.61% on Y-o-Y basis toRs722 crore for the quarter ended March 31, 2017. TheEBITDA margin for Q4FY17 stood at 14,5 per cent as against 13.8 per cent in Q4FY16. 

The long-term debt for FY17 decreased byRs340 crore and the currently amounts toRs9920 crore. The company reported a PAT ofRs578.99 crore for the quarter mainly due to timely execution of orders. 

The company’s net sales has increased 34.60% toRs12,693 crore and the operating profit has also increased by 64% toRs2,203 crore for the year ended March 31, 2017, on a Y-o-Y basis. The company’s net profit for the year ended March 2017 stood atRs839 crore, higher by 47.19%.

The company executed orders of 1,573MW of Wind and 109MW of Solar during Q4FY17 and the current domestic order backlog amounts to 1331MW-Wind, 231MW-Solar for FY18. Also, its strong in-house R&D has enabled the company to proactively develop its products to reduce its LCOE and remain competitive. 

We believe renewable sector would grow with government taking initiatives for growth and its plans to increase capacity of Wind to 60GW by 2022. With growth in sector, Suzlon expects to expand its market share from 32% in FY17 to 40% in 2018E. Further, demand from the non-windy states would call for setting up 30 GW of wind power capacity in the country, over the next five years.

Suzlon being one of the most vertically integrated manufacturers in India, will benefit from operating leverage due to volumes and drive higher cost efficiency while retaining control over quality leading to reduced equipment pricing. It is BUY from us.