The recent market decline has provided an attractive entry opportunity
to the Suzlon Energy stock. An investment can be considered in the
stock with a time horizon of 2-3 years. At the current market price,
the stock trades at about 24 times its expected per-share earnings for
FY09.
A strong order book, ongoing capacity expansion, and infusion of IPO
funds into subsidiary Hansen Transmissions provide considerable
visibility to the company’s earnings over the next few years.
Strong growth in volumes in the quarter ended December 2007 alleviates
fears arising from a decline in profits. Suzlon Energy’s numbers threw
a negative surprise this quarter; but this was attributable to one-off
expenses such as relocation cost of projects and taxes incurred in
certain hedging transactions.
Suzlon is now a fully vertically integrated energy equipment provider
— a status that very few global players, such as Gamesa have managed
to achieve. Apart from better management of costs, vertical
integration is the key to handling supply disruptions — a major
concern for many players in the wind energy equipment business.
The capacity expansion plan also appears to be on track and is
expected to be in place by mid-FY09. The leverage on Suzlon’s balance
sheet may receive some relief with the successful IPO from subsidiary
Hansen, which had massive capex plans hitherto nurtured by the parent.
Removal of uncertainties surrounding the acquisition of REpower also
strengthens Suzlon’s prospects for increasing its share in the
promising European market.
Of the Rs 17,080-crore order book (December 2007), exports account for
close to 85 per cent. Increasing exports and manufacturing units in
other countries may result in a gradual compression in the high profit
margins so far enjoyed by the company.
However, while Suzlon may not be able to achieve operating profit
margins of over 20 per cent enjoyed earlier, we expect the company to
maintain OPMs in the 12-17 per cent range due to backward integration.
This would still remain superior to some international players.
A key risk to demand for wind turbines may arise from the deadline of
December 2008 for the production tax credit, an incentive extended to
wind energy projects in the US, which has not been reviewed so far. It
is expected that this may still be passed in legislation in some other
form. Initiatives by the European Union to encourage clean energy
sources may also open up alternative markets in case of a slowdown in
offtake in the US.
Suzlon is a market leader in Renewable Energy Resources segment. It
specializes in providing total solutions in Wind Power Generation with
cohesive integration of consultancy, design, manufacturing,
installation, operation and maintenance services. Currently, Suzlon is
ranked as fifth leading wind turbine manufacturer in the world. For
its contribution in the wind energy sector, Suzlon has been awarded by
the World Wind Energy Association.
The origin of Suzlon Energy Limited can be traced back to 1995, when
its founder Tulsi Tanti incorporated the company and entered renewable
energy segment. Suzlon started its journey with a small project to
supply wind turbine generators for a 3.34 MW windfarm project in
Gujarat, India. Since then, Suzlon has not looked back and today it
ranks as the world's 5th leading, and India's and Asia's leading
manufacturer of wind turbines, with over 2,000 MW of wind turbine
capacity supplied in India and across the world.
Suzlon has developed and implemented several large-scale windfarms
throughout India. In Vankusavade, Maharashtra Suzlon has developed a
windfarm that is stretched over 29 km of rugged mountainous terrain
averaging over 1,000 meters above sea level. This windfarm has 566
WTGs and has an installed capacity of over 205 MW. Vankusavade
windfarm successfully demonstrated the viability of large, utility-
scale windfarms in India. In Sanganeri, Tamil Nadu, Suzlon is
developing a windfarm with a planned capacity of over 500 MW.
Similarly, in Dhulia, Maharashtra, Suzlon is developing one of the
largest windfarms of its kind in the world with a planned capacity of
over 1,000 MW once complete.
Suzlon has presence in all the major international markets. United
States, the largest market for wind energy worldwide forms Suzlon's
largest market outside of India. Suzlon has also received major orders
from Australia, Brazil, China, Italy, Portugal and South Korea. In
terms of global footprint, Suzlon's global team is spread across four
continents: Europe, North America, Asia, and Australia. Suzlon has its
international business headquarters in Denmark, Global Management
Center in Netherlands, and research and development centres in
Germany, and Belgium. In North America, Suzlon has its US corporate
headquarters in Chicago, Illinois and has offices across the continent
to provide marketing, projects and service support. In Asia, Suzlon
has presence in India and China. Suzlon's office in Melbourne,
Australia is responsible for sales, marketing, project implementation
and service support for the emerging Asia Pacific Market.
Major Achievements of Suzlon:
* Fifth leading wind turbine manufacturer in the world with over
6% of market share.
* Won the Best Manufacturer by the World Institute of Sustainable
Energy.
* Received the 'IPO of the Year' honor from the Euromoney and
Ernst & Young-backed Renewable Energy Finance Forum.
* Awarded by the World Wind Energy Association for its
contribution in the wind energy sector.
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