>Suzlon Energy (UJLK Securities)

Suzlon Energy Limited is a vertically integrated wind turbine manufacturer with manufacturing capability along the full value chain from components to complete wind turbine systems. The company currently has a combined manufacturing base of 4,200 MW of annual capacity. It is the world’s fifth leading wind turbine manufacturer in 2008. The company is the leading manufacturer in the Indian market maintaining over 50% market share.

Investment Rationale:
Suzlon saw new orders flows from China and Australia of 100 MW each which improves the revenue visibility of the company. There is scope for margin improvement and improved profitability as most of extraordinary items have been considered in FY08‐09. The company has high level of working capital and inventory which it is trying to work down to generate cash for its acquisition. Its subsidiaries Hansen and RePower will add value to the company as they have good profitability and strong order book position especially Hansen which has higher revenue visibility. Suzlon is not a stock which is driven by domestic consumption as majority of its revenues come from international market. Going ahead only 30% of its revenues will come from India and 70% from its international market. The major concerns for the company are deteriorating macros, rising debt and high working capital and funding its Repower acquisition. In the last 2 years, almost Indian market is flat as execution is governing the size of the Indian market. But lately a lot of initiatives by the government have changed in the last 2 to 3 months, particularly in Tamil Nadu and Gujarat governments have both have changed the lot of regulatory improvements are there. The new order inflows will act as the growth drivers for the company.

Valuation:
The stock is trading at Rs 45. At the current market price the stock is trading at a P/BV of 0.7x its FY10E. Its FY10E EPS is seen at Rs 6.9 and it trades at a PE of 6.2x. We recommend an accumulate rating on the stock with a price target of Rs 56. At this price the stock will discount FY10E earnings of Rs 6.9 by 8x. The stock has priced in all the negatives and is available at cheap valuations. The stock is trading at a discount as compared to its peers on account , rising debt and high working capital, but these negatives are priced in the current market price.

To see full report: SUZLON