>SUZLON ENERGY (KOTAK SECURITIES)

■ Order inflow revival to drive value. The management appears confident about avoiding one-off charges but guarded on the subject of realization and margins. We upgrade to BUY rating based on (1) signs of order inflow revival, (2) sector prospects and (3) significant upside to our target price of Rs140/share post the correction. The stock will also be driven by (1) lower working capital, (2) pick up in order inflows and (3) potential balance sheet restructuring after the Hansen stake sale and equity issuance.

■ Management confident about on one-off charges; guarded on realization and margins We met the management of Suzlon recently and found the management confident of not having undue one-off charges related to availability and liquidated damages going forward. The message on likely realization, margins and full year interest cost is more guarded though. The management highlighted that both equity issuance as well as Hansen stake sale are possibilities on the table and may be exercised to reduce debt levels as well as have flexibility in cash flows for pursuing objectives such as buying the balance stake in Repower.

■ Upgrade to BUY based on likely order inflow revival; sector prospects
We upgrade our rating on the stock to BUY from ADD earlier based on (1) signs of order inflow revival and (2) likely margin improvement led by elimination of one-off items such as availability based and liquidated damages, (3) significant tail winds in the sector as governments across the globe pushed the renewable energy agenda and (4) significant upside to our target price of Rs140/share post the correction seen in the last two weeks. We highlight that incrementally the stock would be driven by (1) working capital reduction, (2) pick up in order inflows and (3) potential for balance sheet restructuring based on Hansen stake sale and equity issuance.

■ Change estimates based on lower volumes and margins; retain target price on FY2011E valuation
We have changed our earnings estimates to Rs6 and Rs9.4 for FY2010E and FY2011E, respectively, from Rs7.6 and Rs10.5 earlier. We retain our EV/EBITDA multiple and SOTP-based target price of Rs140/share based on FY2011E valuation Key risks include (1) near-term slowdown in demand, (2) uphill climb to regain customer confidence post the recent blade cracking problem, (3) weak outlook for Indian wind power markets and (4) possible recurrence of one-off charges as
witnessed in 4QFY09. Key upside risks arise from (1) stronger-than-expected order inflows and execution, (2) sharp recovery in global demand environment, (3) strong platform in terms of breadth and depth of manufacturing, marketing and R&D capabilities.

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