>SUZLON ENERGY (MOTILAL OSWAL)

■ Below estimate 4QFY09/FY09 performance on continued one-offs: During 4QFY09 Suzlon reported below estimated EBITDA of Rs3.1b (-67% YoY) and adjusted net profits of Rs190m due to non-linear increase in other operating costs to Rs12.7b (+145%YoY, 57%QoQ). Also, the FY09 EBITDA was impacted due to increase in the other costs of Rs6.5b (part of which is non-recurring majority of which is booked in 4QFY09), including: (1) Availability loss on installed WTG of ~Rs2.8b, (2) Liquidity damages of ~Rs2.8 due to delays in commission, shipment etc, and
(3) higher consultancy and financial costs of ~Rs1b.

■ Lower order book, realizations; higher fixed costs to impact FY10 WTG performance: Current order book for the WTG business stands at 1,463MW (-57.6% YoY, -23.6% QoQ), which provides visibility for only next 2-3 quarters. For FY10, per MW realization is also likely to witness decline of 5-7%YoY. We model FY10 revenues of 2,400MW, at lower end of management guidance of 2,400-2,600MW. With the current order book of just 1,463MW (including 200MW to be delivered in FY11), our assumptions look challenging since the company will need to secure orders during next 2-3 months to achieve these volumes for FY10. Also, higher fixed costs at lower volumes will impact FY10 performance. We are estimating just Rs414m of net profit in FY10 as against Rs6.3b in FY09.

■ Cutting earnings; maintain Neutral: We have cut our FY10 and FY11 earnings by 36% and 31%, respectively, to factor in lower volumes and very high fixed costs. We are less optimistic about Suzlon’s ability to reduce fixed costs, and thus higher volumes would be the only upward risk to our estimates. Maintain Neutral with target price of Rs95, based on 18x FY11 earnings for WTG, Hansen and REPower.

To see full report: SUZLON ENERGY