Friday, October 23, 2009


Orders revival in 1HCY10

Our latest Q-series on wind power expects recovery in 1H10
In the Q-series on wind titled: “Are skies clear again for wind power?”, dated 15 Oct’09, we conclude that the sector should re-activate from H1/10 on improved economics, as (1) turbine prices should be c20% lower in 2010 vs 2008; (2) credit spreads are back to pre-crisis levels and project financing returns; (3) base rates are at trough level. After 3% y/y growth in global installations to 29.1GW in ‘09E, we forecast growth by 15% to 33.3GW in ‘10E and 16% to 38.6GW in ‘11E.

We think Suzlon could re-rate on industry-wide recovery in orders
We raise our PT from Rs60/sh to Rs100/sh and upgrade rating from Sell to Neutral as we see expect recovery in wind orders in 1H10 to re-rate the stock. Our rating upgrade is after lowering FY10/11E EPS, and reflects lower capex over ’11-14E, and lower intermediate growth owing to this. However, we believe upside is capped in near-term due to estimated loss of Rs1.75bn in 2QFY10E and consensus downgrades, and Suzlon’s weak liquidity position.

Lower near term estimates for Suzlon
We lower MW sales for FY10/11E by 100MW to 1,900/2,350. We also lower EBITDA margins for FY10/11E by 90bps and lower FY10/11/12E EPS from Rs3.8/7.4/13.8 to Rs1.6/4.2/11.6. Our estimates are 44-66% below consensus. There are no positive catalysts near-term except recovery in wind orders in 1H10E.

Valuation – Raise Price Target and Upgrade Rating to Neutral
The key reasons for changes to our DCF-based price target are: 1) rolling forward to FY11, 2) lower capex in FY11-14E; and 3) lower intermediate growth from 15% to 10%.

To see the full report: SUZLON ENERGY