Suzlon Energy: Nuvama downgrades stock post 220% rally in 1 year, shares target price

Suzlon Energy Ltd, whose shares are up 58 per cent in 2024 so far and 220 per cent in the past one year, reported a strong set of June quarter results with its operating margin far surpassing Street expectations, driving up profit after tax (PAT) by 3 times YoY. Nuvama Institutional Equities said while it stays long-term positive on Suzlon Energy, the uptick in order inflows and profits is already factored in,  as the stock now trades at 40 times estimated FY27 earnings per share (EPS) of wind turbine generator (WTG) business.

"We remain long-term positive on the sector and Suzlon Energy; however, the expected uptick in order inflow from H2FY25 seems to be already baked in the current market price," Nuvama said as it suggested a target price of Rs 64 on the stock. 

The brokerage has tweaked its FY25–27 estimates for Suzlon Energy to account for slightly lower realisation per MW and edging up of FY27E execution to 3GW from 2.9GW. It downgraded the stock to 'Hold' from 'Buy' earlier. 

For the quarter, Suzlon Energy ramped up execution to 274 MW against an estimate of 250 MW, resulting in 50 per cent YoY growth in sales at about Rs 2,020 crore against Nuvama's expectation of Rs 2,130 crore. The slight miss on top line was  due to quarterly variation in revenue per MW. Nuvama expects execution to ramp up further as it baked in 1.4 GW for FY25, 2.4 GW for FY26 and 3 GW for FY27.

Suzlon Energy's order inflow stood at 1,162 MW against an estimate of 800 MW, which led to an all-time high order book of 3.8GW. This would be executed over 18-24 months, lending revenue visibility. Nuvama expects Suzlon Energy to remain a key beneficiary of rising mix of FDRE/RTC/Hybrid in the government tenders. 

Suzlon Energy reported a net cash position of Rs 1,200 crore at the end of Q1FY25, which is a testament to the balance sheet clean-up undertaken by management, and now Suzlon directly qualifies for bidding for NTPC/PSU/government tenders. Suzlon also remains a key player in the C&I segment (2/3rd of OB) and benefits from a duopolistic market in EPC capabilities and maintains an overall 30 per cent  market share (35.5 per cent in Q1FY25).