Suzlon Energy tumbles 10% in 2 days post Q1FY24 results

Shares of Suzlon Energy were locked in the 5 per cent lower circuit band for a second straight day on Wednesday after the company's net profit for the June quarter (Q1FY24), including exceptional loss, tumbled to Rs 101 crore from Rs 2,433 crore reported last year. The company's net profit (before exceptional items) for Q1FY24, however, came in at Rs 93 crore as against a loss (before exceptional items) of Rs 37 crore. 

At 2:00 PM, the stock was quoting at Rs 18.05 apiece, having crashed 10 per cent in two days. By comparison, the benchmark S&P BSE Sensex was up 0.66 per cent. A combined 454.98 million shares had changed hands on the counter on the NSE and BSE till the time of writing of this report.

The company's revenue from operations slipped marginally to Rs 1,347.2 crore as against Rs 1,377.58 crore year-on-year. Sequentially, it registered a decline from Rs 1,690 crore reported in Q4FY23. The company's Wind Turbine Generator (WTG) segment recorded a revenue of Rs 803.28 crore for the quarter compared with Rs 831.82 crore YoY; Foundry and forging segment saw a drop in revenue to Rs 111.53 crore from Rs 120.44 crore; and Operating & maintenance service segment saw revenue rising to Rs 493.13 crore from Rs 453.81 crore. 

Further, Ebitda (excluding‐forex amount) came in at Rs 207 crore in Q1FY24 with margin at 15.4 per cent. Suzlon Energy said its cumulative orders stood at nearly 1.6 GW.

"Q1FY24 shows YoY growth and an improvement in overall profitability with a steady performance on all our  key parameters. After a sustained effort to reduce debt in FY23, which has resulted in a healthier and sustainable balance sheet for the company, our focus in FY24 remains on funding our operations and  fulfilling  our  commitments  to  customers  and  other  stakeholders. We continue to maintain strict control on costs and are in the process of further optimizing our organizational structure to drive excellence and continual improvement on the strong foundation set with over the last three years," said Himanshu  Mody, chief financial officer, Suzlon Group.

Analysts at ICICI Securities, in a recent coverage intiation report, had said that on the back of various policy actions, industrial demand and more round-the-clock contracts, the wind industry is finally set to turn the corner.

"Suzlon has enjoyed a market share of 33 per cent in India’s domestic market (based on total installations). It has 20GW of operational wind power capacity globally and is well ahead of its competitors. Note that its existing orderbook at 1.5GW bodes well for execution through the next two years. Suzlon has reduced leverage by restructuring its debt and by raising money through a rights issue. As a result, leverage is now merely 1x debt/EBITDA. Thus, the company has got all the right ingredients to benefit from industry tailwinds, in our view," it had said in its report.

The brokerage has given a 'Buy' rating to the stock with a target price of Rs 22. 

India has amended the wind energy policy, which adversely impacted capacity addition between FY17-FY23. It has discontinued with reverse e-auctions, introduced wind-specific RPOs, and its plans to auction 10GW per annum. Also, the repowering policy is under works.

The lowest-cost solution for an optimal decarbonised grid is a mix of wind, solar and battery storage capacities. Wind generates power in monsoon and nights when solar generation is low. Also, we believe higher wind will lead to lower battery storage requirement for a decarbonised grid.

Moreover, grids are looking for a solution to meet demand effectively while containing carbon emissions. The supply of renewables can be increased by setting up a mix of wind, solar and battery storage capacities. Optimal solutions for the grid to meet demand by using renewables includes higher wind in the mix (of ~8GW per annum) led by the complementary nature of generation and cost curves of the wind.

"Suzlon Energy is getting back into shape after a ‘rollercoaster’ journey over the last decade due to a slump in industry volumes and high leverage led by acquisition of Repower in 2008. However, after a series of debt restructuring, net debt has declined sharply from Rs13,000 crore in FY20 to Rs1,200 bcrore as of Mar’23. In addition, the industry is looking at a revival led by a slew of policy actions. The government has decided to tender out at least 10GW of wind capacity every year with pickup in demand from commercial and industrial entities for round-the-clock power supply. Suzlon, being the market leader in the wind turbine industry, is the natural beneficiary of this shift, in our view," ICICI Securities said.

The brokerage expects a revenue CAGR of 37 per cent to Rs11,200 crore over FY23-FY25E, bitda CAGR of 37 per cent to Rs 1,600 crore with an Ebitda margin of 14 per cent, and PAT at Rs 1,100 crore in FY25E.

That said, despite the two days' fall, the stock of Suzlon has outperformed the market over the past one year. Since July 26, 2022, the scrip is up 230 per cent from a level of Rs 5.76 per share. By comparison, the S&P BSE Sensex is up 19 per cent during the period.