Buy Suzlon Energy - Fullerton Securities

Suzlon Energy Ltd (SEL), with manufacturing capacity of 6GW in India, China, Germany and USA is the world's 3rd largest wind turbine manufacturer. The company enjoys10% market share globally and more than 50% market share in India.

SEL is the one of the low cost producer of wind turbine in the world, with cost of production of per MW of 1.32mn euro as compared to world average of 1.8mn euro in FY11.

Due to the ongoing volatile growth in developed economics, the company has diverted its focus on emerging markets like BRICS countries. As on Q2FY12, the Suzlon Wind order book comprised of 96% of domestic order as compared to 80% in the same quarter last year. SEL through its fully owned subsidiary REpower, supplies wind turbine to Euro zone. As on Q2FY12, the subsidiary has an order book of USD 4.1bn, giving an earning visibility for the next two years.

The management is confident of turning around the operating performance of the group by taking initiatives like focusing on high revenue and margin markets, reduction in COGS and lower CAPEX. For FY12, the management has given top line guidance of Rs. 240 – 260bn with EBIT margin of 7-8%.

In Q2FY12, the company has fully acquired its German subsidiary REpower, which has cash and cash equivalent balance of Rs. 11bn as on FY11. This huge cash reserve will help in reducing the group leverage position in future.

The concern for the company could be the highly leveraged balance sheet, lower order book from USA & Euro Zone, depreciating rupee against USD/ Euro and competition threat from Chinese manufactures.

Based on DCF valuation method, the fair value for the company works out to Rs. 27.

The Suzlon Energy stock closed the day at Rs.24.60, up by Rs.1.85 or 8.13%. The stock hit an intraday high of Rs.24.80 and low of Rs.22.70.

The total traded quantity was 103.58 lakhs compared to 2 week average of 59.66 lakhs.

Source : Equity Bulls

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