Suzlon Energy

FORTUNE INTERFINANCE LTD (FIFL)

1

Member of National Stock Exchange of India Ltd & Bombay Stock Exchange Ltd, SEBI Regd No. INB231243230 (NSE-Capital Market Segment) INF231243230 (NSE- Derivative Market Segment) INB011243236 (BSE-Capital Market Segment)

Company: Suzlon Energy Ltd.

BSE Scrip Code: 532667

NSE Scrip Code: 12018

CMP(Rs): 54

Face Value(Rs): 2

Book Value(Rs): 42

Target: Rs 101

Time Horizon: 2 years

Market Cap(Rs): 83 bn

Market Cap(USD): 1.84 bn

Type: Value buy

Nifty: 4987

52 week H/L: 132/53

Date: 8 June 2010

2

Suzlon Energy

Index

•Company Profile……………………………………………………………………….…….………...…….3

•Segment Presence……………………………………………………………………...…………………...4

•Price-Volume Chart…………………………………………………..…………………………...…………5

•Financials(Annual)………………………………..………………………………………...……………….6

•Financials(Quarterly)……...…………………..………………………………………………….…..........7

•Ratio Analysis…….………….…………………………………………………………………….………...8

•Annexure…………………..……..…………………………………………………………………..…........9

•Management Discussions………….……………………………………………………………..…..…..10

•Production Facilities………….…………………………………………………………………...............11

•Order Book….………………………………………………………………………………………............12

•Debt Structure…………………………………………………………………………………...……….....13

•FCCB’s Conversion………………………………………………………………………………………...14

Suzlon Energy

•Founded in 1995, Suzlon Energy is the largest Wind

Turbine Generator (WTG) manufacturer in India and third

largest globally, with a domestic market share of 69% and

12.3% globally.

•It also manufactures gearboxes, rotor blades and control

panels through its various subsidiaries.

•The company’s capacity on a standalone basis as on April

2009 is 4200 MW and has planned to increase to 5700

MW.

•The company holds 90.7% stake in REpower Systems

AG and 26.06% stake in Hansen Transmissions.

•The market cap is Rs 83.5 bn at a CMP of Rs 54 as on 8th

June, 2010.

Company Profile

Latest News Shareholding Patten (Mar 2010)

•01June,2010: Suzlon has fixed 10th June 2010 as the

record date for the right issue of 2:15 at Rs 63 per share.

•07May,2010: Suzlon is in advanced talks with London

based Swraj Paul’s Caparo Group to build 3000 MW wind

farm over 6 years, which may bring around USD 3 bn to it.

•05May, 2010: Suzlon Green Power Ltd.(subsidiary) to

invest Rs 300 cr. In 50 MW wind farm in Andhra Pradesh.

•23April,2010: Suzlon Wind Energy(subsidiary) has set up

J.V with Volkswind Bulgaria.

Board of Directors

Source: FIFL Research, Annual Reports, BSE, Economic Times

53.1%

13.6%

6.2%

27.1%

Promoters FII DII Others

3

Name Designation

Mr.Tulsi.R.Tanti Chairman & M.D. & CEO

Mr.Girish.R.Tanti Executive Director

Mr.Ajay Relan Independent Director

Mr.Ashish Dhawan Independent Director

Mr.V.Raghuraman Independent Director

Mr.Robin Banerjee CFO

Suzlon Energy

Segment Presence

•Suzlon has its presence mainly in the WTG

manufacturing segment and has gone for backward

integration through acquisition of several companies like

RE power and Hansen Transmission Systems.

•Suzlon also provides end to end wind power solutions

and builds turnkey projects.

•It sold 2790 MW in 2008-09, an increase of 20.72% over

last year.

•Its average realization is Rs 54.3 mn/MW domestically

and 54.9mn/MW internationally as on Jan 2010.

•Global Wind Energy installed capacity in 2008-09

reached 120.8 GW up 28.8% from last year.

Revenue Distribution (WTG sales)

Domestic Market Share World Market Share

69%

13%

10%9%

Suzlon Vestas Vestas RRB Others

28%

33%7%

16%

15%

India USA China Europe Australia

11%9%

9%

13%

12%9%

37%

Suzlon Gamesa Eneron(GE)Vestas GE Wind(US) SinovelOthers

Source: FIFL Research, Annual Reports 4

Source: FIFL Research, Annual Reports, BSE

Suzlon Energy

Price-Volume Chart Our Recommendation

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

0

50

100

150

200

250

300

350

400

450

500

19-O

ct-

05

19-A

pr-

06

19-O

ct-

06

19-A

pr-

07

19-O

ct-

07

19-A

pr-

08

19-O

ct-

08

19-A

pr-

09

19-O

ct-

09

19-A

pr-

10

Th

ou

san

ds

No. of Shares Closing Price

5

• Suzlon Energy posted disappointing results for the

FY2010 on account of higher operating costs and

interest payments. Going forward, we expect the

company to reduce its debt burden and focus on

improving its operating margins.

• The current order book of Suzlon stands at 3190 MW

and we expect the company to diversify its focus from

Europe to USA & China in coming two years.

Valuation

At current CMP of Rs 54, the stock is trading at a 2 year

forward P/E multiple of 6.4 with an EPS expectation of

Rs 8.43 in FY2012. We initiate our coverage with a

“BUY” on the stock with the price target of Rs 101 with a

time horizon of two years.

Risk

• The company has significant presence in Europe

through its subsidiary Repower. If the company fails to

diversify its businesses from Europe then we can see a

potentials correction in the EPS to the extent of 25%.

• The company have a huge debt burden on its books.

The management guidelines suggest that they would

focus on debt reduction through right issues. If company

fails in the reduction of debt then it may affect the

financials of the company and vary from our forecasts.

Suzlon Energy

Financials (Rs mn) Forecasted Financials (Rs mn)

Source: FIFL Research, Annual Reports, Ace Equity

Balance Sheet (Rs mn) Forecasted Balance Sheet (Rs mn)

Particulars 2007A 2008A 2009A

Share Capital 34,129 80,936 85,238

Share Warrants 1,007 102 1,054

Net worth 35,136 81,038 86,292

Minority Interest 141 10,244 23,135

Total Debt 51,620 99,346 148,696

Def Tax liability 1,804 2,713 5,170

Capital Employed 88,701 193,341 263,293

Fixed Assets 36,195 45,680 132,814

Capital W.I.P. 4,537 11,197 19,840

Net current Assets 46,187 102,551 107,286

Deferred tax Assets 1,627 2,495 3,302

Investments 156 31418 51

Total Assets 88,701 193,341 263,293

Particulars 2010E 2011E 2012E

Share Capital 65,856 62,061 75,183

Share Warrants - - -

Net worth 65,856 62,061 75,183

Minority Interest 10,496 10,500 18,500

Total Debt 97,650 91,431 90,600

Def Tax Liability 4,698 4,362 5,676

Capital Employed 178,701 168,354 189,962

Fixed Assets 62,338 58,728 71,236

Capital W.I.P. 6,234 5,873 7,195

Net current assets 108,343 102,070 109,632

Def Tax Assets 1,787 1,684 1,900

Investments - - -

Total Assets 178,701 168,354 189,962

6

Particulars 2007A 2008A 2009A CAGR

Net sales 79,857 136,794 260,817 48.4%

Gr (%) 107.9 71.3 90.7 -

EBITDA 14,164 22,538 32,403 31.8%

Gr (%) 48.5 59.1 43.8 -

Mar (%) 17.7 16.5 12.4 -

Interest 2,763 5,969 10,539 56.2%

Gr (%) 326.6 116.0 76.6 -

Depreciation 1,718 2,890 5,731 49.4%

Gr (%) 140.0 68.2 98.3 -

PAT 8,640 11,816 2,365 (35.1%)

Gr (%) 13.8 36.8 (80.0) -

EPS 6.01 7.89 1.58 (35.9%)

Gr (%) 13.8 31.3 (80.0) -

Particulars 2010A 2011E 2012E CAGR

Net sales 207,792 195,761 237,452 4.5%

Gr (%) (20.3) (5.8) 21.3 -

EBITDA 12,244 20,555 29,681 34.3%

Gr (%) (62.2) 67.9 44.4 -

Mar (%) 5.9 10.5 12.5 -

Interest 11,950 8,229 8,154 (12.0%)

Gr (%) 13.4 (31.1) (0.9) -

Depreciation 6,630 5,051 5,699 (4.9%)

Gr (%) 15.7 (23.8) 12.8 -

PAT (9,826) 6,031 13,122 210.1%

Gr (%) (515.5) (161.4) 117.6 -

EPS (6.31) 3.87 8.43 210.1%

Gr (%) (499.4) (161.3) 117.8 -

Source: FIFL Research, Ace Equity 7

Suzlon Energy

Quarterly Financials (Rs mn)

Particulars (Rs mn)H2 FY'10 Qtr Ended Mar'10 Qtr Ended Dec'09 H1 FY '10

Mar'10 Mar'09 Gr (%) Mar'10 Mar'09 Gr (%) Dec'09 Dec'08 Gr (%) Sep'09 Sep'08 Gr (%)

Gross Sales 116,736 160,430 (27.2) 60,836 91,213 (33.3) 55,900 69,217 (19.2) 89,460 100,387 (10.9)

Excise Duty - - - - - - - - - - - -

Net Sales 117,726 161,504 (27.1) 61,642 92,079 (33.0) 56,084 69,425 (19.2) 90,066 101,084 (10.9)

(Inc)/Dec in Stock 5,671 9,734 - (8,011) 10,912 - 13,682 (1,178) - (4,017) (20,595) -

Purchase of F.G. 355 132 168.03 306 116 164.2 49 17 194.5 123 94 30.6

Cost of Raw material 68,937 94,197 (28.2) 45,923 49,782 (37.5) 23,014 44,415 (15.1) 65,212 85,006 (5.0)

Operating & Manufacturing Exp. 25,019 29,492 (15.2) 13,849 16,796 (17.5) 11,170 12,696 (12.0) 15,607 14,711 6.1

Power & Fuel - - - - - - - - - - - -

Employee Cost 9,649 11,945 (19.2) 4,226 6,279 (32.7) 5,424 5,666 (4.3) 11,805 9,713 21.5

General Administration Exp - - - - - - - - - - - -

Selling & distribution Exp - - - - - - - - - - - -

Total Expenses 109,631 145,500 (24.7) 56,294 83,885 (32.8) 53,338 61,615 (13.4) 88,730 88,929 (0.2)

Operating Profit 8,095 16,004 (49.4) 5,348 8,194 (34.7) 2,746 7,810 (64.8) 1,336 12,155 (89.0)

OPM(%) 6.9 9.9 (30.6) 8.7 8.9 (2.5) 5 11 (56.4) 1 12 (87.6)

Other Income 345 4,641 (92.6) 170 4,165 (95.9) 175 477 (63.3) 416 1,108 (62.4)

EBITDA 8,440 20,646 (59.1) 5,519 12,359 (55.3) 2,921 8,287 (64.7) 1,752 13,262 (86.8)

Depreciation 3,124 3,477 (10.2) 1,451 2,009 (27.8) 1,673 1,468 14.0 3,506 2,255 55.5

EBIT 5,316 17,169 (69.0) 4,068 10,350 (60.6) 1,248 6,819 (81.7) (1,755) 11,008 (115.9)

Interest 5,897 5,421 8.8 3,002 3,082 (2.6) 2,895 2,339 23.8 6,054 3,592 68.6

Exceptional Items 2,438 (6,918) (135.2) - (2,430) (100.0) 2,438 (4,489) (154.3) (385) (5,076) (92.4)

PBT 1,857 4,830 (61.5) 1,066 4,838 (77.9) 791 (8) (9,985.0) (8,193) 2,340 (450.2)

C.Tax 3,517 1,125 212.6 2,953 740 299.0 564 385 46.4 44 1,756 (97.5)

D. Tax - - - - - - - - - - - -

FBT - - - - - - - - - - - -

Prior Period/ yr Tax - - - - - - - - - - - -

PAT Before extra ordinary items (1,660) 3,705 (144.8) (1,887) 4,098 (146.0) 227 (393) (157.7) (8,238) 584 (1,511.0)

Extra ordinary Item - - - - - - - - - - - -

PAT after extra ord (1,660) 3,705 - (1,887) 4,098 - 227 (393) - (8,238) 584 -

Equity Capital 3,114 2,997 - 3,114 2,997 - 3,114 2,997 - 3,114 2,997 -

EPS (1) 2 - (1) 3 - 0.1 (0.3) - (5) 0.4 -

NPM (%) (1%) 2% (161.4) (3%) 4% (168.7) 0% (1%) (171.4) (9%) 1% (1,683.6)

Cost as a % of Sales 93.1% 90.1% - 91.3% 91.1% - 95.1% 88.8% - 98.5% 88.0% -

Con of Raw material 63.4% 64.4% - 61.5% 65.9% - 65.4% 62.3% - 67.9% 63.7% -

Employee Cost 14.0% 12.7% - 9.2% 12.6% - 23.6% 12.8% - 18.1% 11.4% -

Power & Fuel 0% 0% - 0% 0% - 0% 0% - 0% 0% -

Selling Exp 0% 0% - 0% 0% - 0% 0% - 0% 0% -

Operating Exp 36.3% 31.3% - 30.2% 33.7% - 48.5% 28.6% - 23.9% 17.3% -

Administrative Exp 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% - 0.0% 0.0% -

Source: FIFL Research, Annual Reports

Suzlon Energy

Key Ratios Forecasted key ratios

KEY RATIOS 2007A 2008A 2009A

EBITDA (%) 17.7 16.5 12.4

ROCE (%) 14.0 10.2 10.1

RONW (%) 24.6 14.4 5.0

Sales/Total Assets (x) 1.1 1.4 1.0

Debt:Equity (x) 1.5 1.2 1.7

Current Ratio (x) 2.1 2.4 1.9

EV/Sales (x) 4.1 3.2 0.8

EV/EBITDA (x) 22.9 19.3 6.3

P/E (x) 33.3 33.4 26.9

P/BV (x) 8.4 4.9 0.7

Book Value (Rs) 24 54 57

KEY RATIOS 2010E 2011E 2012E

EBITDA (%) 5.9 10.5 12.5

ROCE (%) 3.1 9.2 12.6

RONW (%) (15.0) 9.7 17.5

Sales/Total Assets (x) 0.9 0.9 0.8

Debt:Equity (x) 1.5 1.5 1.2

Current Ratio (x) 1.8 2.1 2.2

EV/Sales (x) 0.6 0.7 1.1

EV/EBITDA (x) 10.6 6.9 8.8

P/E (x) (8.6) 13.9 6.4

P/BV (x) 1.3 1.4 1.1

Book Value (Rs) 42 40 48

Ratio Analysis

8

Suzlon Energy

9

Annexure


Suzlon Energy

Management Discussion 2006 Management Discussion 2007

Management Discussion 2008 Management Discussion 2009

•During 2000-05 Suzlon grew at a CAGR of 64%

compared to industry growth of 26.3%.

•Focused towards vertical integration, took its first step

by setting up component manufacturing facility for Rotor

blades in 2001.

•Improved control over value chain by setting up suzlon

generators Pvt. Ltd. in J.V. with Elin EBG Motoren of

Australia.

•Setting up an integrated manufacturing plant in

Tianjin(China).

•Improved R&D footprint through a new innovation centre

at Denmark and a Technology campus in Germany.

•World Market share in 2006 grew to 7.7% from 6%.

•Domestic subsidiaries formed were SE Forge Ltd.,

Suzlon Wind International Ltd., Suzlon Rotor International

Ltd., Suzlon Towers International Ltd.

•Overseas subsidiaries formed were Suzlon Wind Energy

Ltd.(U.K).

•On 9 May,2006 AE Rotor Holding B.V.(wholly owned

subsidiary) acquired Eve Holding N.V.(Belgium)., a

holding company of Hansen Transmission.

•The company reduced process defects by 75%.

•It plans to expand international logistics to provide

custom made turnkey solutions and ease shipments from

various units.

•Suzlon has combined manufacturing capacity of 2700

MW annually & has plans for a 100% capacity addition.

•Acquired 33.85% stake in RE Power for Euro 453 mn.

And made agreement with Martifer for acquiring 23.08%

•It Raised USD 500 mn through zero-coupon convertible

bonds.

•Suzlon completed the acquisition of 91% stake in

Repower by acquiring 37.82%.

•It sold 10% stake in Hansen Transmission for Rs 6000

mn.

•It again sold 35.22% stake in Hansen for USD 370 mn on

24 Nov 2009, which reduced its debt by around 15%.

•SE Forge Ltd.(subsidiary) raised Rs 4000 mn from IDFC

PE firm.

•SETL(China), a subsidiary of Suzlon, to set up 100 MW

wind farm project funded by the World Bank.

10

Source: FIFL Research, Annual Reports, Company website

Suzlon Energy

Production Facilities

INDIA

Company Location Products

Capacity

(mw/yr.)

Rotor blades 924

Nacelles 924

Suzlon Energy Ltd. Pondicherry Nacelle covers 924

Control systems 924

Hubs 924

SE Electricals Ltd. Coimbatore Generators 3000

Control systems 3000

SE Composites Ltd. Padubidri Rotor blades 1500

Suzlon Wind

International Ltd. Padubidri Nacelles 1500

Nacelle covers 1500

Nose cones 1500

Suzlon Generators

Ltd Chakan Generators 2000

Suzlon Energy Ltd. Daman Rotor blades 1000

WTG Assembly 350

Nacelle covers 1200

Control systems 1200

Nacelles 375

Nacelles 1250

Nose cones

Suzlon Energy Ltd. Dhule Rotor blades 450

Tubular towers 450

SCL Vadodara CEC 4700

Suzlon Energy ltd. Bhuj Rotor blades 450

Suzlon Structures Pvt.

Ltd. Gandhidham Tubular towers 1000

CHINA


Capacity

(mw/yr.)

Rotor blades 600

Nacelles 600

Suzlon Energy

Tianjin Ltd.Tianjin Nacelle covers 600

Control Panels 600

Hubs 600

Generators 600

Nose cones 600

USA


Capacity

(mw/yr.)

Suzlon Rotor

CorporationPipestone Rotor blades 600

Nose cones 600

11

Source: FIFL Research, Annual Reports, Company Website

Suzlon Energy

Present Order Book Key Project Sites

State Total MW Key Project Sites

Tamil Nadu 1275

Sankeneri, Devarkulam,

Palladam

Karnataka 490

Kapathgudda, Hassan,

Jajikalgudda

Kerala 14 Agali

Andhra

Pradesh 8.5 Tirupati

Maharashtra 1350 Dhule, Sangli, Satara

Gujarat 876

Bhogat, Kutch, Kuchhadi,

Sanodar

Madhya

Pradesh 53 Ratlam, Dewas

Rajasthan 423

Soda-Mada, Sadiya,

Pohra

Suzlon Wind Energy

COUNTRY As on 30/10/09 As on 30/01/10

India (MW) 123 314

USA 582 511

China 475 440

ANZ 113 53

Europe 179 166

S.America 17 -

Total(MW) 1,489 1,484

Total(Rs mn) 82,860 81,280

12


Suzlon Energy

Debt Structure

Debt Type (Rs mn) 2007A 2008A 2009A

Secured loan

12.5% secured redeemable non-cumulative

debentures - - 3,000

Term Loan 11,761.7 61,946 59,997

Working Cap. facility from banks & others 8,082 8,718 39,763

Vehicle loan 1 - 6

Total Secured (A) 19,844 70,664 102,766

Unsecured loan

Long Term

Zero coupon convertible bonds - 20,055 25,355

From Banks 21,887 811 141

From Other than banks 203 111 4,666

Capital from profit participation rights - - 675

Short Term

From Banks 967 7,686 14,431

From Others 20 19 662

Total Unsecured (B) 23,076 28,682 45,930

Total Debt (A+B) 42,921 99,346 148,696

13

Source: FIFL Research, Annual Reports, NSE 14

FCCB’s Conversion

Suzlon Energy

Zero-coupon

convertible bonds

USD 211.302 mn

Due date: June 2012

Conversion price is Rs

74.025 per share

7.50% Convertible bonds

USD 20.796 mn

Due date: October 2012


74.025 per share

7.50% Convertible

bonds

USD 35.592 mn

Due date: June 2012

Conversion price is

Rs 74.025 per share

Zero-coupon

Convertible bonds

USD 90 mn

Due date: July 2014


90.38 per share

Zero-coupon convertible

bonds

USD 121.368 mn

Due date: October 2012


74.025 per share

2012

2014

FORTUNE INTERFINANCE LTD (FIFL)

15

Name Designation Email Phone

Rajendra K Agarwal Director [email protected] 91-33-22101152

Abhishek Agarwal Director [email protected] 91-22-40232079

Sushil Sanganeria Branch Head [email protected] 91-33-22101152

Sumit Nandy Research Analyst [email protected] 91-22-40232079

Rajesh Kumar Research Analyst [email protected] 91-22-40232079

Praveen Rajput Senior Dealer [email protected] 91-22-40232080

Disclaimer: All measures have been taken to provide the most exhaustive and accurate information in this report. The information and materials are however, subject to

change without prior notice. Fortune Interfinance Limited (FIFL) does not claim the accuracy, adequacy or completeness of this information and materials and expressly

disclaims liability for any errors or omissions or delays in updating this information and materials. This service is not intended to be any form of an investment

advertisement, investment advice or investment information and has not been registered under any securities law of any foreign jurisdiction and is only for the information

of any person in any jurisdiction where it may be lawful to offer such a service. In no event shall Fortune Interfinance Limited be liable for any damages, including without

limitation direct or indirect, special, incidental, or consequential damages, losses or expenses arising in connection with this site or use thereof or inability to use by any

party, or in connection with any failure of performance, error, omission, interruption, defect, delay in operation or transmission, computer virus or line or system failure.

Regd & Corp Office: 19, British Indian Street, Ground Floor, Flat No.2&3, Kolkata 700 069 Tel: 91-33- 22101152/1154, Fax: 91-33-22101153

Branch Office: 304, Bharat Chambers, Baroda Street, Masjid Bunder (E), Mumbai 400009 Tel: 91-22- 40232079 Fax: 91-22-40232080

Member: National Stock Exchange of India Ltd & Bombay Stock Exchange Ltd, SEBI Regd No. INB231243230 (NSE-Capital Market Segment) INF231243230 (NSE-Derivative Market Segment) INB011243236 (BSE-Capital Market Segment)

Team

Suzlon Energy

Documents

Transcript of Suzlon Energy