Nuvama Institutional Equities has upgraded Suzlon Energy Ltd to a ‘Buy’ rating from its previous ‘Hold’ stance, citing valuation comfort following a significant price correction. The stock has witnessed a 10.25% decline over the past five sessions and a 23% drop in January so far. Despite this downturn, Nuvama sees strong execution capabilities and an improved financial outlook for the company.
- Robust Execution: Suzlon Energy delivered 447MW in Q3, exceeding Nuvama’s forecast of 360MW.
- Improved Operating Margins: The company’s operating margin stood at 16.8% in Q3, surpassing the estimated 14.9% due to higher wind turbine generator (WTG) mix-led operating leverage.
- Strong Order Book: Suzlon’s order book reached a record 5.5GW, providing revenue visibility for the next 24 months.
Q3 Performance and Financial Strength
Suzlon Energy recorded a remarkable 91% year-on-year (YoY) increase in consolidated net profit, reaching Rs 388 crore for the December quarter, compared to Rs 203 crore in the same period last year. The company’s revenue from operations also surged by 91% to Rs 2,969 crore in Q3 FY25 from Rs 1,553 crore in Q3 FY24.
Despite increased depreciation and interest costs following the Renom acquisition, Suzlon Energy demonstrated strong financial resilience. Nuvama noted that the robust order inflow of approximately 800MW significantly boosted the company’s order book to an all-time high of 5.5GW, set to be executed over the next two years.
Long-Term Growth and Market Position
Nuvama remains optimistic about Suzlon Energy’s long-term prospects and has adjusted its estimates for FY25–27 to reflect improved execution in FY25, with a revised expectation of 1.5GW instead of the previous 1.44GW. Factoring in the Renom acquisition and other associated costs, Nuvama has set a new target price of Rs 60 per share, valuing Suzlon at 35 times its FY27 estimated earnings (WTG + F&F EPS) along with a discounted cash flow (DCF) valuation of operations and maintenance (O&M).
Suzlon’s Competitive Advantage in Renewable Energy
Suzlon Energy stands to benefit from the increasing adoption of firm and dispatchable renewable energy (FDRE), round-the-clock (RTC) solutions, and hybrid energy models in government tenders. The company remains a dominant player in the commercial and industrial (C&I) segment, which constitutes two-thirds of its order book. Additionally, Suzlon continues to hold a market share exceeding 30% in a duopolistic market, further strengthening its position in the renewable energy sector.
Impact of Renom Acquisition
The financial impact of the Renom acquisition is evident in Suzlon’s Q3 results, particularly in interest expenses and depreciation costs. The company expects quarterly depreciation to range between Rs 50–65 crore, with interest expenses stabilizing at current levels. Additionally, Suzlon anticipates WTG contribution to rise to 20% from its previous mid-to-high teen range.
Conclusion
Despite recent price corrections, Suzlon Energy remains a strong contender in the renewable energy space. With an impressive order book, improving margins, and strategic acquisitions, the company is well-positioned for long-term growth. Nuvama’s revised outlook and target price reaffirm Suzlon’s potential as a key player in India’s evolving renewable energy landscape.