Suzlon energy-Long term pick

IIFL has recommended buy rating on Suzlon Energy, with 12-month price target of Rs 280, in its report dated 1 August, 2008.
“Suzlon reported consolidated sales of Rs 27.6 billion, up 42% YoY, and PAT of Rs 1.65 billion (excluding MTM losses of Rs 1.64 billion) for 1QFY09. Both were significantly higher than our estimates, mainly due to better than expected growth and higher profitability in the wind business.
With ramp-up in Hansen’s gearbox production capacity, revenue from the gearbox business rose 58% YoY in 1QFY09 and accounted for 28% of Suzlon’s total revenue in the quarter. OPM on gearboxes expanded to 14% from 7% a year ago; consequently, contribution of this business to operating profit rose to 26% from 19% a year ago (details inside). Although WTG sales volumes rose only 7% YoY to 338MW, average per-MW realisation rose 16% YoY to Rs 54.3m/MW. Gross margin also rose to Rs 21m/MW from Rs 15.3m/MW a year ago. Management attributed the increase to: 1) improvement in the product mix; 2) favourable currency impact (INR depreciated against USD, EUR and AUD); and 3) project work. Almost 70% of the YoY increase in the quarter’s operating profit came from the wind business”.
“Suzlon has an order book of 3,039MW, formed mostly of international deliveries. Its order book has stagnated over the last few quarters as it has been unable to increase share of international deliveries. We maintain our FY09ii and FY10ii estimates as we believe that: 1) the current order book is sufficient to secure FY09 revenues; 2) the company has more than 6-8 months to grow its international order book for FY10; and 3) the rupee remains weak against USD and euro”.
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