As of October 2022, it does seem that the Suzlon stock is a buy for the long term, because of the following reasons:
1. Suzlon has considerably reduced its gross and net debt.
2. The company’s Gross Profit and EBITDA margins have registered a healthy increase.
3. Prospects improving for wind energy companies
Founded in 1995, Suzlon manufactures wind turbine generators (about 70% of revenues) and provides other wind power generating companies with services like operating and maintenance services. The company’s profitability has experienced rough weather for over 2 decades now because of cheaper imports, excessive depth, high cost of wind power, and certain unsound executive decisions.
But all that may be about to change.
Currently, Suzlon has a presence in 17 countries situated in the Americas (North and South), Europe, Australia, South Africa, and Asia. Of course, in India, the company has a presence in all the windy states. After the Russia-Ukraine war, push has come to shove, and every country is keen to establish energy security. Therefore, Suzlon stands to benefit hugely from the global tilt towards renewable energy.
Here’re the other reasons why the Suzlon stock looks like a buy.
1. Suzlon’s Current Debt Situation
As of 30 September 2022, Suzlon’s gross debt (secured and unsecured, current and non-current) was about Rs 3,350 crores.
The company’s gross debt stood at Rs 6,600 crores as on March 2022. So, in a period of 6 months, Suzlon has reduced its debt by a whopping Rs 3,250 crores, because of its rights issues and refinancing/conversion-to-equity deals struck with its lenders.
Consequently, interest costs have dramatically reduced from Rs 151 crores (Q1 2023) to Rs 97 crores (Q2 2023). The interest payout also suggests that Suzlon’s debt is priced at about 11.8%.
As the global demand for renewable energy is increasing by the day, I estimate that Suzlon will be able to strike some deals either for a cheaper rate of interest or an equity infusion that will further reduce its interest payout and improve its profitability.
2. Sujlon’s Improving Profit Margins
In Q2 2023, Suzlon registered an EBITDA margin of 14.5% as against an EBITDA margin of 13.6% reported for FY 2022.
The company reported a Rs 56 crore net profit in Q2 2023, as against a net loss of Rs 13 crores in Q1 2023 (before exceptional items).
On average, Suzlon produces net volumes of wind energy worth 160 MW every quarter. It has an order book that’s worth over 952 MW as of October 2022. This will keep the company busy 24/7 for the next 6 quarters, and the order flow will only increase as time goes by.
3. Prospects For Wind Power Companies in India
1. Currently, wind power capacity makes up about 10.2% (or 42 GW) of India’s total energy capacities.
2. India has set a target of installing 140 GW of wind energy capacity by 2030. So, in the next 7 years, India plans to add a whopping 98 GW of wind power capacity! That’s a massive CAGR of 18.75%.
3. Suzlon’s current global wind power generation capacity (manufacture and operations) is 19.5 GW, of which 14.5 GW is situated in Asia. Given the capacity additions for India alone, and the growing clamor for renewable energy around the world, it’s a no-brainer that Suzlon will become a huge beneficiary going forward.
4. The Indian government has agreed to stop the e-reverse system of bidding for wind power auctions. The e-reverse system had led to cutthroat competition and a massive lowering of tariffs. So, this move too will help Sujlon.
5. Since 2020, India has banned the import of power equipment from China and Pakistan – another positive for Suzlon.
Given these significant tailwinds, I believe that Suzlon is a buy for the long term. In the short run, it needs to walk its talk, but chances are that it will.