Key Takeaways
- All-time high order book and increased manufacturing capacity enhance future revenue growth and production efficiency.
- Strategic focus on non-EPC projects and advanced developments boosts order fulfillment and long-term financial stability.
- Delays in wind projects and execution risks may hinder Suzlon's revenue, while raw material pricing and increased costs challenge margin sustainability and earnings growth.
Catalysts
About Suzlon Energy- Manufactures and sells wind turbine generators and related components in India and internationally.
- The company has an all-time high order book of over 5.5 gigawatts with potential revenue visibility for the next 24 months, which is expected to drive future revenue growth.
- The significant ramp-up in manufacturing capacity to over 4.5 gigawatts, combined with newly added blade lines, is anticipated to enhance production efficiency and future earnings.
- The record quarterly delivery of 447 megawatts, marking 163% year-on-year growth, illustrates successful project execution, which can support increased revenues and improved net margins.
- Strategic focus on non-EPC projects with substantial land availability aims to reduce commissioning delays, improving order fulfillment and potentially boosting revenue margins in the long term.
- Advanced order development projects totaling 1,100 megawatts provide a pipeline for future conversions, likely enhancing long-term revenue streams and financial stability.
Suzlon Energy Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Suzlon Energy's revenue will grow by 45.5% annually over the next 3 years.
- Analysts assume that profit margins will increase from 12.4% today to 13.4% in 3 years time.
- Analysts expect earnings to reach ₹38.1 billion (and earnings per share of ₹2.83) by about January 2028, up from ₹11.4 billion today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.0x on those 2028 earnings, down from 63.0x today. This future PE is lower than the current PE for the IN Electrical industry at 41.3x.
- Analysts expect the number of shares outstanding to decline by 0.46% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 14.23%, as per the Simply Wall St company report.
Suzlon Energy Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Transmission delays and land-related challenges in the wind energy installations can impede Suzlon's ability to commission projects on time, potentially affecting revenue recognition and cash flow.
- The company faces execution risks due to reliance on non-EPC orders where land availability is the customer’s responsibility, potentially delaying project completion and impacting revenue timing.
- The competitive edge attributed to Suzlon's integrated supply chain and project execution capabilities might be tested by emerging market pressures and technological advancements from competitors, which could impact market share and revenue growth.
- There is a potential risk in pricing pressure and margin sustainability due to fluctuations in raw material costs, primarily steel, which could impact net margins if not effectively managed through pass-through mechanisms and supplier agreements.
- Organizational build-up, capacity ramp-ups, and technological advancements, while essential for growth, have led to increased depreciation and interest costs, which could affect net earnings if revenue growth doesn't keep pace.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of ₹74.14 for Suzlon Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹82.0, and the most bearish reporting a price target of just ₹60.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹285.0 billion, earnings will come to ₹38.1 billion, and it would be trading on a PE ratio of 39.0x, assuming you use a discount rate of 14.2%.
- Given the current share price of ₹52.77, the analyst's price target of ₹74.14 is 28.8% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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