Harnessing Wind Power And Calculated Growth Reshapes The Future Of Renewable Energy

Key Takeaways

• Strategic focus on high-margin orders and end-to-end offerings is set to drive revenue and improve EBITDA margins.
  
• Positioning to leverage India's growing demand for wind energy is expected to boost future revenue and EPS growth.
  
• Operational delays, competition, and reliance on key clients pose risks, while restructuring and high expenses may pressure margins and financial stability.

Catalysts

Manufactures and sells wind turbine generators and related components in India and internationally.

• Suzlon's largest ever single order in the Indian wind industry, along with a robust order book exceeding 5 gigawatts, provides clear visibility and expected revenue growth over the next 18 to 24 months.
  
• The acquisition of Renom allows Suzlon to enter the multi-brand O&M sector, enhancing fleet size and profitability, which is expected to positively impact net margins.
  
• Strategic investments in organizational buildup, technology, and supply chain infrastructure aim to ramp up capacity to 4.5 gigawatts per annum, promising future earnings growth through operational efficiency.
  
• Focus on high-quality orders with better margins, and the entry into end-to-end offerings in the wind energy value chain are expected to drive revenue and improve EBITDA margins.
  
• India’s renewable energy demand, particularly wind installations projected to rise significantly in the coming years, positions Suzlon to capitalize on these market opportunities, boosting future revenue and EPS growth.

Suzlon Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Suzlon Energy's revenue will grow by 50.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.2% today to 13.7% in 3 years time.
• Analysts expect earnings to reach ₹36.2 billion (and earnings per share of ₹2.12) by about November 2027, up from ₹9.6 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 52.4x on those 2027 earnings, down from 88.5x today. This future PE is greater than the current PE for the IN Electrical industry at 22.9x.
• Analysts expect the number of shares outstanding to grow by 7.73% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.12%, as per the Simply Wall St company report.

Suzlon Energy Future Earnings Per Share Growth

Risks

• The company faces significant competition from both domestic and international players, which could potentially impact market share and revenues.
  
• There are operational challenges related to project readiness, with many installations delayed due to infrastructure issues and weather disruptions, which could affect timely revenue recognition.
  
• Dependency on large orders from a few key clients, such as NTPC, increases concentration risk and may impact revenue stability if any projects are delayed or canceled.
  
• High other expenses, which include investments in IT and ESOPs, have increased significantly and could pressure margins if not managed effectively.
  
• There is ongoing restructuring of the balance sheet, which indicates historical financial stresses and could continue to impact financial stability and investor confidence.

Valuation

• The analysts have a consensus price target of ₹74.83 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 ₹67.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹265.0 billion, earnings will come to ₹36.2 billion, and it would be trading on a PE ratio of 52.4x, assuming you use a discount rate of 14.1%.
  
• Given the current share price of ₹62.22, the analyst's price target of ₹74.83 is 16.9% 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.