Note on suzlon energy

K E Y N O T E

Suzlon Energy Ltd.

A Future Greener Than The Market Thinks

Deepak A. Kolhe, Analyst Anchit Ahuja, Associates
deepak@keynotecapitals.net anchit@keynotecapitals.net
(+91 22-30266058)

Keynote Capitals Institutional Research is also available on
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K E Y N O T E
Suzlon Energy Ltd. Date: 08-Oct-2012

Key Stock Data
Sector Engineering Heavy
Our line of thought
CMP `17.5
52wk High/Low `39/15 The FCCB’s due for redemption during the current year was
Market Cap `3119Cr
6m Avg. daily vol 3523998
$568Mn out of which $360Mn has been redeemed in July and
BSE Sensex 18938 the balance $208Mn is due in October. At the current
Reco ‘Buy’
Fair Value `32 exchange rate of Rs.52.27/- to the dollar, the rupee obligation
is Rs1090Cr.
Stock Codes
Bloomberg Code SUEL IN
Reuters Code SUZL.BO
When compared to the company’s turnover of Rs.21,082Cr
BSE Code 532667 and strong revenue guidance of (Rs.27,000-28,000 Cr), this
NSE Code SUZLON
Face Value `2 problem seems small.

Shareholding pattern Order book positions is at its all time high of $7.4Bn
(30th June, 2012)
(Rs.38,000Cr) as on Q1FY13

Other The company continues to post good operating cash flows.
s
39% Last year, the operating cash flow was Rs.838Cr in FY12
Prom
oter
53%
The Market has highly discounted Suzlon Energy Ltd. due to
FII the FCCB repayment obligation due in October as well as
DII 5%
3%
some operational constrains it has been facing. But we
Price Performance (%) believe that a 50% fall over the past year isn’t justified.
1 Mth 3 Mths 6 Mths 1 Yr
15.8% -8.83% -30.2% -49.7% The company’s current Price to book value is 0.61x, which is
low as compared to an industry average of 1.11x.
Stock Price Performance
120
110 Its price to Sales ratio is 0.15x as compared to an industry
100
90 average of 1.05x.
80
70
60 On the basis of P/BV(x) of 1.11x ratio, we expect fair value of
50
40
Rs32 per share.
30

Suzlon Sensex

1 Keynote Capitals Ltd.

K E Y N O T E
About Company
The Suzlon Group is ranked as the world’s fifth largest wind turbine supplier, in terms of
cumulative installed capacity, at the end of 2011. The company’s global spread extends
across Asia, Australia, Europe, Africa and North and South America approaching 20,000
MW of wind energy capacity installed in 30 countries, operations in 33 countries, and a
workforce of over 13,000.
“The Repower Effect”
In 2007, Suzlon Energy fought of competition from Areva, the then largest shareholder of
Repower, to acquire majority stake in the company. By 2009, Suzlon had acquired 92%
of the company giving it access to the expanding European market, a market to which
After the acquisition of Repower supplied.
Repower, suzlon’s topline The benefit of the acquisition can be seen in the geographical breakup of the company’s
contribution from the Europe top line. Europe which contributed a mere 17% (Rs.2,624 Cr) to the company’s top line
and ROW increased to 44% started contributing 44%(Rs.9,008 Cr).
as compared to 17% This strategy seems to have paid off considering the reduction in demand from the
American market, offset by the demand from the European market. This American
market saw its contribution to the company’s top line reduce from 33% (Rs.5,230Cr) to
19%(Rs.3,870Cr).
Geographywise revenue breakup for FY2008-09 and FY200910

2008-09 2009-10
4%
7%
16%
28%
20%
44%
17%

7% 19%
33%
7%

India USA & canada India USA & canada
China Europe & Rest of World China Europe & Rest of World
Australia Australia Others

The top line grew by 30%, majority of which was contributed by the European
geographical segment
Rs Cr
Geographical Segment 2008-09 2009-10 Growth %
India 4420 4102 -7%
USA & Canada 5230 3870 -26%
China 1104 1475 34%
Europe & Rest of World 2624 9009 243%
Australia 2519 1356 -46%
Others 809
Total 15897 20621 30%


K E Y N O T E
Back to growth trajectory

Suzlon had raised about & Suzlon raised $568mn through FCCBs to fulfill its aspirations for becoming a large global
player by adopting inorganic growth trajectory. While this strategy worked partly for the
600Mn through FCCB’s inorder
company, a severe global slowdown hit its operational performance during the period of
to fund its multiple Acqusitions 2008-11. We believe that as European and the American economies are picking up, the
company would set to return to growth path.
Suzlon already redeemed “$360mn” FCCBs, and next redemption that is set in October
2012 is more likely to go through.

Sell Suzlon
announced to sold its
35%
30000 acquire remaini 30%
stake
REpower for Suzlon ng
of
€1.3 billion raised 26.06%
Hanse
its stake in
n for
25000 share Hansen 25%
$370
to 92%
million
of
REpo
wer
20000 20%

Acquisiti
on of
Hansen
15000 15%
for
$565Mn

10000 10%

5000 5%

0 0%
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

FCCB Issued Net Sales EBITDA Margin

Current status of FCCB issue

Suzlon has already Redeemed Outstanding
Conver Maturityvalu
Maturit
sion Maturit Coupo e with
FCCB’s amounting to $360Mn FCCBs amount y value Status
price y date n rate redemptionp
(Rs.1900Cr.). (US$mn) $Mn
(Rs) remium
June 2012 211.3 97.26 12-Jun 0% 145.23% 306.87
It has to redeem FCCB’s worth
Jun-12 35.6 76.68 12-Jun 7.50% 150.24% 53.48
$208Mn(Rs.1,081Cr) by
October Total 246.9 173.94 360.35 Redeemed

October 2012 121.4 97.26 12-Oct 0% 144.88% 175.88

Oct-12 20.8 76.68 12-Oct 7.50% 157.72% 32.8
Due for
Total 142.2 173.94 208.68
redemptions
Jul-14 90 90.38 14-Jul 0% 134.20% 120.78

Apr-16 175 54.01 16-Apr 5.00% 108.70% 190.22
Due for
Total 265 144.39 311
redemptions


K E Y N O T E
• At the start of the year, the total FCCB outstanding was $880 Mn out of which $569
Mn(65% of total FCCB obligation) worth of FCCB’s are due for redemption during the
current year (FY 13).

• The company redeemed FCCB’s worth $360Mn, close to 65% of the total FCCB
obligation of the current year, through sale of non-critical assets, internal accruals
and the new facilities from senior secured lenders in Q1FY13

• The outstanding FCCB repayment, due in Oct, is $208.69Mn

• Current cash positions, as on 30th June, 2012, are Rs.455 Cr standalone and
Rs1372 Cr consolidated.

• Bondholders have been requested for a four month extension of October FCCBs to
allow the company to close various financing measures and drive alignment between
all stakeholders on allocation of cash resources.

FCCBs due in October 2012 and company’s positions to repay debt.

Particulars Amt. In $ Mn Amt .in Rs Cr*

Total redemption in Oct due 208.69 1106.06

Part payment through asset sale 60.00 318.00

Cash and bank balance 85.85 455.00

Deficit 62.84 333.06

1$=Rs53

The company’s management has always maintained the concerns regarding the
appreciation of dollar against the rupee, while the rupee already dipped from Rs39.87 to
Rs57.12 during FY07-12 it recently recovered to Rs52.17. Considering the current
scenario of back-to-reform strategy of the Indian government, we expect the rupee to
stay positive against dollar in the near future, which will help the company’s cause.


K E Y N O T E
Realigning its business to fund FCCB
The company is realigning its strategy in china and it is currently in talks to sell one of its
Chinese subsidiaries for $60 Mn (Rs. 360Cr.), a move that will help fund the FCCB
repayment as well as help it accomplish its current strategy of concentrating on its core
business.
In 2006,Suzlon Energy was the only international player to enter the Chinese market. At
the time, it was a very attractive market with installation capacity expanding in double
digits, pushing china to the top spot in the wind energy market.
Recently, intense competition has taken the sheen off this once attractive market. The
number of wind equipment players has increased from around 10 in 2006 to around 80
last year.
This intense competition may reduce the company’s market share as well as its profit
margin; hence Suzlon’s decision to hive off its Chinese subsidiary augurs well for the
company, going forward.
American Fight back!

Strong revenue growth from A revival of the American economy helped as the company saw an increase in revenue
the US and Canada from this geographical segment. The American segment, which once contributed to 33%
Geography, of the company’s top line, saw its contribution drop to a poultry 5% only to pick up once
again as the world moves towards a greener future, reliant on renewable energy.
Geographywise revenue breakup for FY12 and FY11
FY11 FY12

17% 1.5%
3%
5%
48% 5% 3%

6% 39%
1%

37%
36%

India Europe USA & Canada India Europe USA & canada
China Australia Others China Australia Others

Rs Cr
Geographical Segment 2010-11 2011-12 Growth %
India 6506.27 7801.51 20%
USA & canada 876.21 3480.28 297%
China 847.13 314.47 -63%
Europe & Rest of World 8520.26 8184.42 -4%
Australia 1001.38 714.1 -29%
Others 127.88 587.59 359%
Total 17879.13 21082.37 18%


K E Y N O T E
Drastic change in segmental revenue dynamics post Hansen Sale

In sticking with its new strategy of concentrating on its core business as well as reducing
its debt, Suzlon completed the sale of 26.06% of its stake in Hansen for Rs.890 Cr. The
effect of this sale can be seen in the segment wise revenue break up.

Segmental Revenue break-up
FY10 FY12
Hansen stake sale achieved;
proceeds used for 0.21% 0.20% 0.44%
deleverage 0.09%

12.08%

87.62%

99.35%

Sale of WTG Others
Foundry & Forging Sale of Gear Box Sale of WTG Others Foundry & Forging
• Strong order book providing
visibility for the balance year
Robust order book position and Guidance for FY13
• Continued momentum in
order intake in domestic and The company boosts a strong order book position as on 31st March, 2012
international markets
particulars $Bn
Suzlon India 1.2
Suzlon International 1.1
REpower 5.1
• Focus on managing debt Total Value 7.4
obligations first
• Drawing comfort from Suzlon Group: Guidance for FY13
robust order book and
scheduled deliveries Suzlon has only just surprised the market by meeting its revised guidance for FY12.The
current order book stands at $7.4Bn (approx Rs.38,000Cr) which is close to 2 times FY
12 Revenue and the highest ever order book position for the company.

The company gave strong guidance for the FY13

Particulars
Revenue Rs27000-28000Cr ($5-5.3bn)

EBIT Margin 6%


K E Y N O T E
The Top 8 wind turbine manufacturers by annual market share (installed capacity)
in 2011 by IHS Inc.

Country Name of Company Market share

Denmark Vestas 12.70%

China Sinovel 9.00%

China Goldwind 8.70%

United States GE Energy 8.70%

Spain Gamesa 8.00%

Germany Enercon 7.80%

United States GE Wind Energy 7.70%

India Suzlon Group 7.6% (Suzlon & Repower)

Recent Transactions
The $850 million acquisition of
Seajacks International, a UK- Marubeni Corporation (Marubeni) and Innovation Network Corporation of Japan (INCJ)
based offshore Wind Power have entered into an agreement with Riverstone Holdings, a U.S. investment fund, for
Service provider, by Marubeni full acquisition of Riverstone’s wholly-owned subsidiary company Seajacks
Corporation and Innovation International (Seajacks), a UK based offshore wind power service provider. Marubeni
Network Corporation of Japan and INCJ are investing on a 50/50 share basis. This acquisition marks the first full scale
entry by a Japanese enterprise into the offshore wind power installation business
utilizing special turbine installation vessels (TIV).

The $12 million acquisition of Fuji Heavy Industries, a maker of the Subaru brand of cars, agreed to sell its
Fuji Heavy Industries’ Wind windturbine generator system business to Hitachi, the electronics and industrial
Turbine Generator Business machinery manufacturer. The companies will begin discussions on the specific terms of
by Hitachi, the agreement and plan to complete the sale by July 2012. Hitachi will pay about 1
billion yen (~$12M) to acquire the business.

Goldwind announced it will sell its wholly-owned blade manufacturer Tellhow Wind
The $33Mn acquisition of Power to Sinoma Science and Technology subsidiary Simomatech for CNY215M
Tellhow Wind Power by (~$33M). Tellhow was launched by Goldwind in 2007 and makes blades for the
Sinoma Science and company's 1.5 MW direct drive turbine. Goldwind said the sale would allow it to "reduce
technology investment in production." Simomatech also makes wind turbine blades.

Wind turbine maker Vestas entered into an agreement with Chinese Titan Wind Energy
Vestas divests towers factory (Suzhou), a manufacturer of wind turbine towers, to sell off the Danish facility (towers
to Titan Wind Energy factory in Varde, Denmark). The agreement must be approved by Chinese authorities,
which was expected to happen shortly. Vestas will transfer the facility in Varde in
September.

From the above, it is clear that the wind Power sector is very active.


K E Y N O T E
Great Valuation as compared to Global players

We believe that on the basis of the P/BV(x) & P/S(x) ratio, Suzlon is currently trading at
a discount as compared to its global peers.

Suzlon energy current Price to book ratio is 0.61x, which is low as compared to global
player like Sinovel Wind, Xinjiang Goldwind, Nordex SE and Vergnet SA.

Its Price to Sales ratio is 0.15x as compared to an Global peer average of 1.05x

The FCCB’s due for redemption during the current year is 208Mn which at the current
exchange rate of Rs.51.83/- to the dollar is around Rs.1, 080Cr.

When compared to the companies turnover of Rs.21,082Cr and strong order book
positions of $7.4Bn as on Q1FY13, this problem seems small.

Suzlon continues to post good operating cash flows. Last year, the operating cash flow
was Rs.838Cr in FY12

On the basis of P/BV(x) ratio, we expect fair value of Rs32 per share after considering
P/BV(x) of 1.11x.

Peer comparison (Rs Cr)

Company name Revenue Mkt cap P/Sales(x) P/BV(x)

Vestas Wind Syste 39387.5 6754.0 0.17 0.37

Suzlon Energy Lim 21359.2 3119.0 0.15 0.61

Xinjiang Goldwind 10521.5 12608.0 1.20 1.2

Sinovel Wind Grou 8549.1 19039.0 2.23 1.68

Nordex SE 6375.7 1597.0 0.25 0.62

Shanghai Taisheng. 504.4 1630.0 3.23 1.49

Vergnet SA 462.7 61.0 0.13 1.77

Average 1.05 1.11


K E Y N O T E

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