Suzlon Energy: Much to deliver

While Suzlon Energy is targeting 40%-plus market share in the wind power market, achieving strong growth on its already high base can be a challenge


Graphic: Subrata Jana/Mint
Graphic: Subrata Jana/Mint

Suzlon Energy Ltd slumped 7% on BSE on Wednesday after the company extended losses to the June quarter (first quarter or Q1). On revenue of Rs1,650 crore, the wind energy solutions provider lost Rs260 crore. The year-ago quarter includes performance of a divested unit, so the figures are not comparable.

Still, as the steep fall in the price of the stock indicates, investors were unimpressed with the company’s Q1 performance. Two months back, at an analysts’ meeting, the management alluded to robust business prospects and how the company is poised to beat the average growth for the wind power sector. Higher volumes were expected to lift Suzlon from losses.

But the Q1 earnings report shows no signs of that. Volumes are flat. Order intake dropped 11.7%. Order backlog, though 9% higher than the year-ago quarter, is 3% lower from the March quarter. For comparison, listed peer Inox Wind Ltd reported a 13% rise in its Q1 order intake.

According to the Suzlon management, the June quarter is seasonally a dull one. Historically, around two-thirds of the business is conducted in the second half of the fiscal year. Kirti Vagadia, group chief financial officer at Suzlon, says the firm is focused on executing the order book. As execution gathers pace and volumes rise Vagadia expects the company to report profits in the second and third quarters. As proof, he points to the rise in inventories which Suzlon is building for forthcoming deliveries and projects.

Analysts share the view. They expect volumes to gather pace in the rest of the fiscal year as industry participants step-up capacity additions to avail incentives. Furthermore, they are not attaching much importance to order inflows or the movement in the order backlog.

Suzlon added 101 megawatts (MW) of orders post June, taking the order backlog to 1,306MW. Considering the previous fiscal year’s volume of 1,131MW, the current order backlog is sizeable in quantity, say analysts.

What they doubt is if Suzlon will achieve its aim of 40%-plus market share in the estimated wind power market of 4,300MW (on delivery basis) for the current fiscal year. That would be 1,720MW, a 52% jump from the previous fiscal year’s delivered quantity. To achieve it, Suzlon will have to double the volumes in the rest of the fiscal year from a year ago.

True, the company has delivered such high growth rates before—volumes doubled in 2015-16. But achieving strong growth on such a high base can be a challenge. The Street seems to think so too and the Suzlon stock is down 27% in the last one year. While an end to quarterly losses will be a milestone and arrest the stock’s downward trajectory, any revival and re-rating potential will depend on the kind of volume growth the company registers and maintains.

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