Suzlon Energy Ltd (SEL) reported a strong operating performance during Q3’09.
Net sales for the company (Wind Group and Hansen) increased 56.2% y-o-y to Rs49.5 billion, mainly on account of better sales realizations and increased sales volumes.
EBITDA increased 64% to Rs6.4 billion due to a decline in raw material costs and a 21% y-o-y increase in the average realization rate.
Though our near-term outlook for the company has weakened because of the prevailing slowdown, we believe that the current market price more than factors the negatives.
At Rs38.5, SEL’s stock is trading at a forward P/E of 5.3x and 26.5x for FY09 and FY10 earnings, respectively.
We have valued SEL by using the Sum-of-the-Parts (SOTP) method. We have valued Suzlon and Hansen Transmission by using the DCF methodology.
REpower has been valued at its current market price. Based on our valuation, we have arrived at a target price of Rs53 (assuming an 11.2% WACC and a 5% terminal growth rate).
Since our target price provides an upside potential of 36% from the CMP, we give a BUY rating.