2

Suzlon Energy Ltd: Buy Note

India’s announcement that it aims to reach net zero emissions by 2070 and to meet fifty percent of its
electricity requirements from renewable energy sources by 2030 is a hugely significant moment for
the global fight against climate change. Most of the growth in demand this decade would have to be
met with low carbon energy sources in the renewables space. Renewables growth is expected to be
driven by Wind and Solar. In its plan to achieve the goal of 500GW of renewable energy by 2030, GOI
is targeting 100GW from wind energy (currently at 43GW).

The two decades crown of debt laden business and saga’s around Suzlon energy have now come an
end. The business has witnessed change due to various debt restructuring activities along with sectoral
tailwinds and government push towards renewables energy. The company with 33% market share in
the wind segment, wind and solar being the lowest cost optimal solution for a decarbonised grid as
per the ministry of power; Suzlon Energy became the natural beneficiary of the tailwinds; Reduced
interest costs, enhanced efficiencies, consistent OMC business cashflows, up to date technology and
constant deployment in R&D; Suzlon is well equipped to leverage the market opportunity arising from
energy transition. Thus, we initiate a “BUY” on Suzlon Industries on August 28, 2023.

About Suzlon

The Suzlon Group is one of the leading renewable energy solutions providers in the world with more
than 20 GW* of wind energy capacity installed across 17 countries. A vertically integrated organisation,
with in-house research and development (R&D) centres in Germany, the Netherlands, Denmark and
India, Suzlon’s world-class manufacturing facilities are spread across 14 locations in India. With over
28 years of operational track record, the Group has a diverse workforce of nearly 6,000 employees.
Suzlon is also India’s No. 1 wind energy service company with the largest service portfolio of over 14
GW of wind energy assets. The Group has ~6 GW of installed capacity outside India. The 3 MW Series
wind turbine technology platform is the latest addition to its comprehensive product portfolio.

Wind Turbine Generators: Suzlon is the leading manufacturer of wind turbine components. It also
focuses on the integrated design, engineering, development, and manufacture of technologically
advanced wind turbine generators (“WTGs”). The largest wind installed base as a wind energy OEM
with 14.16 GW of installed capacity in India as at June 30, 2023, contributing towards approximately
33% of India’s wind installed base as at that date, and an installed capacity of 5.96 GW outside India,
aggregating to a global installed capacity of 20.12 GW, as at June 30, 2023.

Operation and Maintenance Services: Suzlon has ~14GW of wind power plant capacity under O&M
services. Company’s service business contributes ~30% of the total revenue as of March 23, and has
been growing at a steady rate. Suzlon’s services business yields higher margins than pure turbine
manufacturing and offers steady long-term growth. This business has remained resilient to cyclicality
and uncertainty in the wind power projects business.

Forgings and foundry components: Through its subsidiary, SE Forge Limited (SEFL), Suzlon
manufactures forging and foundry components that are required for the manufacture of WTGs and
their components. Suzlon Energy caters to captive as well as external companies through this segment.

Key Investment Thesis

1. Business with great ingredients to become a business in its second innings. Rarely do we see
businesses do well once they have been overburdened with debt. Suzlon is one of the rare
businesses which has showcased a comeback. During the entire debt saga for Suzlon, its OMS

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 3

Business segments provided a strong cushion, maintained cash flows generation capability
throughout the misfortunes of the wind turbines segment. Approx 1800Cr+ revenue has been
generated from the OMS segment consistently in the past 5+ years and consistently growing
at 4-5%.
2. The company would move from 1 GW to 3GW capacity in the WTG over the 3 years which
would be the highest market share within the Indian wind energy space. With reduced
financing costs, these additions would increase earning over the next 2-3 years over and above
the OMC segment. Forgins and Foundry business receives maximum business from outside
the Suzlon group. Thus, WTG growth coupled with OMC and forgings business would lead to
high PAT growth.
3. India continues to be one of the cheapest in terms of cost per unit of electricity. As we witness
these going up, along with continuous capacity addition and technology upgradation, the
realisation per unit should see and uptick.

The Second Innings story: Journey from debt heavy to net cash

Since 2000 the company’s growth was on back of steroids: - raise money, grow capacities, and acquire
companies. However, post the global financial crises, Suzlon saw decline in installations, project
cancellations and deferrals leading to working capital challenges and huge losses.

After FY 15, Suzlon decided to focus on domestic market and exit from all international markets. The
company initiated its first stage of debt reduction in FY15-17 by selling its subsidiary Senvion SE to
Centerbridge Partners generating Rs.72Bn. Shift from feed in tariff regime for wind projects to e-
reverse bidding mechanism led to sharp reduction in wind installation. Thus, the company continued
to report losses betweenFY20-FY22.

In the second stage of its debt restructuring, it reduced its debt from Rs.130Bn to Rs.19Bn between
FY20-FY23 by converting its debt to equity and raising Rs.12Bn through rights issue. The company
continues to reduce debt through selling non-core assets.

The company recently has approved a Rs.20Bn QIP to complete its final stage of debt reducing
strategies to become a net cash business.

Exhibit: Suzlon’s Debt over years (in Crore), Annual Reports

Suzlon's Debt position over years (In Crore)

20,000
17,811
18,000 17,052
16,000 15,191
14,034
14,000
11,120 11,605
12,000
9,624 9,759
10,000
8,000 6,917 6,465
6,269
6,000
4,000
1,938
2,000
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

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 4

Industry Tailwinds

Not a pick between solar and wind; Wind a mandatory requirement

The lowest-cost solution for an optimal decarbonised grid is a mix of wind, solar and battery storage
capacities. Wind generates power in monsoon and nights when solar generation is low. Higher wind
will lead to lower battery storage requirement for a decarbonised grid. The national goal of 500GW of
renewable energy by 2030, is targeting 100GW to come from wind energy (currently at 43GW).

Wind Solar Hybrid Segment : SECI has come up with project tenders which are in form of hybrid,
round-the-clock, and peak power supply projects. To term a project as hybrid, the minimum required
share of solar/ wind technology is 33%. Also, Utility scale battery technology is still in the nascent
stages and is relatively expensive at the current stage of evolution. While the cost of battery storage is
likely to reduce, storage is still going to be a costly affair. As of now, storage is 3x costlier than wind
power. Battery storage remains the best long-term solution towards decarbonisation; however, it is
still an economically unviable solution for India due to high costs.

Exhibit 1: Power Generating Cost across different modes

Mode of Generation Energy Cost/Unit BESS/Unit Tariff

Solar 2.5 7.5 10
Wind 3 7 10
Solar +Wind 2.7 2.7
Conventional 4 4

Policy Initiatives:

• Reverse e-bidding process which had led to decline in capacity addition is discontinued,
replaced by two envelope bidding.
• Introducing wind-specific renewable purchase obligations (RPOs). By 2030, 7% of the total
requirement of power by the Ministry would be purchased from wind energy. (Currently at
0.8%). Over and above this there is a sizeable chunk of C&I (Commercial & Industrial)
customers who are obligated for RPO fulfilment which will further add to RE installations in
the country.
• Apex electricity planning authority has advocated 8GW of capacity addition p.a. and bids of
10GW across states with a cap of 2GW p.a. between FY24-FY28.
• Pooled wind power from various states to be passed on at blended cost under the PPAs to
Discoms.

Ageing Capacity

India started wind energy installation in 2003. Several turbines are old and of lower capacities leading
to suboptimal utilisation of the wind resources at the site. Wind turbines are expected to lose 1-1.5%
of their output per year. An aged fleet also necessitates condition-based monitoring to predict the
maintenance issues pre- and post-repowering. There is already a policy in place for repowering of
turbines by the MNRE. Moreover, repowering costs less than a new project because existing land and
infrastructure are being used. It also reduces the risk associated with worn out assets. Thus, aged
assets and repowering poses a great opportunity for O&M services.

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 5

Market leader to become natural beneficiary

Constant R&D Upgradation: The company has been constantly investing in R&D and has kept up with
global innovations at its R&D centre in Germany. It launched a 3MW turbine with a hybrid lattice
tubular tower which will have higher realisations per MW (than earlier versions) and will have wider
rotor diameter, delivering higher energy output at lower cost. Out of the current order book of
1542MW, 780MW is for the new 3 MW series. Company continues to introduce improved machines
which can operate at sites with low wind speed.

Exhibit:2 Technological development and higher energy output for the WTG

Operating and Maintenance Business: Suzlon has ~14GW of wind power plant capacity under O&M
services. Company’s service business contributes ~30% of the total revenue, and has been growing at
a steady rate. Suzlon’s services business yields higher margins than pure turbine manufacturing and
offers steady long-term growth. Suzlon has retained 100% of its existing O&M contracts that come up
for renewal each year vs 75% each for competitors like Vestas and Gamesa, the global wind turbine
manufacturers

Reducing Interest cost: Suzlon’s gross debt has reduced drastically from Rs130bn in FY20 to Rs19bn as
of Mar’23. Thus, owing to reduced debt, the interest cost burden would moderate from here onwards.

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CIN: U72200PN2011PTC 138994
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 6

Exhibit: Financial Analysis of the company

Particulars (In Crores) Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Mar-22 Mar-23
Net Sales 21,359 18,914 20,403 19,954 9,483 12,714 8,116 5,025 2,973 3,346 6,582 5,971
WTG 20,953 18,654 20,117 19,709 7,654 10,256 5,388 2,849 595 1,193 4,376 3,781
OMS 1,665 1,755 1,754 1,907 1,995 1,885 1,825 1,889
Foundry & Forging 309 128 126 176 389 491 360 357 432 334 477 472
Others 43 22 12 10 34 603 1,273 88 22 9 8 7
Other Operating Revenue 277 170 191 118 54 22 42 46 40 51 62 24
Inter Segment -222 -61 -43 -59 -312 -412 -700 -222 -112 -127 -166 -202
COGS 14,074 13,640 14,435 13,619 5,604 7,543 5,116 2,998 1,874 1,577 4,332 3,783
Gross Profit 7,285 5,274 5,967 6,336 3,880 5,171 3,000 2,026 1,099 1,768 2,250 2,188
GP Margin 34% 28% 29% 32% 41% 41% 37% 40% 37% 53% 34% 37%
EBITDA ** 1,821 -1,296 -141 316 1,102 2,498 1,003 -8 -856 537 889 832
EBITDA Margin 8.5% -6.9% -0.7% 1.6% 11.6% 19.6% 12.4% -0.2% -28.8% 16.1% 13.5% 13.9%
Other Income 126 152 71 53 98 89 79 50 28 20 22 20
Exceptional Income/ (Exp) 227 -643 -487 -6,312 1,080 450 28 -66 805 83 2,721
Interest 1655 1855 2070 2065 1304 1288 1581 1270 1367 996 735 421
Depreciation 661 740 777 809 392 389 342 342 419 258 260 260
Profit After Tax *** -479 -4724 -3548 -9133 583 852 -384 -1537 -2692 104 -177 2887
CFO 839 556 568 1,119 -739 1,609 -109 1,267 -929 530 1,302 467
Debt 14,034 15,191 17,052 17,811 11,120 6,917 11,605 9,624 9,759 6,269 6,465 1,938
Net Debt 11,338 13,232 13,903 15,018 10,226 6,100 11,023 9,549 9,676 6,007 5,965 1,571
Total Equity 4,895 823 -439 -7,386 -7,533 -6,833 -6,957 -8,503 -11,042 -3,401 -3,562 1,099

*The segmental reporting is available only from March 2016.

***EBITDA before exceptional items
***Profit After Tax Includes minority interest

Outlook – The company is poised to witness revenue growth of around 30-35% for the next two years,
improving EBITDA margins inching 16-18%, from existing 13.9%, thus reporting PAT north of Rs.11Bn
and Rs.13Bn for FY24 and FY25 respectively. The stock is trading at 25X FY25 EPS, thus well placed to
capitalise on the tailwinds, deleveraged balance sheet and robust order book.

Recommendation

Over the years, Suzlon sold its foreign businesses and has decided to focus purely on the domestic
market. Government policy and the business environment for wind capacity is looking up after a long
time. Suzlon, being the market leader in the domestic market, is expected to be the natural beneficiary.
We expect Suzlon to add additional capacities to the extent of 3GW in the next 2-3 years, coupled with
strong OMC and forgings business, Higher revenue growth along with reduced debt burden, would
lead to higher PAT growth. Thus, we initiate a BUY on Suzlon.

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 7

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