Once declared a dud stock, Suzlon has generated stellar returns for investors thus far this calendar year.
On a year-to-date (YTD) basis, Suzlon’s share price has doubled investor wealth by soaring 109.35 per cent on the bourses.
By comparison, the benchmark BSE Sensex has gained just 11.2 per cent.
The rally has also taken the company’s market capitalisation past the Rs 1 trillion mark.
Following the feat, analysts, however, suggest investors partially book profit in the stock, while maintaining some exposure for long-term gains.
“Suzlon’s stock has shown strong growth potential over the past few months, fuelled by sectoral tailwinds and operational improvements.
"It is, however, essential to remain cautious of the potential risks ahead.
"Thus, a prudent strategy, at this juncture, would be to partially book profit to lock-in gains, while retaining some exposure to reap benefit from further upside,” said Nirav Karkera, head of research at Fisdom.
The rise and rise of Suzlon
From a level of Rs 20.25 seen on August 16, 2023, Suzlon share price has zoomed 295 per cent in one year to quote at Rs 79.93 per share as of Friday.
From its June 4 low of Rs 47.5 (closing basis), the stock has recovered roughly 68.3 per cent in little over two months.
The stock’s price-to-earnings (P/E) ratio, however, stands at 488.15x and price-to-book (P/B) is at 28.97x.
By comparison, the BSE Sensex has surged 22.7 per cent in one year.
Analysts attribute the renewed optimism about the stock, after a tumultuous decade, to improved balance sheet health, regulatory tailwinds, and sharp order book boost in the renewable energy (RE) sector.
From a debt of around Rs 12,000 crore as of FY20, Suzlon Energy’s gross debt stood at Rs 101 crore as of June 2024.
With that, it has become net cash-positive with a cash reserve of around Rs 1,300 crore at the end of the June quarter of the current financial year (Q1FY25), after an equity raise worth Rs 2,000 crore in Q2FY24 for debt reduction.
“Moreover, the government has decided to tender out at least 10 gigawatt (Gw) of wind capacity every year with pickup in demand from commercial and industrial entities for round-the-clock power supply.
"Suzlon, being the market leader in the wind turbine industry, is the natural beneficiary of this shift,” said analysts at ICICI Securities.
With 10Gw of wind energy orders likely to be floated over FY23-27, coupled with the increasing complexity of RE power projects, wind may play a crucial role in RE generation going ahead, the brokerage said.
At the end of the recently concluded quarter, Suzlon Energy reported its highest-ever order book of 3.8 Gw in its 29-year history.
Wind Turbine Generator (WTG) project volume grew more than 2 times year-on-year (Y-o-Y) to 274 Mw in Q1FY25, leading to revenue growth of 50 per cent Y-o-Y (Rs 2,016 crore) and 85 per cent growth in Ebitda (earnings before interest, tax, depreciation, and amortisation) to Rs 370 crore.
Other income grew twice Y-o-Y to Rs 23 crore, driven by increased cash reserves and lower finance costs.
As a result, net profit grew 3 times Y-o-Y to Rs 302 crore in Q1FY25.
The road ahead
Going ahead, analysts say the all-time high order book of 3.8 Gw, with execution expected over the next 18-24 months, lends revenue visibility over the medium-term.
However, the expected uptick in order inflow from H2FY25 seems to be already baked into the market price, they added.
Analysts at Nuvama Institutional Equities have a “Hold” rating with a target price of Rs 64, which is 16.6 per cent lower than the stock’s last closing price.
ICICI Securities, too, has downgraded the stock to “Add” with a target price of Rs 70 per share, valuing the stock at 45x FY26E PAT.
“Though the renewable energy sector's outlook remains positive, the stock's rally will sustain if it is able to navigate challenges such as transmission infrastructure delays, land acquisition issues, and market volatility,” cautioned Nirav Karkera of Fisdom.
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