Suzlon Energy a ‘good to have’ stock, not a ‘need to have’ one, says Nuvama; ICICI Securities sees 27% upside

Brokerage house Nuvama believes multibagger wind energy stock Suzlon Energy is a ‘good to have’, not a ‘need to have’ one. The brokerage finds no reason to stray away from the ‘BUY’ thesis with an unchanged target price of ₹53. This recommendation is supported by the structural upturn in the wind sector and the company’s financial turnaround.

Suzlon Energy Ltd shares have garnered attention in Tuesday’s trading session due to a significant order win.

The stock rose as much as 4 percent in intra-day deals to ₹49.29 in intra-day deals today. It is now just 5.5 percent away from its 52-week high of ₹52.19, hit on June 4, 2024. Meanwhile, it has surged multifold, 271 percent, from its 52-week low of ₹13.28, hit on June 23, 2023.

On June 8, Marc Desaedeleer, an Independent Director at Suzlon, tendered his resignation. In his resignation letter, he cited instances where the corporate governance standards practiced by the company did not align with his expectations. Specifically, he noted situations where communications lacked the level of openness and transparency he anticipated.

However, Suzlon Energy’s CEO clarified that the concerns raised were primarily process-oriented and of a soft nature, which would be addressed in due course. The Suzlon management emphasised that the suggestions put forth by Desaedeleer did not pertain to financial or operational irregularities or non-compliance with the law. Rather, they related to matters that did not meet Desaedeleer’s personal standards of expectations and desired speed of implementation.

Despite this, analysts have largely maintained a ‘Buy’ rating on the stock on strong financial turnaround, wind sector potential, and its recent order wins.

“With Suzlon turning around its financial position and the operational ramp-up expected in FY25, management is looking to address the needs of the business first and intends to implement such best-in-class suggestions in due course. We, hence, find no reason to stray away from our ‘BUY’ thesis on Suzlon driven by the upturn in the wind sector and financial turnaround of the company,” noted Nuvama.

Suzlon Energy is capable of maintaining its leadership in WTG/turnkey EPC execution leading to 21 percent OB and 61 percent PAT CAGR over FY24–27E, the brokerage had said in an earlier report. The company is now well placed to capture its previous highs and sustain leadership, it had stated, adding that it expects Suzlon Energy to maintain a market share of around 30 percent and show a strong pickup in order intake and execution.

Meanwhile, brokerage ICICI Securities also emphasised that the resignation letter doesn’t suggest any financial or legal impropriety. The management is actively enhancing transparency and information-sharing processes. With these measures in place, the management is optimistic about resolving corporate governance concerns and enhancing disclosures. ICICI maintains a ‘BUY’ rating on Suzlon with a target price of ₹60, implying an almost 27 percent upside.

The broking firm highlighted Suzlon Energy’s focus on debt reduction and efficient working capital management over the past 15 months. It affirmed the company’s commitment to enhancing corporate governance continuously, mentioning recent steps taken to boost transparency. The firm expressed confidence in Suzlon’s ability to address specific corporate governance issues.

Additionally, ICICI Securities provided a positive outlook for the wind industry in the medium to long term, citing an expected 10GW wind opportunity from FY23 to FY27E. It emphasised the increasing complexity of renewable energy projects and the pivotal role wind energy is poised to play in future renewable energy generation.

Morgan Stanley also recently initiated coverage on Suzlon with an ‘Overweight’ rating, citing it as a significant beneficiary of India’s energy shift towards greener sources. Positioned well to capitalise on this transition, Suzlon could potentially secure wind orders totaling approximately 32 GW or $31 billion over the next five years. According to the brokerage, earnings are expected to soar with a 57 percent Compound Annual Growth Rate (CAGR) from FY24 to FY27.

Morgan Stanley noted that Suzlon 2.0 is well-positioned to benefit from India’s energy transition. The company has become much stronger after deleveraging and leaner by reducing fixed operating costs. Suzlon achieved debt-free status by raising funds through various methods, including a QIP and a rights issue. By the end of the March quarter, the company had a net cash balance of ₹1,100 crore.

The stock has given multibagger returns in the last 1 year, rallying 238 percent, while in 2024 YTD, it has advanced 26.4 percent, giving positive returns in 4 of the 6 months so far.

The stock climbed 1.3 percent in June, marking its third consecutive month of gains. It surged 14.5 percent in May and 3 percent in April. However, the stock experienced a decline of 10.7 percent in March and 1.5 percent in February. Prior to that, in January 2024, the stock recorded a gain of 20.3 percent.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision. (edited)