ICICI Securities has revised its target on Suzlon Energy Ltd to Rs 80 from Rs 70 earlier, but maintained its 'Add' rating on the stock, owing to a sharp jump in the share price recently. It values Suzlon Energy's business at 50 times estimated FY26 earnings of Rs 1.60 per share.
ICICI Securities said Suzlon Energy is now back in shape after a tumultuous period over the last decade. Suzlon Energy has reduced its debt over the past three years through various debt to equity conversions and recently became net cash positive with cash reserve of Rs 1,300 crore as of June 2024, after successfully raising equity worth Rs 2000 crore in Q2FY24 for debt reduction.
In a fresh development, Suzlon Energy has entered into an agreement to sell and lease back its prime real estate in Pune for next 5 years. The deal has been finalised at Rs 440 crore. Suzlon Energy has executed a conveyance deed with OE Business Park (OEBPPL) for sale of its corporate office 'One Earth Property'. As per the deal, the One Earth Property would be leased back to Suzlon Energy upon the completion of the sale, for a period of up to five years with and licensing and sub-leasing rights.
ICICI Securities said Suzlon Energy would utilise the raised capital to increase execution and capability to gather incremental orders. This, it said, is in line with its strategy to sell non-core assets, as stated in April 2022.
The orderbook of Suzlon Energy has increased to 4GW, the highest in its history; and the domestic brokerage believes there is enough opportunity to add sizeable order inflow in FY25.
"Suzlon's current orderbook provides visibility of execution for next 2 years. Also, a large number of orders of ~1.5GW from public sector entities are yet to be finalised. We are baking in over 2GW of order inflow in FY25E and FY26E. Maintain ADD with a revised target price of Rs 80," it said.
Despite its robust balance sheet on the back of strong profitability and a fund raiser through QIP, it has decided to sell the asset. The agreement for sale and lease back for 5 years has been finalised at an opportune time with the sector seeing tailwinds, ICICI Securities said.
Earlier, Suzlon Energy acquired 74 percent stake in the third largest party O&M business of Renom Energy Services at Rs 660 crore. It is looking to scale up the O&M business through capabilities, ICICI Securities said.
"Renom is the largest operations and maintenance service provider in the country with assets of 1,782 MW in wind, 148 MW in solar, and 572 MW in BOP under maintenance across customer segments," it said.