Buy Suzlon Energy stock, says Nuvama as it shares target price

Suzlon Energy Ltd is a 'Buy', Nuvama Institutional Equities said in a note, as it upgraded the stock from 'Hold' on valuation comfort, following the recent stock correction. Nuvama called the Q3 execution of 447MW as robust, given it was expecting Suzlon Energy's execution at 360MW. Suzlon Energy's operating margin improved to 16.8 per cent in Q3 against Nuvama's estimate of 14.9 per cent, due to higher wind turbine generator (WTG) mix-led operating leverage, resulting in 11 per cent beat to consensus forecast.

This is despite elevated depreciation and interest costs in the wake of Renom acquisition. Nuvama Institutional Equities said a robust order inflows of nearly 800MW bulked up the order book to a record 5.5GW, which would be executable over the next 24 months.

"We remain long-term positive on SUEL as we tweak FY25–27 estimates to factor in improved execution in FY25E (1.5GW versus 1.44GW), Renom acquisition and others charges, yielding a revised target of Rs 60 at 35 times FY27E (WTG + F&F EPS) plus DCF of O&M. Upgrade Suzlon to ‘BUY’ (from ‘HOLD’) on valuation comfort and price correction," Nuvama said.

Suzlon Energy shares are down 10.25 per cent in the past five sessions and 23 per cent in January so far.

Suzlon Energy clocked a 91 per cent year-on-year (YoY) jump in its consolidated net profit at Rs 388 crore for the December quarter against Rs 203 crore in the year-ago period. The renewable energy solution provider's revenue from operations also rose 91 per cent to Rs 2,969 crore in Q3 FY25 from Rs 1,553 crore in the corresponding period last year.

Nuvama said the robust order inflow led to an all-time high order book of 5.5GW, lending revenue visibility. It sees Suzlon Energy as a key beneficiary of the rising mix of FDRE/RTC/Hybrid in government tenders.

"SUEL also remains a key player in C&I (two–thirds of OB), and benefits from a duopolistic market in EPC capabilities and maintains an overall market share of 30 per cent-plus," it said.

Nuvama noted that costs associated with the Renom acquisition on interest expenses and increased depreciation have shown their first full quarter impact in Q3. The management expects Q3FY25 depreciation (Rs 50–65 crore per quarter) and interest to be the new normal going forward. It expects WTG contribution to be 20 per cent going forward from earlier mid-to-high-teens.