Suzlon Energy shares tank 5% today; will policy uncertainty drag stock further?

Suzlon Energy Ltd fell 5 per cent in Monday's trade to take its losing run to the third straight session. MNRE in a surprise move, reinstated the earlier bidding approach of ‘reverse auctions’, limited the bid size to 600MW for plain vanilla wind tenders and, mandated issue of bids on pan-India basis by SECI, NTPC, NHPC and SJVN and State agencies.

Following the development, Suzlon Energy shares fell 4.98 per cent to hit a low of Rs 41.77 on BSE. With this, the Suzlon stock has fallen 7.42 per cent in three sessions.

After the sharp decline in capacity additions, the bidding process was changed to ‘2-parts closed bids’ in early 2023, giving a new lease of life to the sector. JM Financial said the current move, however undesirable from policy uncertainty perspective, is likely to have insignificant impact given the large market size as evident from under-subscription, change in bid’s construct to RTC/FDRE and, increasing share of C&I players.

"However, closely monitoring behaviour of industry in upcoming bids will be crucial for now. Despite prevailing policy uncertainties, we maintain our BUY rating on the Suzlon Energy stock with a target price of Rs 54 (based on a 27x FY26E EPS), underpinned by strengthening order book, enhanced financial health, and a robust bidding pipeline," the brokerage said. 

JM Financial said the recent bids are under-subscribed (SECI VII Wind Solar Hybrid, 1012 MW awarded against 2000 MW), leaving opportunities for all qualified industry players.

"Share of Commercial & Industrial (C&I) orders is gradually increasing (53 per cent in 3QFY24 for Suzlon) due to flexibility in contracts and better execution support," it said.

India has a target of 500GW of renewable capacity by 2030. Driven by years of concerted efforts, the industry is on the cusp of significant expansion in capacity additions; however, it faces a threat from consistent policy flip-flops, such as recent uncertainty around ALMM in solar and, now the shift in the bidding method for wind projects, JM Financial said.

“There are concerns that future policy changes, such as the waiver of ISTS charges for renewable energy projects beginning in 2025, could further disrupt the sector, at least optically,” it said.