Suzlon Energy shares at Rs 50? Sell stock, says Ventura; here's why

Suzlon Energy Ltd is a great business but not at a great price, said Ventura Secuirties in its latest note while suggesting a 'Sell' rating on the renewable energy solutions provider with a price target of Rs 50 over the next 24 months. This is against a Suzlon Energy price target of Rs 81 that JM Financial suggested for the next 12 months and Rs 67 that Nuvama Institutional Equities assigned for the same timeframe.

"We issue a Sell recommendation with a target price of Rs 50, representing a 27.5 per cent downside from the current price of 69. Despite Suzlon's leading market position and recent recovery, the current stock price does not adequately reflect the risks related to cash flow generation, execution, and overvaluation," Ventura said.

The domestic brokerage said Suzlon Energy, with a 32 per cent market share in India's wind turbine sector and a fully integrated operational model, has returned to a net cash position as of FY24, for the first time since FY06. The company has successfully turned around after years of financial distress, supported by asset sales, debt restructuring, and favorable industry tailwinds, it said.

With a robust order book, which has surged alongside that of Inox Wind, the wind turbine market is seeing a resurgence after a lull since FY17, the brokerage said.

Additionally, competitive intensity has decreased as major players have exited the space, leaving Suzlon Energy and Inox as the dominant players poised to capture most of the market, Ventura said.

"While Suzlon Energy is well-positioned to meet demand for the next 3-4 years and has improved access to capital, the stock’s valuation multiples reflect excessive optimism, making it unsustainable in the long term," it said.

Over FY24-27, Ventura expects Suzlon Energy's revenue to grow at 47.6 per cent at Rs 20,987 crore, Ebitda at 47.5 per cent to Rs 3,304 crore and net earnings at 66.2 per cent to Rs 3,030 crore, compounded annually. respectively.

"Ebitda margins are expected to hold steady at 15.7 per cent, while net margins are projected to improve by 432 bps to 14.4 per cent. Suzlon Energy has somehow managed to maintain a net debt-free balance sheet and generate positive FCFF," Ventura said.

This, it said, is expected to enhance balance sheet strength and improve key financial metrics.

"As a result, return ratios – RoE and RoIC – are expected to improve by 1,116 bps to 28.6 per cent and 928 bps to 32.6 per cent, respectively, by FY27," it said.