Buy Suzlon Energy shares, target price at Rs 48; Inox Wind at Rs 675: ICICI Securities on stock rating upgrades

ICICI Securities has upgraded Suzlon Energy Ltd and Inox Wind Ltd shares to 'Buy' rating and said the recent dip in the stocks is a good buying opportunity, as the two firms have deleveraged balance sheets and significantly enhanced their order books in recent quarters. ICICI Securities suggested a share price target of Rs 48 on Suzlon Energy and while its price target for Inox Wind now stands at Rs 675.

ICICI Securities said the wind sector saw a sharp re-rating with a new set of initiatives announced in early-FY23 mainly due to the removal of reverse auction; wind-specific bids with a cap for 2GW per state; wind-specific renewable purchase obligations; and a new target of 10GW wind-only auction.

The government is mulling over reverting to the earlier regime i.e. reverse auction and pan-India bids media reports suggest. That said, in the last nine months, the government conducted only one bid with removal of reverse auction and state-specific bid in February 2024, ICICI Securities noted.

"Companies under our coverage have leaped 5 times and 2 times since FY23-end with: higher captive (or corporate) wind addition; public sector tenders; lower competitive intensity; and a shift to grow wind in the mix (round the clock and hybrid tenders are norm).

Suzlon Energy target price

ICICI Securities said Suzlon Energy is back in shape, after a tumultuous period over the last decade. Suzlon, over the past three years, has reduced its debt from Rs 12,000 crore in FY20 through various debt to equity conversions. With that, it has recently become net cash positive with a cash reserve of Rs 700 crore, as of December 31, after a successful equity raise worth Rs 2,000 crore in Q2FY24 for debt reduction.

"Moreover, major positive changes in regulatory policy and eventually on the business- front bode well for the wind industry. The government has decided to tender out at least 10GW of wind capacity every year with pickup in demand from commercial and industrial entities for round-the-clock power supply. Suzlon, being the market leader in the wind turbine industry, is the natural beneficiary of this shift, in our view," it said.

ICICI Securities said the outlook for wind industry is positive over the medium to long term, as 10GW of wind opportunity is expected to be floated over FY23-FY27E. Also, given the increasing complexity of RE power projects (from plain vanilla solar or wind to Hybrid, RTC and now FDRE), we believe wind will play a crucial role RE generation going ahead.  Suzlon Energy has received strong order inflows in YTD-FY24 of over 3.1GW against 400 MW in FY23. Given the sharp fall in the stock (down 12 per cent) in the last week, it upgraded the stock to BUY and maintain its target of Rs 48 , valuing the business at 35 time FY26E EPS of Rs 1.40 per share.

Inox Wind share price target

In the case of Inox Wind, the company is getting back on track, after facing a slowdown in conjunction with the wind energy industry. During this time, INOX saw a substantial spike in debt. The company has been deleveraging and we estimate its net debt to slim to Rs 470 crore by end-FY24. In addition, the industry is looking up and a revival led by a slew of policy actions is in the offing.

Inox Wind has witnessed a sharp improvement in order inflows with inflow of 1,829 MW in Q3FY24. This inflow is largely driven by 1,500MW order from CESC, which is expected to be executed over the next 3-4 years.

"This has improved execution growth visibility over the next 3-4 years. Also, the pipeline for order inflows over the next few quarters remains strong with improved awarding activity for hybrid and wind projects in YTD-FY24. Given the stock price’s dip in the past week (-15%), we upgrade to BUY and maintain P/E-based target price of INR 675, valuing the wind business at 28 times FY26E EPS," it said.