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Citi Upgrades Suzlon Energy to BUY

June 15, 2007

Citigroup Research which had a SELL recommendation on Suzlon Energy with a price target of Rs 1,137 has upgraded it to BUY with a price target of Rs 1,700. The new price target is based on P/E multiple of 23x Suzlon’e FY09 estimated earnings which is well supported by EPS CAGR of 44% and RoEs in the 30-40% range over FY07-10E.

The fact that Suzlon will stagger the payment of 1.2bn punds for REPower over three years implies that it would be EPS accretive from CY08E/FY09E onwards. REPower is a good strategic fit for Suzlon as it provides: (1) Immediate access to Europe, the largest WTG market over the next 5 years; (2) REPower’s low margins (as it is basically an assembler) imply there is plenty of room for volume and margin growth; (3) REPower’s product portfolio is complementary to Suzlon and would be helpful to make inroads into Europe.

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