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Buy Suzlon Energy – Nomura

May 11, 2008

The markets seem to be in correction mode and it is really difficult to recommend a stock. However, Nomura Securities has initiated coverage on Green and Clean Energy giant – Suzlon energy with a STRONG BUY.

Growth in the global wind industry continues to accelerate, driven by climate concerns, energy security, increased electricity demand from developing countries and improvement in yields. The cumulative installed wind power capacity is forecast to grow from 94GW in 2007 to 288GW in 2012F, a CAGR of 25%. Energy Law is targeting 20% of energy from renewables by 2020F and in the US the Renewable Portfolio Standard (RPS) means that 21 nations have mandates to generate 10% to 20% of their energy needs via renewables.

Suzlon is targeting this demand with an aggressive expansion programme. Long-term sales target by geography is as follows: 20% from the US, 20% China, 20% Europe, 20% from India (stable at 50% market share) and 20% from the rest of the world.

Nomura believe Suzlon is well positioned to gain market share. As at January 2008, it had an orderbook of 3,358MW worth US$4,335mn. Of these orders, 441MW were for domestic orders in India and 2,916MW for international orders.

Nomura expects Suzlon to be Free Cash Flow Pisitive in FY10 after a high capex in FY08 and 09. EPS is expected to be Rs 12.6 and Rs 18.4 for FY09 and FY10. Noumra has set a target price of Rs 370 on Suzlon.

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