Citigroup in a report released just minutes ago has pushed the “EXIT” button on the stock. Citi analyst underestimated the cost that Suzlon would have to pay in executing its strategy to become the top 3 WTG manufacturers in each market it operates and the pressures that it would put on management bandwidth in managing so many moving parts of a complex supply chain.
Adding to Suzlon’s woes are – (1) Supply delays, (2) tower shortages, (3) key component shortages, (4) negative forex movements, and (5) nacelle custom duty changes in the US.
Citi cut earnings to factor in retrofit program delaying shipment schedules in 4QFY08E and 1HFY09, lower incremental order wins and execution, provisions of Rs1.19bn in FY08E and higher incremental provisions for warranties & guarantees.
Suzlon is set a target price of Rs 241 at 20x its FY2009 earnings, a 24% discount to BHEL. Citi recently cut target price of BHEL to Rs 2529 from Rs 2,900.