Suzlon Energy (SUEL In, Buy) - Wind With Chance of Sun

Suzlon Energy SUZL.
NS
SUEL IN
EQUITY: POWER & UTILITIES
Wind with chance of sun; initiate w/Buy
Global Markets Research
Strategic corporate moves fuel turnaround story
6 April 2015
Rating
Starts at
Action: Initiate at Buy with TP of INR38; c.44% upside potential

Suzlon Energy (SUEL) is a potential turnaround story in the emerging wind
power sector in India, where it has traditionally been a market leader due to its
strong end-to-end EPC and O&M capability. From a position of strength,
SUEL has gone through multiple crises over the past five years including debt
default. However, it has since taken corrective steps to substantially repair its
balance sheet by selling off its German offshore wind arm, Senvion (formerly
REpower), for 1bn and issuing fresh equity worth INR18bn to Dilip Shanghvi
& Associates (DSA) a promoter for Sun Pharma (SUNP IN).
Re-introduction of wind power incentives and supportive policy aimed at

meeting the governments ambitious wind energy target of 60GW by 2022
should help to drive demand for wind equipment, in our view.
Strong operating/financial leverage from under-utilised manufacturing
Catalysts: Improving financials and PAT breakeven by early FY17F

Valuation: Trading at 11.5x FY17F EV/EBITDA
SUEL is trading at 11.5x FY17F EV/EBITDA, which we believe does not
reflect the companys strong growth prospects over FY15-20F. On our
estimates, not only is SUEL likely to recover 50% market share by FY17F thus
aiding its PAT breakeven by then, but it also has the potential to grow its
EBITDA by ~50% over FY17-20F thus justifying a premium valuation over its
regional peers (Fig 33). Accordingly, we value SUEL at 15x FY17F
EV/EBITDA to arrive at our TP of INR38/share, which implies c.44% upside.
FY14
FY15F
Old
FY16F
New
Old
New
INR 26
Research analysts
India Capital Goods
Amar Kedia - NFASL
amar.kedia@nomura.com
+91 22 4037 4182
FY17F
Old
New
Revenue (mn)
204,029
N/A 201,538
N/A
95,036
Reported net profit (mn)
-34,679
N/A
-84,415
N/A
-804
N/A
9,372
Normalised net profit (mn)
-29,806
N/A
-22,004
N/A
-804
N/A
9,372
-8.02
N/A
-4.86
N/A
-0.14
N/A
1.57
FD norm. EPS growth (%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
FD normalised P/E (x)
N/A
N/A
N/A
N/A
N/A
N/A
16.9
EV/EBITDA (x)
N/A
N/A
27.4
N/A
23.8
N/A
11.2
Price/book (x)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Dividend yield (%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
ROE (%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Net debt/equity (%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
FD normalised EPS
Closing price
1 April 2015
+43.7%
Nomura vs consensus
Our TP is in line with the Street,
but we note that the stock is not
well covered.
facilities and debt reduction is likely to drive normalisation of margins and

strong earnings growth for SUEL in the years ahead, as per our estimates.
Actual
INR 38
Anchor themes
Suzlon Energy is a play on the
emerging wind power sector in
India. It has been India's market
leader in this segment but has
suffered multiple crises mostly
related to an overstretched
balance sheet. It is now a
potential turnaround story.
pure play set to refocus on new order wins and execution, and well placed
to win back 50% market share in the domestic wind equipment market.
Year-end 31 Mar
Target price
Starts at
Potential upside
After the financial restructuring and Senvion sell-off, SUEL is now an India
Currency (INR)
Buy
N/A 124,670
Source: Company data, Nomura estimates

Key company data: See page 2 for company data and detailed price/index chart
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Suzlon Energy
6 April 2015
Key data on Suzlon Energy

Relative performance chart
Cashflow statement (INRmn)
Source: Thomson Reuters, Nomura research
Notes:
Performance
(%)
Absolute (INR)
Absolute (USD)
Rel to MSCI India
1M 3M 12M
-2.9 81.8 134.1
-4.0 84.5 125.5
0.1 82.1 110.0
M cap (USDmn)
Free float (%)
3-mth ADT (USDmn)
1,573.8
70.0
27.4
Year-end 31 Mar
EBITDA
Change in working capital
Other operating cashflow
Cashflow from operations
Capital expenditure
Free cashflow
Reduction in investments
Net acquisitions
Dec in other LT assets
Inc in other LT liabilities
Adjustments
CF after investing acts
Cash dividends
Equity issue
Debt issue
Convertible debt issue
Others
CF from financial acts
Net cashflow
Beginning cash
Ending cash
Ending net debt
FY13
-12,965
2,750
-20,376
-30,591
-3,404
-33,995
616
FY14
-890
23,681
-20,969
1,822
-9,226
-7,404
-6,710
FY15F
9,476
-20,196
-23,031
-33,751
0
-33,751
7,067
FY16F
9,572
-8,032
-8,093
-6,553
-1,500
-8,053
0
FY17F
19,628
-3,048
-8,217
8,363
-2,500
5,863
0
3,093
1,522
-28,765
0
1,895
715
-11,504
0
0
444
-26,241
0
-7,381
23,175
7,741
0
0
1,710
7,573
0
27,441
1,422
14,719
1,830
15,515
5,168
-78,595
0
-1,890
-5,410
252
1,062
22,031
16,393
18,406
-6,734
4,889
-7,834
26,325
19,591
24,480
19,591
24,480
16,646
132,317 127,163 150,512
68,166
-5,262
2,480
16,646
19,126
69,437
0
-1,890
5,683
19,126
24,808
61,864
FY13
FY14
FY15F
19,591
24,480
16,646
357
7,067
0
63,819
59,455
52,500
52,638
40,329
38,500
31,837
31,795
33,978
168,242 163,126 141,624
0
0
0
46,544
48,001
39,108
77,276
91,479
31,576
FY16F
FY17F
19,126
24,808
0
0
27,339
34,156
26,037
30,741
14,100
14,100
86,602 103,805
0
0
15,150
13,900
0
0
Balance sheet (INRmn)

Income statement (INRmn)
Year-end 31 Mar
Revenue
Cost of goods sold
Gross profit
SG&A
Employee share expense
Operating profit
EBITDA
Depreciation
Amortisation
EBIT
Net interest expense
Associates & JCEs
Other income
Earnings before tax
Income tax
Net profit after tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
Transfer to reserves
FY13
FY14
FY15F
189,135 204,029 201,538
-143,801 -152,123 -144,990
45,335 51,906
56,548
-44,377 -38,251 -33,232
-21,327 -22,314 -22,734
-20,370
-8,659
583
-12,965
-890
9,476
-7,405
-7,769
-8,893
FY16F
FY17F
95,036 124,670
-63,090 -80,542
31,946
44,128
-17,358 -18,745
-8,640
-9,504
5,947
15,879
9,572
19,628
-3,624
-3,749
-20,370
-18,549
-8,659
-20,700
583
-19,095
5,947
-8,093
15,879
-8,217
1,522
-37,397
-3,493
-40,890
80
715
-28,644
-1,444
-30,088
282
444
-18,068
-3,589
-21,657
-347
1,341
-804
0
-804
0
1,710
9,372
0
9,372
0
-40,810
-6,430
-47,240
-29,806
-4,873
-34,679
-22,004
-62,411
-84,415
-804
0
-804
9,372
0
9,372
-47,240
-34,679
-84,415
-804
9,372
na
na
-1.2
-1.9
na
na
na
na
na
53.9
5.2
na
na
na
na
na
24.0
25.4
-6.9
-0.4
-10.8
-4.2
-25.0
-17.0
na
na
na
na
na -1,303.4
na
-3.1
na
-3.5
na
na
na
na
27.4
445.2
28.1
4.7
0.3
-41.9
na
na
194.3
0.2
na
-189.9
na
na
na
na
23.8
38.3
33.6
10.1
6.3
-0.8
na
na
1.3
4.3
16.9
16.9
16.9
na
18.9
na
11.2
13.9
35.4
15.7
12.7
7.5
0.0
0.0
-25.5
18.1
7.9
na
na
na
-1.2
na
na
na
-52.8
1.0
na
na
31.2
105.1
na
na
Valuations and ratios

Reported P/E (x)
Normalised P/E (x)
FD normalised P/E (x)
Dividend yield (%)
Price/cashflow (x)
Price/book (x)
EV/EBITDA (x)
EV/EBIT (x)
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin (%)
Effective tax rate (%)
Dividend payout (%)
ROE (%)
ROA (pretax %)
Growth (%)
Revenue
EBITDA
Normalised EPS
Normalised FDEPS
As at 31 Mar
Cash & equivalents
Marketable securities
Accounts receivable
Inventories
Other current assets
Total current assets
LT investments
Fixed assets
Goodwill
Other intangible assets
Other LT assets
Total assets
Short-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Convertible debt
Other LT liabilities
Total liabilities
Minority interest
Preferred stock
Common stock
Retained earnings
Proposed dividends
Other equity and reserves
Total shareholders' equity
Total equity & liabilities
292,061
28,347
48,511
91,280
168,138
94,189
14,388
5,486
282,200
781
302,605
35,234
54,956
91,801
181,991
105,924
10,485
7,381
305,781
584
3,555
5,526
4,976
-8,735
212,307 101,751 117,705

35,234
47,907
47,907
55,670
31,572
35,336
64,291
22,855
27,563
155,194 102,334 110,806
105,924
38,765
38,765
26,000
1,890
0
7,381
0
0
294,499 142,989 149,571
931
200
200
6,806
-89,928
11,974
-53,412
11,974
-44,040
9,080
-3,759 -83,122 -41,438 -32,066
292,061 302,605 212,307 101,751 117,705
Liquidity (x)
Current ratio
Interest cover
1.00
-1.1
0.90
-0.4
0.91
0.0
0.85
0.7
0.94
1.9
na
na
1,457.2 -3,383.0
15.88
-181.1
7.25
-167.6
3.15
-192.9
Leverage
Net debt/EBITDA (x)
Net debt/equity (%)
Per share
Reported EPS (INR)
Norm EPS (INR)
FD norm EPS (INR)
BVPS (INR)
DPS (INR)
-26.58
-22.96
-22.96
5.11
0.00
-16.27
-13.98
-8.02
-1.51
0.00
-28.67
-7.47
-4.86
-24.43
0.00
-13.93c
-13.93c
-0.14
-6.92
0.00
1.57
1.57
1.57
-5.36
0.00
0.0
110.3
111.5
124.1
97.7
101.4
99.2
139.2
61.4
153.7
187.2
253.1
87.9
90.0
128.7
151.6
67.1
Activity (days)
Days receivable
Days inventory
Days payable
Cash cycle
6 April 2015
Wind with chance of sun

Recapitalisation of the company to refuel growth story
Suzlon Energy is a well-known name in the wind equipment market in India and has
been a market leader in its segment for over a decade in India. However, following
product quality issues and subsequent financial crisis, the company suffered a liquidity
squeeze and defaulted on repayments (as we discuss later in this report on pages 4 and
5). This had a negative impact on the companys execution, given that the banks froze its
working capital limit and customers turned cautious about placing orders with Suzlon.
During this period, Suzlon suffered from a massive debt overhang, which it had to clear.
After much deliberation, the company has finally addressed this by making two major
strategic decisions:
1)
It has agreed to a recapitalisation of the balance sheet by way of issuing new shares
to Dilip Shanghvi & Assocoiates, which has brought in fresh equity of INR18bn apart
from new working capital lines (over and above its existing banking facilities).
2)
It has also sealed a deal in January 2015, to sell its 100% stake in German wind
equipment maker Senvion that it had bought in 2008. This move will bring in 1bn
for the company. As per the announcement, the deal is likely to have been closed by
31 March 2015.
Both moves are likely to yield ~INR90bn to the company, which will go towards
repayment of its INR170bn debt and thus provide a much needed boost to repair its
balance sheet.
As highlighted earlier, with these initiatives, the company is back on track to execute and
source orders as it has in the past.
Fig. 1: Build-up of shares issued due to dilution
Fig. 2: New shareholding structure post dilution
(mn shares)
(%)
7,000
1,584
6,000
5,000
4,000
5,987
100%
80%
1,000
3,403
Tanti family
48%
60%
40%
1,000
20%
Source: Company data
DSA
FCCB
Conversions
Diluted
Public
37%
54%
22%
23%
12%
17%
31%
Current
Lenders
17%
3,000
2,000
DSA
24%
18%
Post New Equity
Fully Diluted
0%
Current
As the charts above show, apart from the money from DSA, Suzlons existing FCCB
holders (current outstanding at USD330mn) will also likely convert their bonds into
shares as they are deeply in the money now (conversion price of INR15.64).
While SUEL will surely see significant dilution in its shareholding structure, we note that
the alternatives for SUEL are limited at this stage. In our view, following this financial
restructuring, SUEL will be better placed to tap the opportunities on hand.
6 April 2015
Senvion sale to reduce leverage

Suzlons acquisition of Senvion (formerly REpower) in 2008 helped it to optimise its
product offerings as well as geographic presence. Senvion has been amongst the
leaders in offshore wind technology and thus with the acquisition, Suzlon transformed
itself into one of the worlds top-5 wind equipment makers. Soon after the acquisition,
Senvion became the most profitable asset for Suzlon and even today accounts for the
bulk of Suzlons consolidated orders and revenue.
In FY14, Senvion contributed ~73% of consolidated revenues for SUEL and more than
100% of its EBITDA as the domestic entity, Suzlon Wind, was making losses at the
EBITDA level. In FY15F, we estimate a similar trend with Senvion contributing ~74% of
consolidated revenues (INR149bn) and more than 100% of EBITDA (INR11.3bn from
Senvion out of consolidated EBITDA of INR9.5bn).
However, on 22 January 2015, SUEL announced the sale of Senvion to US-based
distressed assets fund Centerbridge Capital for 1bn as detailed in the table below.
Fig. 3: Agreement for Senvion sale
Total Consideration
Upfront Cash
1 bn
Future Earn Out
50 mn (subject to conditions)
Licensing Arrangements - Receives

India - Offshore
Suzlon to receive Offshore technology license for India market
Licensing Arrangements - Gives

US markets
Senvion to get license for Suzlon's S111 product for US market
Why is Suzlon selling its most profitable entity?

As per our estimates, Senvion was sold at a valuation of ~6.5x FY15F EV/EBITDA,
which is at a discount to the current trading multiples of other European peers such as
Gamesa, Vestas and Nordex (see Fig. 33). The most obvious question that comes up:
Why is Suzlon selling Senvion at a discount when it is Suzlons most profitable asset?
In our view, while Senvion is attractive as a business, it is the associated acquisition debt
that has been problematic for Suzlon. With the entity under corporate debt restructuring
(CDR) and its domestic working capital facilities frozen, Suzlon has missed out on
sourcing and executing new orders in its core domestic markets. It entered into a trap,
from which it was not able to come out of, as we discuss below.
In the aftermath of the global financial crisis in 2008, and subsequent withdrawal of
incentives for wind power installations in India in 2012, SUELs interest costs ballooned
and the company defaulted on its FCCB repayment that year (USD209mn in Oct 2012).
The company was thus saddled with huge debt and it also did not have necessary
permissions to use the cash reserves of Senvion to pay out the domestic debt.
Moreover, as per our discussion with SUEL, Senvions cash flows were ring-fenced by its
lenders, such that even for the repayment of the debt incurred for the acquisition of
Senvion, SUEL could not use Senvions cash flows. As such, servicing the interest and
repayment on the hefty INR170bn debt has been a massive challenge for SUEL.
Over the past two years, SUEL has sold off some of its non-core assets but the amount
generated from these transactions was insufficient in the context of the massive
INR170bn debt it was facing.
Thus, we believe that SUEL had little choice but to sell Senvion to quickly retire its debt.
On valuations, we note that while the trading multiples of peers might be at a premium,
100% stake sales, and to a private equity entity at that, are often at discounts to current
valuations, especially if made under distress.
6 April 2015
What went wrong with SUEL?

The problems started in 2008 for Suzlon, when it had its first major blade accident in the
US. This incident followed a series of quality issues for the company in the US and thus
tarnished the companys reputation, leading to the cancellation/deferral of orders by
several foreign clients (see page 6 for details on the product quality issue).
With domestic markets in the interim still doing well and SUEL still a market leader,
SUEL bid for and won the controlling stake in REpower (now Senvion) an acquisition
that led to a significant debt pile up in the company. To make matters worse, not long
after the blade accident and the Senvion acquisition, the global economy was hit with a
major financial shock after the collapse of Lehman.
With ensuing global slowdown, wind orders slowed at the global level, thus squeezing
profitability and cash flows further for Suzlon. Meanwhile, in India, the wind market
remained healthy until 2012, when in April the government abruptly withdrew the
incentives for wind power, which led to a sharp decline in new orders for the sector.
Suzlon had been a strong player in the customer segment which had largely set up wind
power plants on the back of the accelerated depreciation tax break. With this benefit no
longer available, Suzlon lost its biggest set of customers and faced a major cash flow
squeeze which ultimately led to the debt default discussed earlier. (Refer to Annexure for
details on Chinas supportive Feed-in Tariff and Renewable Portfolio Standards for
distribution companies to support the renewables sector).
In its bid to ramp up growth, we believe Suzlon became too ambitious. As per an 18 May
2009 article in Forbes India titled Saving Suzlon, Consumed with commercial interest,
Suzlon by-passed the crucial life cycle and destructive tests on blades. This would prove
costly later.
Fig. 4: Debt servicing capability hit a low for SUEL
Fig. 5: as EBITDA turned negative and debt piled up
(x)
INR mn
EBITDA
0.8
100,000
0.4
50,000
0.2
FY20F
FY19F
FY18F
FY17F
FY16F
FY15F
FY14
FY13
(50,000)
FY12
(0.2)
FY11
FY10
FY20F
FY19F
FY18F
FY17F
FY16F
FY14
FY15F
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
EBITDA declined
sharply in
domestic business
due to withdrawal
of AD and GBI
0.6
(5)
Net Debt
150,000
FY09
200,000
FY08
10
1.0
FY07
Interest Coverage Ratio (EBITDA/Interest)

Debt Servicing Capacity Ratio (DSCR) [RHS]
D
e
f
a
u
l
t
FY06
15
and what is changing now?

Since then, however, the company has been working to manage its liquidity and debt
repayments, rather than being able to focus on its operations. It has restructured its
FCCB worth USD576mn and its domestic debt of INR95bn, with part of its domestic debt
converted into equity in FY15.
These moves, together with the two larger strategic moves highlighted earlier place
Suzlon in a relatively comfortable situation from where it can look forward to securing
new orders in the domestic business.
As per our discussions with the company, Suzlon is now looking to focus only on the
Indian market for the near term. In our view, that is an important step for SUEL in the
current situation as the global spend on new wind power installations is currently in a
slowdown since the global financial crisis. As such, it makes sense for SUEL to focus on
the Indian market, where as we discuss later (on pages 12-13), the re-instatement of
6 April 2015
incentives for the sector and supportive government policies are likely to drive a
resurgence of demand for wind equipment.
Moreover, Suzlon has historically been a very strong player in the Indian market with
over 50% market share. It still operates and manages (on behalf of its customers) ~38%
of the total installed wind capacity in India. Thus, it has a rich experience of working with
the local authorities, securing land, working with the often difficult state electricity boards
or distribution companies (discoms), and managing difficult logistics/transportation
requirements in India. As per our feedback from the industry not only for the wind power
equipment market but even for other capital goods components, foreign companies have
often found the conditions in India difficult when related to managing local authorities,
land issues, transmission or logistical issues, etc. As such, we think SUEL is best placed
to win back its 50% market share within a short span of time.
Its order backlog of ~1.15GW (bulk of this in India) already implies ~40% market share of
potential installations in India in FY16F.
Fig. 6: Suzlons timeline of major events
(INR)
500
Start of Repower
(Senvion
acquisition)
450
400
Withdrawal
of tax
incentives
for new wind
installations
in India
leading to
debt default
350
US blade
incident
300
250
200
150
100
Share price
50
Senvion sale
and new
equity
infusion by
DSA
Mar-15
Sep-14
Apr-14
Oct-13
May-13
Nov-12
May-12
Dec-11
Jun-11
Dec-10
Jul-10
Jan-10
Jul-09
Feb-09
Aug-08
Feb-08
Sep-07
Mar-07
Sep-06
Apr-06
Oct-05
Source: Bloomberg, Nomura research
How serious is the product quality issue for SUEL?

While SUEL has had blade-related incidents in the US and more recently in Nicaragua,
we note that as per the website of GCube (a global renewable energy insurance
company), there are about 700,000 blades in operations worldwide, of which ~3,800
report incidents of blade failure every year, ie, a ~0.5% failure rate pa.
Our further research on the topic suggests that almost every manufacturer has suffered
similar, if not more damaging, accidents in the past and continue to do so even now.
These accidents have a varying level of severity and could be due to numerous causes
ranging from lightning damage to human error and manufacturing defect.
In this context, we note that SUELs known/reported failure rate of blades seems very
much in line with the global average. However, the US blade incident being its most
hyped incident did considerable damage to the companys credibility. However, as per
our discussions with the company, it has since worked on its product quality and not only
has it rectified this issues, but it has also won a repeat order from the same customer.
In the interim, of course, SUEL has had its fair share of order loss as well as
cancellations/deferrals due to the negative publicity.
6 April 2015
Key investment thesis

Bright medium-term prospects for Indias wind industry
Indias new government has announced an ambitious target to set up 60GW of
cumulative wind power capacity by 2022, following up on this by restoring the erstwhile
accelerated depreciation (AD) tax break for financial investors in wind power. Similarly,
the outgoing central government had restored the other incentives for wind power for
IPPs, ie, generation-based incentives (GBI), but this was not officially announced until
Sep 2014.
Our discussions with the Ministry of Natural and Renewable Energy (MNRE) confirm that
the central government is committed to renewable energy programmes as outlined by
the government. While there are potential near-term challenges on land acquisition,
transmission evacuation and financial health of the SEBs, we note that these challenges
are omnipresent across the entire power sector. In our view, as these bottlenecks are
gradually resolved, they will lend impetus to growth for the sector overall including for
renewable energy such as wind power.
Below we highlight the development of wind power in India over the past 20 years. As is
evident, the sector has consistently grown except for the immediate period after 2012
when the incentives for the sector were withdrawn. However, with these incentives now
being restored, we believe the sector could witness a resurgence in new orders.
Fig. 7: Indias wind power sector has consistently grown over the past 20 years except when incentives were withdrawn
(MW)
Source: Inox Wind Red Herring Prospectus
6 April 2015
India has potential for wind capacity of over 100GW based on current technology
While the availability of suitable sites for wind installations is a key criterion and often the
key consideration for determining a countrys wind capacity, we summarise below
various surveys by the Centre for Wind Energy to determine potential wind capacity in
India. Note that the defined capacity assumes certain technologies and hub heights.
However, with constantly evolving technology and increasing hub heights now possible,
the below numbers are under constant upward revision as is evident in the table itself.
For example, the numbers below assume a maximum 80 metre hub height, while the
new S97 and S111 product available from Suzlon has a 120 metre hub height, which can
offer higher generation for the same installed capacity. Moreover, as the older wind
installations come up for renewal, even those could be replaced with newer and higher
hub height wind installations that could also raise overall capacity.
As per the surveys summarised below, India has potentially 103GW of identified wind
potential currently at an 80 metre hub height, with only <25% of the identified wind
potential developed so far, thus leaving ample scope for future growth.
Fig. 8: Indias wind power potential, assuming that suitable wind site availability is not a constraint
(MW)
Cumulative wind power potential in India (MW) Current wind capacity in Untapped potential
50m hub height
80m hub height
India (MW)
(MW)
Andhra Pradesh
Gujarat
Karnataka
5,394
14,497
748
13,750
10,609
35,071
3,454
31,617
8,591
13,593
2,324
11,269
Kerala
790
837
35
802
Madhya Pradesh
920
2,931
423
2,508
5,439
5,961
4,086
1,875
Maharashtra
Rajasthan
5,005
5,050
22,802
2,248
Tamil Nadu
5,374
14,512
7,273
7,239
Others
Total
7,008
10,336
10,332
49,130
102,788
21,149
81,640
Source: Centre for Wind Energy
Regulatory incentives are increasingly favouring renewable energy in India

Renewable energy the world over is supported by preferential policies by both central
and state governments. India is no different, in our view. With a view to make its
renewable capacity targets a reality, the government of India has adopted several
regulatory incentives for the sector including for wind power.
Fig. 9: Key measures that incentivise renewable energy developers in India
Measure
What it means
Under this benefit, developers are allowed to depreciate 80% of the wind project cost in the first year of installation
for tax purposes, subject to the project being commissioned before 30th September of that fiscal year (50% benefit
Accelerated Depreciation
if commisioned beyond 30 Sep). As such, it helps developers recover almost entiore equity investment in the first
(AD)
year itself given that typoical D/E for such projects is 75/25 or 70/30, while the tax benefit if 24-27%. AD is thus a
beneficial tool for high-networth individuals as well as small corporates for saving tax.
Under this incentive, developers get an incentive of INR 0.50 per kWh of actual power produced with an overall cap
Generation based
of INR10mn/MW ove rthe life of the project. This benefit is useful for IPPs and private equity players who seek
incentives (GBI)
profits from actual running of the windmill.
RPO is a concept prevalent globally which makes it mandatory for distribution companies as well as other
captive/open acces customers to buy a certain fixed share of power from renewables sources such as
wind/solar/others. However, given the poor financial health of the states this norm is not being strictkly followed and
Renewable purchase
the Government is now considering to bring in renewable generation obligations (RGOs), which will put the onus of
obligations (RPO)
meeting a fixed share of renewable generation on the power developers rather than on the buyers. This way the
developer can, in turn, offer a bundled price for its power directly to the buyer.
FiT is a concept prevalent globally, which offers a preferential tariff for wind power producers. This tariff is such that
Feed-in-Tariffs (FiT)
it allows for recovery of investment by the develoepr as well as a reasonable IRR on the same.
Source: Nomura research
6 April 2015
Our discussions with the MNRE suggest that the government is working for further
changes in this domain such as complementing the renewable purchase obligations with
renewable generation obligations for the power developers.
Re-introduction of accelerated depreciation (AD) benefit for developers under this
incentive, developers are allowed to depreciate 80% of the project cost in the first full
year of operation for tax purposes. This incentive is thus very useful for high-net-worth
individuals and captive corporate customers from a tax saving perspective. As we have
highlighted before, AD clientele used to be a mainstay for Suzlon until FY12, when this
incentive was withdrawn.
Re-introduction of generation-based incentives (GBI) through the GBI, the
government offers a INR0.50 per unit cash subsidy to developers for promoting actual
generation of power rather merely setting up wind projects. This incentive is particularly
useful for IPPs and private equity developers who have been using it for sustainable
cash flow from the project and to boost their IRRs. The cap on this incentive is 10 years
or INR10mn/MW, whichever comes earlier.
Preferential feed-in tariffs in 12 states for wind power ranging from INR3.51 per kWh
(Tamil Nadu) to INR5.92 per kWh for Madhya Pradesh.
Favourable provisions for wheeling, banking and third-party sale in many states.
Wheeling is the facility to transmit power from one place to another using the utility grid,
while banking is the facility to bank energy generation for a certain period with a utility
so as to utilise the same on requirement. The utility charges a fee for providing both
these facilities to users.
National-level dynamic renewable portfolio standard of 5% (2009/10) increasing 1%
every year to 15% by 2020 mandated under the National Action Plan on Climate
Change (NAPCC).
Renewable purchase obligation or renewable purchase specification (RPS) announced
in 28 states and Union Territories as mandated by the Electricity Act, 2003. However,
we note that currently the actual monitoring of the RPO norms in various states is not
being fulfilled completely due to poor financial health of the state discoms.
Renewable Energy Certificate mechanism introduced for inter-state trading of
renewable power (solar and non-solar power separately).
Electricity duty exemptions and concessional levy of cross-subsidy surcharge in the
case of third-party sales.
Below, we highlight the feed-in tariffs offered by various states and the RPO standards
laid out by a few states that have been pro-active in promoting renewable energy.
Fig. 10: Preferential tariff offered for wind power by various states
(INR per Kwh)
State
Wind Tariff
Rajasthan - Jaisalmer, Jodhpur and Barmer districts

Rest of Rajasthan
Gujarat
Levelised tariff of 4.15
Andhra Pradesh
Levelised tariff of 4.7 upto Mar-15
Madhya Pradesh
Maharashtra - I
Maharashtra - II
Maharashtra - III
Maharashtra - IV
AD availed AD not availed

5.31
5.64
5.57
5.93
6 April 2015
Fig. 11: Renewable purchase standards/obligation norms laid out by various states
(% of overall electricity procured by the state discom)
State
Rajasthan
Gujarat
AndhraPradesh
MadhyaPradesh
Maharashtra
FY11 FY12 FY13 FY14 FY15

4.5% 5.1% 5.7% 6.8%
4.5% 5.0% 5.5% 5.5% 6.3%
4.8% 4.8% 4.8%
0.8% 2.1% 3.4% 4.7% 6.0%
5.8% 6.8% 7.8% 8.5% 8.5%
FY16
7.3%
7.0%
4.8%
FY17
7.8%
7.8%
4.8%
8.5%
As per our discussions with the MNRE, several state discoms are already taking the
benefit of RPO norms while stating their cost of electricity procurement at the time of
filing their Annual Tariff Petition with their respective state electricity regulator. However,
during the course of the year, most discoms are not actually purchasing the required
power from renewable sources. Thus, there is a need for stricter monitoring of actual
implementation of these norms at the discom level.
Average project size is increasing over the years
The average wind installation size in India has also been going up over the years as the
customer base is shifting to IPPs from individuals. This is beneficial for suppliers such as
Suzlon as order sizes are rising due to this trend. As per Inox Wind, project sizes of
50MW and above are becoming the norm especially for IPPs now in India. The figure
below shows the shift in project sizes and customer profile in the Indian market.
Fig. 12: Average project size is increasing for wind power in India
(MW per customer installation)
8
Average size of wind installations (MW)
7
6
5
4
3
2
1
0
Upto FY09
FY10
FY11
FY12
FY13
Competitive intensity: Top-6 players control ~88% of the market

Over the past decade, several new companies have entered the WTG manufacturing or
installations business in India. While some of the players have set up their own
manufacturing in India, most of the smaller and newer players have tied up with global
manufacturers and are assembling the overall product in India.
We note that wind installation business in India is very different from that across the
world for example, in India, the competitiveness arises not just from a lower cost of
manufacturing but more so from efficient management of post-manufacturing business
processes such as EPC and installation of the windmill as well as ongoing O&M services
for the life of the project. In our view, this is the precise reason why most of the global
manufacturers have not been so successful in India as compared to Suzlon and other
homegrown manufacturers.
10
6 April 2015
Therefore, even though the overall manufacturing capacity in India has grown to
~10.5GW pa, we note that ~88% of total annual capacity installations were attributable to
just the top-6 manufacturers in FY14, according to the WISE Report. Among the newer
entrants, Gamesa India, Inox and ReGen have gradually established themselves as
market-share gainers, while overall Gamesa and Suzlon were the leaders with 19%
market share each in FY14. For FY13, Wind World India was the leader with 26% market
share.
As we have highlighted in the next figure, Suzlon consistently maintained strong market
share in wind power installation in India until FY12, (ie, before its company-specific
problems emerged and before the AD incentive was withdrawn).
With these incentives now being restored and Suzlon itself undergoing a major financial
restructuring and recapitalisation, we think the company is well placed to recapture 50%
market share in the years ahead.
Fig. 13: Wind equipment manufacturing capacity in India for large players
(MW per annum)
Manufacturer
Annual capacity (MW) Product portfolio, WTG rating kWH
Gamesa
1,500
GE India
450
Inox Wind
800/850/2000
1500/1600
1,100
2000
Kenersys India
400
2000
Leitner Shriram
250
1350/1500
ReGen Powertech
750
1500
Suzlon
3,600
600/1250/150/2100
Vestas
1,000
1650/1800/2000
WinWinD Power
1,000
1000
Total
10,050
Wind equipment ASPs have held on well

We note that as compared to an average selling price (ASP) of INR50mn/MW in India
during 2011-12 for SUEL, the current ASP is hovering around INR65-70 mn/MW. This is
mostly due to greater R&D and improved technology in the newer products that the
sector is moving towards. For example, we note that as compared to the earlier products
of <80m hub heights, the current products (S97 and S111 by Suzlon) which are >111m
hub heights offer greater PLF. Thus, even as the ASPs for these product suites are
higher at around INR65-70mn/MW, they offer better value for the customer, in our view.
11
6 April 2015
Improving wind sector fundamentals and a re-energised

balance sheet to drive Suzlons market-share gains
On the governments growing focus on the renewables sector, we expect wind power
capacity additions to grow in India. In addition, after its restructuring, Suzlon looks well
placed to re-capture lost market share from competitors.
Following figure shows the new business structure for Suzlon after its sell-off of Senvion
Fig. 14: New business structure for Suzlon
Curtailing overseas ambitions near term but leaving the doors open
While we are currently not forecasting SUEL to win any orders from overseas markets,
we note that in order to fill its capacity utilisation level, SUEL might at times take up
orders from markets such as the US or LatAm or others. As per our discussion with the
company, unlike in the past when it actively sought orders from these geographies,
currently it is focusing on domestic orders first and only if capacity is available will it take
overseas orders and only if those orders meet the minimum margin threshold.
Offshore wind power project is a long-term opportunity
As per its licensing agreement with Senvion, Suzlon will have the technology for
developing equipment for offshore wind projects in India. However, we do not see
commercial development of offshore wind projects in India in the medium term as it is
very expensive (~2x the cost of onshore wind projects).
Expect Suzlon to regain 50% market share in domestic WTG market
In the WTG segment, we expect Suzlon to recapture 50% of the Indian market by FY17F
on its inherent market strengths: it has a strong domestic market footprint across all
major wind power friendly states, experience in dealing with the respective state
government machinery, the largest and most integrated manufacturing facility among all
of its competitors, a Top-3 technology offering for low wind speed sites, a strong
customer base due to its experience of more than two decades in India (which helps in
repeat orders), etc.
12
6 April 2015
Fig. 15: Gamut of end-to-end services offered by Suzlon to its customers
Planning of
Wind farm
systems
Identifying
suitable sites
based on wind
resource data
collected by the
Government
and SUEL
Inspecting the
sites
Calculating
capacity and
sound levels
Analysing safety
and network
capacity
Infrastructure
development
and
Installation
Development
and technical
design
Land
Acquisition
Acquisition of
suitable sites
Negotiation with
the land owners
Operation
and
maintenance
services
Micrositing and
Construction and
Round the clock
identifying exact
development of
remote and onlocations where
infrastructure for
site monitoring
a WTG shall be
entire wind farms
and maintenance
Building of
installed
and repair of
approach roads,
Bringing
WTGs
evacuation facilities Preventive and
together the
and levelling of land
planned
individual WTGs
maintenance of
for WTG tower
and electrical
WTGs,
foundations
components into
transformers and
Installation and
a total solution
related structures
while taking into
commissioning of
Operational
account safety
WTGs
warranty provided
and capacity
for the WTGs
factors
Fig. 16: Historically, Suzlon has consistently maintained strong market share at >50%
and suffered market share loss only after the debt crisis
Annual installations of wind power in India by player (MW)
3,500
80%
Others share
Suzlon share
Suzlon's Market Share (RHS)
3,000
70%
60%
2,500
2,000
1,500
50%
Withdrawal of tax
incentives for wind
segment in India
leading to SUEL's
debt default and CDR
40%
30%
1,000
20%
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
0%
FY06
FY05
10%
FY04
500
Source: Company data, Nomura research
On the back of the end-to-end service portfolio that Suzlon provides to its customers, as
highlighted above, we believe that it is strongly positioned to win back 50% market share
in India. Interestingly, we note that the actual shrinkage of the wind installations in India
was almost similar to the decline in volumes for SUEL since FY13 (refer to Fig 15
above). Our feedback from customers suggests that with the withdrawal of AD benefits
(where SUEL was a very strong player), that segment has collapsed. Now with the reinstatement of AD benefits and revival of Suzlon, that segment is likely to come back and
that would imply better market share potential for Suzlon when it does.
As discussed earlier, feedback from our broader capital goods coverage suggests that
foreign companies have often found it difficult to manage EPC work execution in India
and this is also evident in the almost negligible presence of foreign companies in the civil
construction segment in India. Most foreign capital goods manufacturing companies are
interested only in product sales in India due to difficulty in project execution and this is
where players like Suzlon step in and gain an advantage, in our view.
13
6 April 2015
We think SUEL is best placed to win back its 50% market share within a short span of
time. The successful execution of its current order backlog of ~1.15GW (bulk of this in
India) would already imply ~40% market share of potential installations in India in FY16F.
Exploring hybrid solar and wind power projects as a commercial option
Suzlon has an effective customer base of ~8.5GW of wind installations in India. With
land availability and grid connectivity being key bottlenecks for incremental renewable
energy installations, Suzlon is currently considering hybrid development of wind and
solar at the same site. For this, Suzlon is likely to approach its existing customers for
renting out the existing wind sites for installing solar panels at the same sites, which can
thus have synergies in terms of O&M cost, grid infrastructure and land. Hybrid parks will
also qualify for feed-in tariffs by discoms, unlike solar power which is not allowed feed-in
tariffs. However, the proposal is still at the initial stages and will likely commercialise
towards the end of FY17F. Meanwhile, Suzlon itself does not plan to take up
manufacturing of solar equipment but will play the role of an EPC and O&M player only.
Our discussion with the MNRE confirmed that this model is viable and even the MNRE is
thinking in similar directions. However, there are certain challenges with respect to water
availability for solar panels at wind sites. We currently do not forecast any contribution
from Suzlons proposed venture into hybrid development of solar and wind parks.
Joint venture with DSA for 450MW wind farm
Suzlon has also entered into a JV with DSA for joint development of a 450MW wind
farm. As per our discussions with the company, the entity will invest in a ready inventory
of 450MW of wind power projects. This entity will, in turn, sell the rights to capacity from
this wind farm to individual customers. At any point of time, the JV expects to maintain
an inventory of 450 MW of wind projects such that customers can buy wind power
projects without any waiting period. While this model will entail working capital
involvement at the JV level, we see this concept as a value addition for Suzlon 1) it will
boost order flow for the company in the near term (with the JV being its captive
customer); and 2) it will strengthen market share for Suzlon as customers will likely
choose projects from this wind farm given its ready inventory vs competitors who might
take 6-18 months to deliver projects.
In our view, this concept is more inclined to attract customers seeking to invest in wind
farms from a tax incentive perspective or even private equity players who are not in the
business of running power projects but want to benefit from the project IRRs.
Fig. 17: Proposed structure of Suzlons JV with DSA for 450 MW wind farm
14
6 April 2015
Financials
Return to business-as-usual scenario to drive 27% revenue
CAGR over FY15-20F
Suzlon has suffered from liquidity constraints over the past few years that have affected
its execution and have dried up its order pipeline after 2012 when the government
withdrew AD and GBI benefits from the wind sector. However, with both these concerns
now behind the company, Suzlon looks well placed to return to business as usual.
Market-share gain in WTG segment
As we highlighted earlier, Suzlon has historically enjoyed a very strong market share in
India (over 50%) due to its strong execution track record and complete EPC and OMS
offering. We believe these advantages remain in Suzlons favour even now and this
should help it regain market share in India. We estimate a 40% market share over FY1620F. Also, the re-introduction of the AD and GBI benefits for wind installations along with
the governments focus on reaching 60GW cumulative capacity in India by 2022 are
likely to drive sector growth.
This spells strong growth in WTG revenues for Suzlon over FY15-20F, on our estimates.
We forecast a 30% CAGR in WTG revenues over this period. We note that realisations
in the WTG segment have consistently been rising over the past few years mostly owing
to improvement in technology. Even as capex cost/MW has increased, we note that
efficiency of the wind mills has increased even more over the years leading to lower unit
cost of electricity produced.
Fig. 18: Suzlon could regain 50% market share by FY17F
Fig. 19: which will likely drive strong WTG revenue growth
(MW)
3,500
(INRmn)
3,000
India overall installation

Suzlon share
Market share of Suzlon
60%
120,000
50%
100,000
40%
80,000
120%
WTG
% y-y growth
100%
80%
2,500
2,000
30%
1,500
20%
1,000
60%
60,000
40%
20%
40,000
0%
20,000
-20%
10%
500
FY17F
FY16F
FY17F
FY15F
FY16F
FY14
FY15F
-40%
FY13
0%
FY12
Source: Nomura estimates

OMS segment: Strong base of high-margin annuity revenues

With a cumulative base of 8.5GW of wind installation in India and almost 100% of this
outsourcing the operation and maintenance services (OMS) to Suzlon, this segment has
strong annuity revenue potential for Suzlon.
As per our estimates as well as discussions with the company, Suzlon charges roughly
INR1mn/MW pa to customers for OMS. The typical contract duration is for five years,
although it is most often renewed. Since most of the customers for SUEL are individuals
or small IPPs with hardly any technical expertise, they are like to retain SUEL as their
OMS partner for the life of the project.
Windmills normally have a life of 20-25 years after which repowering of the windmills is a
typical option, which uses the same available infrastructure and land for installing a new
windmill as per latest technology. Again Suzlons captive base of 8.5GW of installations
in India makes this a lucrative long-term revenue option.
As of now, almost 38% of Indias current installed wind capacity is done by Suzlon and
we forecast that to grow modestly over the next few years. Overall, we forecast OMS
15
6 April 2015
revenues for Suzlon Wind to grow at a CAGR of 15% over FY15-20F and contribute
~17% of overall revenues for the company.
Not only does the OMS segment provide stable and secure stream of revenue, it also
has high margins built in given the service nature of this business. As per our
discussions with the company, it has a typical gross margin of 50-55% as against ~30%
for the WTG segment.
Fig. 20: Suzlon has a strong existing wind installation base
Fig. 21: that will drive strong annuity revenues from OMS
(MW)
INR mn
India cumulative wind installation

Suzlon India cumulative wind installation
Suzlon market share
40,000
41%
35,000
30,000
40%
30,000
39%
20,000
30%
OMS
% y-y growth
25%
25,000
20%
20,000
15%
15,000
38%
10,000
37%
10%
10,000
5%
5,000
FY20F
FY19F
FY18F
FY17F
FY17F
FY16F
FY16F
FY15F
FY15F
FY14
36%
FY14
FY13
0%
FY12
Overall revenues to grow at 27% pa over FY15-20F

We forecast a 27% revenue CAGR for the company over FY15-20F driven by strong
recovery in the WTG segment (driven by governments strong focus on reaching wind
capacity of 60GW by FY22) and continued growth in annuity revenues from the OMS
segment.
Fig. 22: Revenues to return to high growth path
Fig. 23: Improving utilisation to drive up gross margins
(INRmn)
(% of sales)
40%
180,000
WTG
160,000
Gross Margins %
OMS
140,000
35%
120,000
100,000
80,000
30%
60,000
40,000
25%
20,000
FY20F
FY19F
FY18F
FY17F
FY16F
FY15F
FY14
FY13
FY12
20%
FY14
FY15F FY16F FY17F FY18F FY19F FY20F
Rising utilisation levels to drive margin recovery

Over the past few years, Suzlons inability to execute due to the freeze on working
capital facility and other liquidity constraints meant that its utilisation levels dropped
considerably. To illustrate, it executed only 273MW in FY13 and ~750MW in FY14 of its
3,600MW capacity. This led to gross inefficiencies for the company and accordingly its
margins across levels suffered.
Similarly, delayed execution led to liquidated damages imposed by customers which
further hurt its EBITDA margins over the period.
However, with execution likely to recover now that the liquidity constraints have been
removed, we expect margins to recover for Suzlon.
As highlighted in the next figures, we expect margins across levels to rise significantly on
the back of Suzlons significant operating leverage. It has also cut down on fixed costs
16
6 April 2015
over the past few years; for example, it has cut its headcount in India from >10,000 in
FY13 to ~6,600 now.
Fig. 24: Other expense as % of sales falling
Fig. 25: as are staff costs due to operating leverage
(INR mn, % of sales)
30,000
(INR mn, % of sales)
Other expenses
Other expense as % of sales
25,000
20,000
Higher due to
Liquidated
damages
15,000
35%
14,000
30%
12,000
25%
10,000
20%
8,000
15%
6,000
10%
4,000
5%
2,000
0%
Staff cost
16%
Staff cost as % of sales
14%
12%
10%
8%
10,000
5,000
0
FY14 FY15F FY16F FY17F FY18F FY19F FY20F
6%
4%
2%
0%
EBITDA margins to recover to normalised levels

As per the company, it can breakeven at the EBITDA level if it is able to execute 450MW
pa. On our estimates, the company is likely to execute 1,200MW in FY16F thus breaking
even at the EBITDA level in our view, this is likely to be a stock catalyst as the Street
will be closely watching the turnaround capability of the company.
We have also compared Suzlons margins prior to the Senvion acquisition as well as
Inox Winds current margins. Our assumptions leave some headroom for Suzlon to catch
up to these margin levels.
Fig. 26: EBITDA margins to normalise
Fig. 27: as capacity utilisation improves
(INR mn, %)
35,000
(MW)
EBITDA
EBITDA Margin %
20%
30,000
15%
25,000
10%
20,000
2,000
5%
15,000
0%
10,000
-5%
5,000
-10%
0
-5,000
Total sales in MW
EBITDA Break-even installation
Capacity
2,500
-15%
-10,000
-20%
-15,000
-25%
1,500
1,000
500
FY13
FY14
FY15F
FY16F
FY17F
17
6 April 2015
Fig. 28: Inox Wind (peer in wind equipment market) also makes 15-20% EBITDA margin
Inox Wind's financial ratios compare favourably with our assumptions for Suzlon
FY12
FY13
FY14
Dec-14
Gross Margins
30.5%
27.9%
22.6%
25.5%
Other expenses
5.4%
6.1%
9.1%
7.4%
As a % of sales
Employee exp
2.3%
2.4%
2.5%
2.2%
EBITDA margin
22.8%
19.5%
11.1%
15.9%
ROCE
44.8%
31.2%
19.3%
16.7%
Inventory days
59
27
63
64
Receivable days
43
172
165
257
Payable days
64
79
98
118
Sharp reduction in leverage to drive down interest burden on the company

Recent recapitalisation of the balance sheet through infusion of equity by DSA and
FCCB and loan conversions will lead to significant reduction in debt for Suzlon by April
2016. Further, normalisation of business and generation of FCF will also drive further
deleveraging, which in turn should lead to lower interest burden, as per our estimates.
From a valuation perspective, too, we note that the reduction of debt in overall EV should
help to increase equity value for shareholders over a period. In the next figure, we
highlight the estimated transition of Suzlon from almost 75% debt/EV currently to ~15%
debt/EV by FY20F. Even if EV remains constant, we note that this has the potential to
drive up equity value manifold due to the reduction in debt.
Fig. 29: Leverage to come off sharply for Suzlon
Fig. 30: even with an expected rise in working capital
INR mn
INR mn
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
-
80%
Net Debt
40,000
70%
Share of debt in Enterprise
Value
60%
50%
25%
Net Current Assets (ex cash)

NWC as % of sales
30,000
20%
15%
20,000
40%
30%
10%
10,000
5%
20%
(20,000)
FY20F
FY19F
FY18F
FY17F
FY16F
FY15F
FY14
(10,000)
FY13
FY20E
FY19E
FY18E
FY17E
FY16E
FY15E
FY14
FY13
0%
FY12
10%
0%
-5%
-10%
PAT breakeven likely by early FY17F

While the company is guiding for PAT breakeven by end-FY16F, we think that it might be
achieved by early FY17F. We also forecast Suzlon will turn FCF positive in FY17F.
During the initial quarters of recovery, Suzlon believes that the working capital
requirements could be higher but then should normalise by FY17F. Overall, we estimate
Suzlon will generate ~3-3.5% FCF yield from FY17F and onwards.
Importantly, not only are we forecasting a strong recovery by FY17F, as the preceding
figures show, we estimate the strong growth will continue until FY20F on the back of the
governments continued focus on wind capacity augmentation to 60GW by 2022.
Moreover, by then, we expect Suzlons cumulative installed capacity in India will reach
15GW which itself would provide a strong base of annuity revenue for years to come and
even repowering options for the company.
Similarly, among the other future growth drivers for the company not captured in our
estimates are the hybrid park model that the company is now planning, ie, utilising the
18
6 April 2015
vacant open land in existing as well as new wind sites for installing solar panels to
effectively utilise the available land bank as well as scarce grid infrastructure.
Fig. 31: PAT breakeven likely by FY17F
Fig. 32: along with positive FCF despite rising WC

(INRmn)
20,000
(10,000)
(20,000)
(30,000)
(8)
(20,000)
FY20F
FY19F
FY18F
(2)
(6)
(10,000)
(4)
10
10,000
0
FY15F FY16F FY17F FY18F FY19F FY20F
FCF Yield (%)
FY16F
20
FCF
4
10,000
30,000
FY15F
20,000
FY14
Recurring Net Income

Recurring EPS (INR)
FY13
30,000
FY17F
(INRmn)
-10
-20
(30,000)
-30
(40,000)
-40
19
6 April 2015
Valuation
Suzlon is a turnaround story with its current financials not yet reflecting how the future
will look like, especially in light of recent corporate actions taken by the company.
Therefore, comparison with regional peers does not make much sense, in our view.
Fig. 33: Regional valuation comparison (1)
P/E (x)
EV/EBITDA (x)
P/BV (x)
Price Mkt Cap
(local) (Bn USD) FY15F FY16F FY17F FY15F FY16F FY17F FY15F FY16F FY17F
Com pany
Rating
Ticker
Suzlon
BUY
SUEL IN
Gamesa
Not Rated
GAM SM
12
3.5
31.7
Vestas
Not Rated
VWS DC
295
9.5
24.5
Nordex
Not Rated NDX1 GR
19
1.7
36.6
Xinjiang Goldw ind
BUY
002202 CH
20
8.1
31.5
China Ming Yang Wind
Not Rated
MY US
0.3
5.4
Jiangsu Jixin Wind
Not Rated 601218 CH
11
1.8
26
1.6
NM
NM
16.9
27.4
23.8
11.2
NM
NM
NM
20.4
17.4
10.1
7.9
7.2
2.4
2.2
2.0
19.0
19.3
7.9
7.4
7.7
3.8
3.3
2.9
24.6
19.5
10.9
8.6
7.6
4.0
3.5
2.9
21.7
17.8
21.7
15.4
12.2
3.6
3.2
2.8
6.2
4.0
4.3
3.4
2.3
0.5
0.4
0.4
75.5
41.1
28.5
30.5
22.2
17.8
4.5
3.9
3.4
Overall Average
34.2
22.2
17.6
16.1
12.7
9.4
3.1
2.8
2.4
Average ex-Suzlon
34.2
22.2
17.7
14.2
10.8
9.1
3.1
2.8
2.4
Source: Bloomberg consensus, Nomura estimates for SUEL. Note: Pricing as of 1 April 2015
Fig. 34: Regional valuation comparison (2)

ROE (%)
EBITDA m argin (%) CAGR (FY14-17F)
Price Mkt Cap
(local) (Bn USD) FY15F FY16F FY17F FY15F FY16F FY17F EBITDA
EPS
Com pany
Rating
Ticker
Suzlon
BUY
SUEL IN
26
1.6
NM
NM
NM
5%
10%
16%
NM
NM
Gamesa
Not Rated
GAM SM
12
3.5
8.4
11.4
12.1
11%
13%
13%
12%
22%
Vestas
Not Rated
VWS DC
295
9.5
19.3
18.6
16.0
14%
14%
14%
1%
8%
Nordex
Not Rated NDX1 GR
19
1.7
11.1
15.7
17.0
7%
8%
9%
13%
23%
Xinjiang Goldw ind
BUY
002202 CH
20
8.1
12.1
15.3
16.1
15%
16%
18%
21%
21%
China Ming Yang Wind
Not Rated
MY US
0.3
10.7
7.8
9.8
7%
8%
10%
23%
10%
Jiangsu Jixin Wind
Not Rated 601218 CH
11
1.8
7.4
10.7
12.4
20%
22%
22%
20%
38%
Overall Average
11.5
13.2
13.9
11%
13%
15%
15%
21%
Average ex-Suzlon
11.5
13.2
13.9
12%
13%
14%
15%
21%
Source: Bloomberg consensus, Nomura estimates for SUEL. Note: Pricing as of 1 April 2015
We believe SUEL deserves to trade at premium multiples vs regional peers

Suzlon is one of only two listed plays on the emerging wind equipment opportunity in
India and has a strong market leadership history. Given its niche play status and strong
growth opportunity, we think Suzlon deserves a premium over other regional peers.
Further, with the recent corporate actions, Suzlon has sent out a clear message to
investors that the company is looking to strengthen its balance sheet and focus back on
domestic business rather than fanciful ambitions.
Better growth profile vs regional peers
We note that regional peers are trading at average EV/EBITDA of 10.8x and P/E of
22.2x, respectively, on FY16F consensus estimates. We believe that SUEL deserves a
higher multiple given the companys superior earnings growth profile over the next few
years. Further, we estimate SUELs EBITDA has the potential to grow another 50% over
FY17-20F on the back of a further increase in utilisation levels (not considering additional
revenue potential from the hybrid solar and wind model).
Globally, wind turbine manufacturers, in our view, are now tied into a maturing renewable
energy cycle. Renewable energy has emerged as great story over the past several
years, on the back of countries committing to reduced carbon emission and other such
renewable friendly measures.
20
6 April 2015
However, all of this came to an abrupt halt with the global financial crisis, when the
governments started ignoring the high-cost renewable commitments. In fact, capex,
overall, went downhill and remains soft.
In the meantime, emerging markets have continued to grow on the back of their rising
demand for energy and shortage of fossil fuels. We believe India therefore fits in
perfectly well in this story as the next driver of renewable energy, though supported by
government incentives. As such, we think India offers a much better growth profile for
companies as compared to global economies particularly Europe, which in our view, has
already matured in terms of renewable sources of energy.
Therefore, we think SUEL deserves to trade at a higher premium compared to global
players where the growth outlook is weaker as compared to a pure play India story in
SUEL.
O&M revenues provide solid financial support
As we highlighted earlier in this report, Suzlons O&M revenues are set to grow and
provide strong financial support to the company. Notably, even during the past few
years, Suzlon continued to benefit from its strong installed base of ~8.5GW across India
and the associated O&M revenues from the same. Not only is this segment a good
annuity revenue source for the company, but it will also keep growing as the installed
wind base for SUEL ramps up further. O&M is also a higher-profit business and one that
provides greater visibility and stability in revenue/profits.
Suzlon: TP of INR38 based on 15x FY17F EV/EBITDA

Compared to its peer group, Suzlon has a superior growth profile (both in the near term
as well as in the longer term) and is a turnaround story with currently depressed
financials. As we expect a revival of the growth outlook and margin recovery to aid
strong EBITDA growth for the company, we believe SUEL could trade in the range of 1218x one-year forward EV/EBITDA. Accordingly, we value SUEL at the mid-point of this
range at 15x FY17F EV/EBITDA to arrive at our one-year forward target price of
INR38/share, implying ~44% upside potential from current levels.
Our TP is backed up by our DCF-based valuation for the company, which suggests a fair
value of INR37/share for stock, which is broadly in line with our TP.
In our DCF valuation, we assume sustainable EBITDA margins of 17.5% for SUEL,
which is in line with what its peer group is currently making and compares favourably
with SUELs own historical average. While we have an explicit forecast period until FY20,
we use a second stage growth of 7% until FY25 and assume terminal growth of 6%
beyond that to arrive at our terminal value forecast for SUEL.
We note that reduction in debt in the coming years could offer more upside, due to the
potential financial leverage impact, as we roll-over our DCF model in the future.
Fig. 35: DCF valuation forecast for Suzlon
(INR mn)
Sales
% grow th YoY
EBIT
Add Depreciation
EBITDA margins
Net taxes
Adjusted NOPLAT
(Increase)/ Decrease in w orking Capital
FY14
FY15F
204,029 201,538
0.1
(1.2)
(8,659)
583
7,769
8,893
-0.4%
4.7%
(552)
(1,442)
9,476
23,681
(20,196)
Working Cap/ incremental Sales

Capex
811.0%
9,226
Capex/ incremental sales

Free Cash Flow
PV of Free Cash Flow
0%
13,014
(10,720)
FY16F
95,036
(52.8)
5,947
3,624
10.1%
9,572
(8,032)
7.5%
1,500
-1%
40
FY17F
FY18F
124,670 148,825
31.2
19.4
15,879
20,754
3,749
3,999
15.7%
16.6%
19,628
24,753
(3,048)
(6,891)
FY19F
FY20F
159,281 170,151
7.0
6.8
22,563
24,460
4,249
4,499
16.8%
17.0%
26,812
28,959
(7,993)
(1,895)
FY25F
232,017
6.0
34,802
5,927
17.6%
(6,960)
33,769
(2,519)
-10.3%
-28.5%
-76.5%
-17.4%
-19.2%
2,500
2,500
2,500
2,500
3,283
8%
14,080
12,575
10%
15,362
12,253
24%
16,319
11,625
23%
24,564
15,629
25%
27,967
10,112
21
6 April 2015
Fig. 36: Key DCF assumptions and summary

(INR mn)
Valuation param eters

WACC
Terminal Multiple on FCF
Terminal Year grow th
PV of FCF to FY2020E
Terminal value
PV of terminal value
Firm Value
Less Net Debt
NPV to Mar-16
Number of equity shares outstanding (mn)
NPV/share (INR)
12.0%
20.2
6.0%
111,143
496,781
179,613
290,756
69,437
221,319
5,987
37.0
Investment risks
Indias wind power market is highly sensitive to incentives offered by the government
and any reduction in the same could be detrimental to the wind equipment makers as it
would lead to a slowdown/decline in orders.
The working capital cycle is long and could delay FCF generation at times.
Land acquisition, grid infrastructure and state discoms financial health are key
bottlenecks for rapid growth of wind business in India. Removal of these bottlenecks
would be key positives, while continued problems might delay the growth of the sector.
22
6 April 2015
Annexure
Comparison with China wind equipment sector
We compare Indias wind power market with that of China and note that Chinas wind
power market has developed in a similar fashion as Indias is currently. China, as of Dec
2014 had an estimated >90GW of installed wind power capacity and is adding ~18GW of
incremental capacity every year. The cumulative wind power installed power capacity in
China is still well below the world average and even that of India, although arguably we
believe China has built far more thermal power capacity than required. In comparison,
we forecast India will add 2-3GW pa over the next two years.
Fig. 37: China: Grid-connected wind power capacity
estimates (2014-20F)
Wind power capacity (LHS)
Annual addition (RHS)
20
30%
210
15
20
25%
189
15
168
148
61
30
46
0%
Source: NEA, Nomura estimates
2020F
2019F
2018F
2017F
2016F
2015F
2014F
2013
2012
2011
0
2010
5%
6% 4%
3% 3% 3% 3% 2%
2%
Canada
China
75
7%
10%
France
93
Australia
10
112
50
17%
15%
130
100
20%
India
18
34%
US
18
35%
Italy
14
13
19
25
United
Kingdom
150
18
17
21
Germany
200
21
40%
Spain
250
(GW)
Denmark
(GW)
Fig. 38: Comparison of wind power to total power generation

across the world (2012)
Source: BP Statistical Review, Nomura research
Regulatory incentive structure in China is similar to that of India

India is currently facing the same issues that China has faced in the past and has
partially come out of. For example, power distribution companies tend to prefer other
forms of power over renewables energy, largely because they have limited available
transmission capacity thus they try to feed the cheapest source of power, thereby ruling
out renewable energy.
To get around this problem, China has set on a mission to add massive transmission
capacity, which we believe India will also have to do (note that India is already planning a
Green Corridor but the ground activity on the same is yet to pick up). China has also
adopted a set of renewable portfolio standards (RPS) similar to the renewables purchase
obligations (RPO) norms that exists in India, with the difference being that in China this is
being monitored much more strictly than in India. The following charts depict the status
of the ultra-high-voltage (UHV) projects that China is planning to increase the
transmission infrastructure for green power in the country.
23
6 April 2015
Fig. 39: China: Status of UHV projects (in operation, under construction and
planning)
Type
Voltage
Length (km )
Fig. 40: China: Details of the nine wind

power bases and respective UHV lines
involved
Cap. (MW) Transm ission for
Com m issioning tim e
COD
GW
UHV lines com pleted

Southeast Shanxi - Nanyang - Jingmen
AC
1000kv
645
5,000
Coal-fired
2009
Xiangjiangba - Shanghai
DC
800kv
1,907
6,400
Hydropow er
Jinping - South Jiangsu
DC
800kv
2,059
7,200
Huainan - Shanghai
AC
1000kv
656
7,900
South Hami - Zhengzhou
DC
800kv
2,210
DC
800kv
1,680
2015F
Hebei
1Q14 UHV line involve
11.0
8.0
East Inner Mongolia
8.0
7.6
Ximeng - Zaozhuang
2010
West Inner Mongolia
13.0
11.1
Ximeng - Zaozhuang
Hydropow er
2012
Jilin
6.0
3.8
Coal-fired
2013
Gansu
11.0
7.1
8,000
Wind pow er
2014

East Ningxia - Zhejiang
Jiuquan - Hunan
8,000
Hydropow er
2014
Xinjiang
10.0
6.1

Jiuquan - Hunan
UHV lines under construction

Xiluodu - West Zhejiang
North Zhejiang - Fuzhou
AC
1000kv
603
6,800
Nuclear pow er
2015
Huainan - Nanjing - Shanghai
AC
1000kv
759
7,000
Coal-fired
2017
Yaan - Wuhan
AC
1000kv
1,297
7,000
Hydropow er
2017
Ximeng - Zaozhuang
AC
1000kv
993
7,500
Wind pow er
2017
East Ningxia - Zhejiang
DC
800kv
1,722
8,000
Wind pow er
2017
Jiuquan - Hunan
DC
800kv
2,413
8,000
Wind pow er
2017
UHV lines likely to approve in 2014
Jiangsu
6.0
2.6
Shandong
8.0
5.5
Heilongjiang
Total
6.0
4.0
79.0
55.8
Source: NDRC, Nomura research
Source: NDRC, State Grid, Nomura research
Fig. 41: China: UHV grid expansion plan before 2020F and the location of the nine large-scale wind power bases
1000kV UHVAC completed
1000kV UHVAC under construction
1000kV UHVAC planned
800kV UHVDC completed
800kV UHVDC under construction
800/1000 kV UHVDC planned
Heilongjiang
10GW scale wind power bases
Jilin
East Inner Mongolia
Xinjiang Hami
Jilin
West Inner Mongolia

Liaoning
Xinjiang
Gansu Jiuquan
Inner Mongolia
Beijing
Hebei
Gansu
Hebei
Tianjin
Shandong coastline
Shanxi
Ningxia
Shandong
Qinghai
Jiangsu coastline
Shaanxi
8 Jiangsu
Henan
4
Tibet
1
Sichuan
Shanghai
Anhui
Hubei
Zhejiang
Chongqing
3
1
Southeast Shanxi-Nanyang Jingmen 1000kv UHVAC
Xiangjiaba Shanghai 800kv UHVDC
Jinping South Jiangsu 800kv UHVDC
Huainan Shanghai 1000kv UHVAC
South Hami Zhengzhou 800kv UHVDC
Xiluodu West Zhejiang 800kv UHVDC
North Zhejiang Fuzhou 800kv UHVDC
Huainan Nanjing - Shanghai 1000kv UHVAC
7
6
Hunan
Jiangxi
Fujian
Guizhou
Yunnan
Guangxi
Taiwan
Guangdong
Hainan
Source: NDRC, State Grid, Nomura research
24
6 April 2015
Fig. 42: China: Draft Renewable Portfolio Standard (RPS)
Fig. 43: China: Grid connected vs. total capacity for wind
power (2007-13)
An upward trend on the grid connected vs. total capacity for wind power
since 2009
Zone
Regions
% of renew able
energy
Zone I
Inner Mongolia (East & West)
15%
Shaanxi, Jilin, Ningxia, Gansu, Xinjiang,

Tibet, Liaoning, Heilongjiang
10%
(GW)
Grid connected capacity (LHS)

Total capacity (LHS)
% of grid connected (RHS)
100
80
75.2% 74.5%
74.1%
100%
80.5% 82.6%
80%
62.5% 66.1%
Zone II
Beijing, Tianjin, Hebei, Shanxi, Henan
8%
Zone III
Jiangsu, Shanghai, Guangdong, Hunan,

Hubei, Fujian, Anhui, Guangxi, Hainan
4%
60
60%
Zone IV
Zhejiang, Guizhou, Sichuan, Chongqing,

Jiangxi
2%
40
40%
20
20%
0%
2007
Source: NEA, Nomura research
2008
2009
2010
2011
2012
2013
Source: CWEA, Nomura research
Wind power subsidies how long can they continue?

As a healthy industry, the wind power sector cannot always rely on government
subsidies. In order to encourage investment and development in the renewable energy
sector, including upstream (wind equipment) and downstream (wind farm operation),
feed-in tariffs (FiTs) are essential at the initial development stage. However, as the
technology becomes more mature and in turn there is a cost reduction in the equipment
manufacturing process, there is room for the FiT to be adjusted down to reflect the
current cost structure of the sector. Our China analyst, Joseph Lam, has factored in a
5% FiT cut every two years effective from 1 January 2015 to end-2020F on newly
installed wind power projects such that the wind power tariff will reach grid-parity.
However, we note that recent FiT tariff announcements have positively surprised on
these assumptions and moreover, India is much further away from reaching that stage of
maturity whereby wind subsidies can be withdrawn, in our view.
While the AD and GBI incentives were withdrawn in April 2012 in India before being reinstated last year, our discussions with the industry and ministry officials in India suggest
that subsidies are here to stay for the forecast horizon especially given that the
government itself has set ambitious targets to reach 60GW capacity in wind power and
100GW of solar capacity by 2022 these cannot be achieved by withdrawing or even
cutting subsidies on offer to the sector, in our view.
Our China analyst further states in his report, China wind: Still an open road, 15 May
2014, that declining wind equipment cost could potentially drive cuts in FiT tariffs in
China. However, he also notes that the increasing pressure from repair & maintenance
costs could slow the FiT adjustments.
As per the feedback he has received from the wind farm operators, the R&M cost for an
out-of-warranty WTG can be as high as four times more than for an in-warranty WTG (ie,
CNY5-60/kW vs CNY10-15/kW). As such, the increase in R&M cost may partially slow
the process of any FiT adjustment.
25
6 April 2015
Appendix A-1
Analyst Certification
I, Amar Kedia, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about
any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be
directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my
compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc.,
Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures

The term "Nomura Group" used herein refers to Nomura Holdings, Inc. or any of its affiliates or subsidiaries, and may refer to one or more
Nomura Group companies.
Materially mentioned issuers

Issuer
Suzlon Energy
Ticker
SUEL IN
Price
INR 27
Suzlon Energy (SUEL IN)
Price date
Stock rating Sector rating Disclosures
27-Mar-2015 Buy
N/A
INR 27 (27-Mar-2015) Buy (Sector rating: N/A)
Rating and target price chart (three year history)

Date
Rating
Target price
14-May-12 Not Rated
Closing price
19.20
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology We value Suzlon at 15x FY17F EV/EBITDA to arrive at our TP of INR38/share.
Risks that may impede the achievement of the target price 1) Indias wind power market is highly sensitive to incentives
offered by the government and any reduction in the same could be detrimental to the wind equipment makers as it would lead to
a slowdown/decline in orders. 2) The working capital cycle is long and could delay FCF generation at times. 3) Land acquisition,
grid infrastructure and state discoms financial health are key bottlenecks for rapid growth of wind business in India. Removal of
these bottlenecks would be key positives, while continued problems might delay the growth of the sector.
Important Disclosures
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email grpsupport@nomura.com for help.
The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a
portion of which is generated by Investment Banking activities. Unless otherwise noted, the non-US analysts listed at the front of this report are
not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of NSI, and may not be subject to
26
6 April 2015
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Distribution of ratings (Global)

The distribution of all ratings published by Nomura Global Equity Research is as follows:
49% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 43% of companies with this
rating are investment banking clients of the Nomura Group*.
43% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 54% of companies with
this rating are investment banking clients of the Nomura Group*.
8% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 26% of companies with
this rating are investment banking clients of the Nomura Group*.
As at 31 December 2014. *The Nomura Group as defined in the Disclaimer section at the end of this report.
Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America, and
Japan and Asia ex-Japan from 21 October 2013
The rating system is a relative system, indicating expected performance against a specific benchmark identified for each individual stock,
subject to limited management discretion. An analysts target price is an assessment of the current intrinsic fair value of the stock based on an
appropriate valuation methodology determined by the analyst. Valuation methodologies include, but are not limited to, discounted cash flow
analysis, expected return on equity and multiple analysis. Analysts may also indicate expected absolute upside/downside relative to the stated
target price, defined as (target price - current price)/current price.
STOCKS
A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral',
indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that
the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target
price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies
that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage. Investors should not expect continuing or
additional information from Nomura relating to such securities and/or companies. Benchmarks are as follows: United States/Europe/Asia exJapan: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed
at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI
Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology; Japan: Russell/Nomura Large Cap.
SECTORS
A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance,
indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that
the analyst expects the sector to underperform the Benchmark during the next 12 months. Sectors that are labelled as 'Not rated' or shown as
'N/A' are not assigned ratings. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging
Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Japan/Asia ex-Japan: Sector ratings are not assigned.
Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan prior to 21 October 2013
STOCKS
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,
subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock,
based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that
potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A
'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price
have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is
acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled
as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should
not expect continuing or additional information from Nomura relating to such securities and/or companies.
SECTORS
A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive
absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks
under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average
recommendation of the stocks under coverage is) a negative absolute recommendation.
Target Price
A Target Price, if discussed, reflects in part the analyst's estimates for the company's earnings. The achievement of any target price may be
impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the
company's earnings differ from estimates.
Disclaimers
27
6 April 2015
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Suzlon Energy (SUEL In, Buy) - Wind With Chance of Sun

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Suzlon Energy (SUEL In, Buy) - Wind With Chance of Sun

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Suzlon Energy SUZL.

EQUITY: POWER & UTILITIES

Wind with chance of sun; initiate w/Buy

Global Markets Research

Strategic corporate moves fuel turnaround story

Action: Initiate at Buy with TP of INR38; c.44% upside potential

Re-introduction of wind power incentives and supportive policy aimed at

Strong operating/financial leverage from under-utilised manufacturing

Catalysts: Improving financials and PAT breakeven by early FY17F

Reported net profit (mn)

Normalised net profit (mn)

FD norm. EPS growth (%)

FD normalised P/E (x)

Dividend yield (%)

Net debt/equity (%)

facilities and debt reduction is likely to drive normalisation of margins and

Source: Company data, Nomura estimates

Nomura | Suzlon Energy

Key data on Suzlon Energy

Cashflow statement (INRmn)

Source: Thomson Reuters, Nomura research

Balance sheet (INRmn)

Valuations and ratios

212,307 101,751 117,705

Source: Company data, Nomura estimates

Nomura | Suzlon Energy

Wind with chance of sun

Fig. 2: New shareholding structure post dilution

Source: Company data

Post New Equity

Nomura | Suzlon Energy

Senvion sale to reduce leverage

Future Earn Out

Licensing Arrangements - Receives

Suzlon to receive Offshore technology license for India market

Licensing Arrangements - Gives

Senvion to get license for Suzlon's S111 product for US market

Source: Company data

Why is Suzlon selling its most profitable entity?

Nomura | Suzlon Energy

What went wrong with SUEL?

Fig. 5: as EBITDA turned negative and debt piled up

Source: Company data, Nomura estimates

Interest Coverage Ratio (EBITDA/Interest)

Source: Company data, Nomura estimates

and what is changing now?

Nomura | Suzlon Energy

Source: Bloomberg, Nomura research

How serious is the product quality issue for SUEL?

Nomura | Suzlon Energy

Key investment thesis

Source: Inox Wind Red Herring Prospectus

Nomura | Suzlon Energy

Source: Centre for Wind Energy

Regulatory incentives are increasingly favouring renewable energy in India

Nomura | Suzlon Energy

Rajasthan - Jaisalmer, Jodhpur and Barmer districts

Levelised tariff of 4.15

Levelised tariff of 4.7 upto Mar-15

Levelised tariff of 5.92

Levelised tariff of 5.33

Levelised tariff of 4.69

Levelised tariff of 3.91