Suzlon Energy SUZL.

NS SUEL IN

EQUITY: ELECTRICAL EQUIPMENT

Strong turnaround boosts confidence; Buy Global Markets Research

4 August 2015
1QFY16 results suggests visible progress, while
Rating
management commentary remains upbeat Remains Buy
Action: Reaffirm Buy on strong turnaround story; c.56% upside potential Target price
Remains INR 38
Suzlon Energy (SUEL) is a potential turnaround story in the emerging wind
power sector in India. From a position of strength, SUEL has gone through Closing price
INR 24
4 August 2015
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 Potential upside +55.7%
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, Reduce). Strong 1QFY16 results posted Anchor themes
by SUEL boost our confidence further as it clearly points towards a budding Suzlon Energy is a play on the
turnaround. emerging wind power sector in
 After the financial restructuring and Senvion sell-off, we think SUEL is now India. It has been India's market
an India pure-play set to refocus on new order wins and execution, and well leader in this segment but has
placed to win back 50% market share in the domestic wind equipment suffered multiple crises mostly
market. related to an overstretched
balance sheet. It is now a
 Re-introduction of wind power incentives and supportive policy aimed at potential turnaround story.
meeting the government’s ambitious wind energy target of 60GW by 2022
should help to drive demand for wind equipment, in our view.
Nomura vs consensus
 Strong operating/financial leverage from under-utilised manufacturing Our TP is in line with the Street,
facilities and debt reduction is likely to drive normalisation of margins and but we note that the stock is not
strong earnings growth for SUEL in the years ahead, as per our estimates. well covered.
Catalysts: Improving financials and PAT breakeven by early FY17F
Valuation: Trading at 11x FY17F EV/EBITDA Research analysts
SUEL is trading at 11x FY17F EV/EBITDA, which does not reflect its strong
growth prospects over FY15-20F, in our view. On our estimates, not only is India Capital Goods
SUEL likely to recover 50% market share by FY17F thus aiding its PAT Amar Kedia - NFASL
breakeven by then, but it also has the potential to grow its EBITDA by ~50% amar.kedia@nomura.com
+91 22 4037 4182
over FY17-20F thus justifying a premium valuation over its regional peers.
Accordingly, we value SUEL at 15x FY17F EV/EBITDA to arrive at our TP of Priyankar Biswas - NFASL
INR38, which implies c.56% upside. priyankar.biswas@nomura.com
+912240374992

Year-end 31 Mar FY14 FY15F FY16F FY17F

Currency (INR) Actual Old New Old New Old New

Revenue (mn) 204,029 201,538 199,544 95,036 92,754 124,670 120,631

Reported net profit (mn) -34,679 -84,415 -91,577 -804 -319 9,372 9,992
Normalised net profit (mn) -29,806 -22,004 -28,460 -804 -319 9,372 9,992
FD normalised EPS -8.02 -4.86 -6.08 -13.93c -5.50c 1.57 1.67
FD norm. EPS growth (%) na na na na na na na
FD normalised P/E (x) na N/A na N/A na N/A 14.6
EV/EBITDA (x) na N/A 78.1 N/A 18.8 N/A 8.9
Price/book (x) na N/A na N/A na N/A na
Dividend yield (%) na N/A na N/A na N/A na
ROE (%) -1,303.4 194.3 238.1 1.3 0.6 -25.5 -32.5
Net debt/equity (%) -3,383.0 -181.1 -175.2 -167.6 -187.4 -192.9 -218.5
Source: Company data, Nomura estimates
Key company data: See next page 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 4 August 2015

Key data on Suzlon Energy

Relative performance chart Cashflow statement (INRmn)
Year-end 31 Mar FY13 FY14 FY15F FY16F FY17F
EBITDA -12,965 -890 3,157 9,824 19,561
Change in working capital 2,750 23,681 -12,682 -17,419 62
Other operating cashflow -20,376 -20,969 -20,890 -9,250 -8,820
Cashflow from operations -30,591 1,822 -30,415 -16,846 10,802
Capital expenditure -3,404 -9,226 -1,295 -205 -2,500
Free cashflow -33,995 -7,404 -31,710 -17,051 8,302
Reduction in investments 616 -6,710 4,410 2,657 0
Net acquisitions
Dec in other LT assets 0 0 0 0
Inc in other LT liabilities 3,093 1,895 -892 -6,489 0
Adjustments 1,522 715 533 24,022 2,438
CF after investing acts -28,765 -11,504 -27,659 3,139 10,740
Source: Thomson Reuters, Nomura research Cash dividends
Equity issue 0 1,422 2,439 4,559 0
Notes: Debt issue 27,441 14,719 1,981 -54,537 -6,890
Convertible debt issue
Others -5,410 252 24,187 53,571 0
CF from financial acts 22,031 16,393 28,607 3,592 -6,890
Performance Net cashflow -6,734 4,889 949 6,731 3,850
(%) 1M 3M 12M Beginning cash 26,325 19,591 24,480 25,429 32,160
Absolute (INR) 9.7 -1.2 12.2 M cap (USDmn) 1,846.7 Ending cash 19,591 24,480 25,429 32,160 36,010
Absolute (USD) 9.0 -1.3 7.4 Free float (%) 70.0 Ending net debt 132,317 127,163 128,195 66,927 56,186
Rel to MSCI India 8.9 -4.0 3.1 3-mth ADT (USDmn) 13.6
Balance sheet (INRmn)
Income statement (INRmn) As at 31 Mar FY13 FY14 FY15F FY16F FY17F
Year-end 31 Mar FY13 FY14 FY15F FY16F FY17F Cash & equivalents 19,591 24,480 25,429 32,160 36,010
Revenue 189,135 204,029 199,544 92,754 120,631 Marketable securities 357 7,067 2,657 0 0
Cost of goods sold -143,801 -152,123 -144,274 -61,590 -78,471 Accounts receivable 63,819 59,455 66,767 26,683 33,050
Gross profit 45,335 51,906 55,270 31,164 42,160 Inventories 52,638 40,329 33,608 27,953 29,745
SG&A -44,377 -38,251 -37,926 -16,357 -17,480 Other current assets 31,837 31,795 26,859 14,100 14,100
Employee share expense -21,327 -22,314 -22,275 -8,064 -8,306 Total current assets 168,242 163,126 155,319 100,896 112,904
Operating profit -20,370 -8,659 -4,930 6,743 16,374 LT investments 0 0 0 0 0
EBITDA -12,965 -890 3,157 9,824 19,561 Fixed assets 46,544 48,001 41,208 16,498 15,812
Depreciation -7,405 -7,769 -8,088 -3,081 -3,187 Goodwill 77,276 91,479 20,787 0 0
Amortisation Other intangible assets
EBIT -20,370 -8,659 -4,930 6,743 16,374 Other LT assets
Net interest expense -18,549 -20,700 -20,647 -9,250 -8,820 Total assets 292,061 302,605 217,315 117,394 128,716
Associates & JCEs Short-term debt 28,347 35,234 45,758 58,431 53,431
Other income 1,522 715 533 2,188 2,438 Accounts payable 48,511 54,956 47,732 30,767 34,310
Earnings before tax -37,397 -28,644 -25,044 -319 9,992 Other current liabilities 91,280 91,801 81,998 23,046 27,723
Income tax -3,493 -1,444 -3,173 0 0 Total current liabilities 168,138 181,991 175,487 112,244 115,464
Net profit after tax -40,890 -30,088 -28,217 -319 9,992 Long-term debt 94,189 105,924 105,924 38,765 38,765
Minority interests 80 282 -243 0 0 Convertible debt 14,388 10,485 1,942 1,890 0
Other items Other LT liabilities 5,486 7,381 6,489 0 0
Preferred dividends Total liabilities 282,200 305,781 289,842 152,899 154,229
Normalised NPAT -40,810 -29,806 -28,460 -319 9,992 Minority interest 781 584 636 200 200
Extraordinary items -6,430 -4,873 -63,117 0 0 Preferred stock
Reported NPAT -47,240 -34,679 -91,577 -319 9,992 Common stock 3,555 4,976 7,415 11,974 11,974
Dividends Retained earnings 5,526 -8,735 -80,579 -47,679 -37,687
Transfer to reserves -47,240 -34,679 -91,577 -319 9,992 Proposed dividends
Valuations and ratios Other equity and reserves
Reported P/E (x) na na na na 14.6 Total shareholders' equity 9,080 -3,759 -73,164 -35,705 -25,713
Normalised P/E (x) -1.1 -1.7 -2.7 -443.5 14.6 Total equity & liabilities 292,061 302,605 217,315 117,394 128,716
FD normalised P/E (x) na na na na 14.6
Dividend yield (%) na na na na na Liquidity (x)
Price/cashflow (x) na 49.8 na na 13.5 Current ratio 1.00 0.90 0.89 0.90 0.98
Price/book (x) 4.8 na na na na Interest cover -1.1 -0.4 -0.2 0.7 1.9
EV/EBITDA (x) na na 78.1 18.8 8.9 Leverage
EV/EBIT (x) na na na 27.4 10.6 Net debt/EBITDA (x) na na 40.60 6.81 2.87
Gross margin (%) 24.0 25.4 27.7 33.6 34.9 Net debt/equity (%) 1,457.2 -3,383.0 -175.2 -187.4 -218.5
EBITDA margin (%) -6.9 -0.4 1.6 10.6 16.2
EBIT margin (%) -10.8 -4.2 -2.5 7.3 13.6 Per share
Net margin (%) -25.0 -17.0 -45.9 -0.3 8.3 Reported EPS (INR) -26.58 -16.27 -29.58 -5.50c 1.67
Effective tax rate (%) na na na na 0.0 Norm EPS (INR) -22.96 -13.98 -9.19 -5.50c 1.67
Dividend payout (%) na na na na 0.0 FD norm EPS (INR) -22.96 -8.02 -6.08 -5.50c 1.67
ROE (%) na -1,303.4 238.1 0.6 -32.5 BVPS (INR) 5.11 -1.51 -19.73 -5.96 -4.29
ROA (pretax %) na -3.1 -2.1 4.9 18.4 DPS (INR) 0.00 0.00 0.00 0.00 0.00
Growth (%) Activity (days)
Revenue 7.9 -2.2 -53.5 30.1 Days receivable 110.3 115.4 184.4 90.4
EBITDA na na 211.1 99.1 Days inventory 111.5 93.5 182.9 134.2
Normalised EPS na na na na Days payable 124.1 129.9 233.2 151.4
Normalised FDEPS na na na na Cash cycle 0.0 97.7 79.1 134.0 73.2
Source: Company data, Nomura estimates Source: Company data, Nomura estimates

2
Nomura | Suzlon Energy 4 August 2015

Key Investment thesis in Charts

Recapitalisation of the company to refuel growth story

Fig. 1: Build-up of shares issued due to dilution Fig. 2: New shareholding structure post dilution
(mn shares) (%)
7,000 Tanti family DSA Lenders Public
1,584 5,987 100%
6,000
80% 37%
5,000 48%
1,000 54%
4,000 3,403 60%
17%
3,000
40% 22% 12%
2,000 23%
17%
1,000 20%
31%
24% 18%
-
Current DSA FCCB Diluted 0%
Conversions Current Post New Equity Fully Diluted
Source: Company data Source: Company data

What went off-course with SUEL?

Fig. 3: Debt servicing capability hit a low for SUEL… Fig. 4: … as EBITDA turned negative and debt piled up
(x) INR mn
15 Interest Coverage Ratio (EBITDA/Interest) 1.0 200,000
Debt Servicing Capacity Ratio (DSCR) [RHS] EBITDA Net Debt
EBITDA declined
D 0.8
150,000 sharply in
10 e domestic business
f 0.6 due to withdrawal
a 100,000 of AD and GBI
u
5 0.4
l
t 50,000
0.2
-
-
FY15F
FY16F
FY17F
FY18F
FY19F
FY20F
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14

-
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15F
FY16F
FY17F
FY18F
FY19F
FY20F
(5) (0.2) (50,000)
Source: Company data, Nomura estimates Source: Company data, Nomura estimates

Fig. 5: 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 Others share 80%
Suzlon share
Suzlon's Market Share (RHS) 70%
3,000

60%
2,500
50%
2,000 Withdrawal of tax
incentives for wind
40%
segment in India
1,500 leading to SUEL's
debt default and CDR 30%
1,000
20%

500 10%

- 0%
FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

Source: Company data, Nomura research

3
Nomura | Suzlon Energy 4 August 2015

Return to business-as-usual scenario to drive 27% revenue CAGR over FY15-20F

Fig. 6: Suzlon could regain 50% market share by FY17F… Fig. 7: … which is likely to drive strong WTG revenue growth
(MW) (INRmn)
3,500 India overall installation 60% 120,000 WTG 140%
Suzlon share % y-y growth
Market share of Suzlon 120%
3,000 50% 100,000
100%
2,500 80,000 80%
40%
2,000 60%
60,000
30% 40%
1,500
40,000 20%
20%
1,000 0%
20,000
10% -20%
500
- -40%

FY12

FY13

FY14

FY15F

FY16F

FY17F
- 0%
FY15F FY16F FY17F

Source: Nomura estimates Source: Company data, Nomura estimates

Fig. 8: Suzlon has a strong existing wind installation base… Fig. 9: …that will drive strong annuity revenues from OMS
(MW) INR mn
40,000 India cumulative wind installation 41% 25,000 OMS 30%
Suzlon India cumulative wind installation % y-y growth
Suzlon market share 25%
40% 20,000
30,000
20%
15,000
39%
15%
20,000 10,000
38% 10%
5,000 5%
10,000
37%
- 0%
FY12

FY13

FY14

FY15F

FY16F

FY17F

FY18F

FY19F

FY20F
- 36%
FY14 FY15F FY16F FY17F
Source: Company data, Nomura estimates Source: Company data, Nomura estimates

Fig. 10: EBITDA margins to normalise… Fig. 11: … as capacity utilisation improves
(INR mn, %) (MW)
30,000 EBITDA EBITDA Margin % 20% 2,500 Total sales in MW
25,000 15% EBITDA Break-even installation
Capacity
20,000 10% 2,000
15,000 5%
10,000 0% 1,500

5,000 -5%
1,000
0 -10%
FY14 FY15F FY16F FY17F FY18F FY19F FY20F
-5,000 -15% 500
-10,000 -20%
-15,000 -25% -
FY13 FY14 FY15 FY16F FY17F
Source: Company data, Nomura estimates Source: Company data, Nomura estimates

4
Nomura | Suzlon Energy 4 August 2015

Fig. 12: Leverage to come off sharply for Suzlon… Fig. 13: …even with an expected rise in working capital
INR mn INR mn
160,000 80% 40,000 25%
Net Debt Net Current Assets (ex cash)
140,000 70% NWC as % of sales
30,000 20%
120,000 Share of debt in Enterprise 60%
Value
100,000 50% 15%
20,000
80,000 40%
10%
60,000 30% 10,000
40,000 20% 5%
20,000 10% -
0%

FY15F

FY16F

FY17F

FY18F

FY19F

FY20F
FY12

FY13

FY14
- 0%
(10,000)
FY13

FY14

FY15

FY16E

FY17E

FY18E

FY19E

FY20E
-5%

(20,000) -10%
Source: Company data, Nomura estimates Source: Company data, Nomura estimates

Fig. 14: PAT breakeven likely by FY17F… Fig. 15: … along with positive FCF despite rising WC
(INRmn) (INRmn)
30,000 Recurring Net Income 8 20,000 10
Recurring EPS (INR) FCF FCF Yield (%)
6 5
20,000 10,000
4 0
10,000 -5
2 -

FY15F

FY16F

FY17F
FY13

FY14
- -10
0
FY15F FY16F FY17F FY18F FY19F FY20F (10,000) -15
(10,000) (2)
-20
(4) (20,000)
(20,000) -25
(6) -30
(30,000) (30,000)
(8) -35
(40,000) (10) (40,000) -40
Source: Nomura estimates Source: Company data, Nomura estimates

1QFY16 results suggest a faster pace of turnaround than we

earlier thought, thus boosting our confidence even further
Suzlon’s 1QFY16 results showed a strong turnaround far exceeding our estimates. While
we expected the company to report a minor loss at the EBITDA level, it reported a strong
adjusted EBITDA margin of 15.3%, which we had only in our FY17F estimates currently.
We were positively surprised by the pace of the company’s turnaround.
Note that the reported numbers include Senvion’s contribution for a month, while our
estimates assumed Senvion numbers would not be included. Thus our estimates are not
directly comparable to the reported numbers. Thus we compare with the numbers of
Suzlon Wind (ex- Senvion entity) for which the company reported numbers in its
presentation.
• Suzlon Wind’s revenues at INR15.4bn were 12% ahead of our estimates. This
represents a 9% decline y-y though note that 1QFY15 included overseas revenues as
well (61 MW out of 221MW) while 1QFY16 execution of 205MW were exclusively in
India.
• On a domestic-only basis, reported quarterly volume of 205 MW is the highest in the
past three years. India volumes grew 28% y-y and 239% q-q.
• We were positively surprised by the strong positive EBITDA of INR2.1bn against our
estimate of an INR0.2bn loss. This compares with a loss of INR0.1bn in 1QFY15. This
was due to improved gross margin of 45% against our estimate of 37%. Normalised
EBITDA was INR2.37bn (ex- FX loss and liquidated damages relating to past orders)
suggesting normalised EBITDA margin of 15.3%.
• While reported PAT was positive at INR10.8bn against our expectation of a loss of
INR4.1bn, it included exceptional items including provision reversal related to Senvion

5
Nomura | Suzlon Energy 4 August 2015

sale at INR12.2bn. Even excluding the one-off, loss at PAT level of INR1.42bn was
75% lower y-y.
• Consolidated order inflows (India) at 188MW were up 28% y-y with the order book now
at 1,107MW or INR68.4bn. The order book does not include service backlog.
• Management guided that order execution and inflows tend to be seasonally stronger in
the second-half of the year.
What do the results mean?
Suzlon Wind reported very strong operational numbers for 1QFY16 at all levels.
Execution volumes in India of 205MW (+28% y-y) are the highest in three years and
represent 45% of FY15 annual volumes. The company achieved quarterly EBIT break
even after three years. Management has also guided that orders as well as execution
tend to be stronger in the second-half of the year for both IPP and non-IPP segments.
Our confidence in Suzlon’s ability to reach EBIT break-even for full year by FY17F is
further increased by this strong set of numbers both at the operational and financial
levels.
Key numbers
• Net sales of INR15.4bn were down 9% y-y but 12% higher than our estimate. However,
1QFY15 results were helped by significant overseas contribution while the company is
now focusing only on the India market. Revenue growth was attributed to volume ramp
up (28% y-y), improved service profitability and favourable product mix and scope.
• Service revenues increased 5.6% y-y to INR3610mn.
• EBITDA of INR2.13bn compared to a loss of INR0.1bn in 1QFY15. This was also
ahead of our expectation of a loss of INR0.2bn.
• EBIT of INR1.51bn against our estimate of a loss of INR0.2bn. This was the first
quarterly positive EBIT in three years and was helped by lower depreciation of
INR0.62bn.
• Interest expenses at INR2.93bn are 39% lower y-y and 2% below our estimate.
Management expects they will fall further with full year guidance of INR8.0-9.0bn
against INR16.0bn last year.
• PAT was INR10.8bn and excluded provision reversal and foreign exchange losses PAT
level loss was INR1.42bn. This was ahead of our forecast of a loss of INR4.15bn.
Losses have reduced 75% y-y.
• New orders were 188MW up 28% y-y with order book currently at 1.1GW which is at
Suzlon’s guided level for EBIT break-even. This excludes the service order backlog.
• Suzlon has introduced hybrid towers which account for 300MW of orders and it claims
are three to four years ahead of current technology
• FCCB worth USD248.1mn has been converted to equity to date with another
USD327.6mn outstanding. (FCCBs converted at INR15.46/share at exchange rate of
INR/USD of 60.225).
• Net debt (ex FCCB) fell to INR70.1bn.
Key takeaways from the after results conference call
• According to management, the company remains confident of delivering 1.1-1.2 GW in
Fy16 as against 205 MW executed in 1QFY16. This is in line with our FY16F execution
volume.
• Margins in 1QFY16 benefitted from favourable product mix (ie, higher product revenue
vs. EPC), reduction in liquidated damages and control over fixed cost. While part of this
reduction is sustainable, the benefit due to favourable product mix might not recur on a
full year basis.
• Thus, on a full-year basis, EBITDA margins are likely to be around 10-11% levels,
which is in line with our estimate.
• The company has sufficient land bank either already or in the pipeline to meet its
requirements for the next five years.
• This land bank is primarily spread across 8 states – Gujarat, Tamil Nadu, Kerala,
Karnataka, Maharashtra, Andhra Pradesh, Rajasthan and Madhya Pradesh.

6
Nomura | Suzlon Energy 4 August 2015

• It expects interest cost to reduce further from 1QFy16 levels to a run-rate of INR2.25-
2.5bn per quarter.
• Overall industry size is expected to grow to 3GW in Fy16 and further to 4 GW in Fy17
from ~2.5 GW in Fy15, as per the company.
• On net working capital cycle, company remains very confident of curbing it to a range of
5-7.5% of sales as against competition guiding for a target range of 30-40% of sales.
• The company has already started its plans for hybrid parks for both wind and solar
power and has also won 110 MW of solar PPA bids in Telangana.
• It will follow the similar model as its wind business for solar with the exception of
manufacturing solar panels. It will build the solar projects and sell them to the customer
while utilising benefits from common land, infrastructure and Grid infrastructure for wind
power.
• The company expects debt to remain at current levels through rest of the year as it will
invest in working capital, new joint-venture for a 450 MW wind farm and capex for
capacity expansion and technology upgrade.

Fig. 16: 1QFY16: Actuals vs our estimates (Suzlon Wind)

INR mn
June-15
(INR mn) Jun-14 Mar-15 Jun-15 (Nomura) y-y (%) q-q (%)
INCOME :
Sales 17,001 9,260 15,420 13,725 -9% 67%
% y-y growth
Total cost of sales and services 10,991 6,620 8,480 8,647 -23% 28%
% of sales 64.6% 71.5% 55.0% 63.0%
Gross Profit 6,010 2,640 6,940 5,078 15% 163%
Gross Margins % 35.4% 28.5% 45.0% 37.0%
Payments to and provision for employees : 1,984 1,610 1,920 1,800 -3% 19%
Staff cost as % of sales 11.7% 17.4% 12.5% 13.1%
Other expenses 4,127 2,730 2,890 3,476 -30% 6%
Other expense as % of sales 24.3% 29.5% 18.7% 25.3%
EBITDA (101) (1,700) 2,130 (198)
EBITDA Margin % -0.6% -18.4% 13.8% -1.4%
Depreciation 815 970 620 1,000
EBIT (916) (2,670) 1,510 (1,198)
Margin % -5.4% -28.8% 9.8% -8.7%
TOTAL INTEREST : 4,828 4,740 2,930 3,000 -39% -38%
PROFIT BEFORE TAX AND EXCEPTIONAL ITEM (5,657) (7,410) (1,420) (4,148) -75% -81%
Add : Exceptional Item 279 (6,020) 12,230
PROFIT BEFORE TAX BUT AFTER EXCEPTION (5,378) (13,430) 10,810 (4,148)
TOTAL TAX - - - -
Minority Interest (60) 20
NET PROFIT FOR THE YEAR (5,378) (13,370) 10,790 (4,148)
Source: Company data, Nomura research

7
Nomura | Suzlon Energy 4 August 2015

Fig. 17: 1QFY16: Consolidated segmental results

INR mn
Segmental Jun-14 Mar-15 Jun-15 % y-y % q-q
Segment Revenue
Wind Turbine generator 46,245 48,828 25,540 -45% -48%
Foundry & forgings 277 331 732 165% 121%
Others 25 5 26 4% 431%
Total 46,546 49,164 26,298 -44% -47%
Less: Intersegment revenue 116 76 240 106% 217%
Income from operations 46,430 49,088 26,058 -44% -47%

Segment EBITDA (adj)

Wind Turbine generator 756 (1,563) 1,999 164% -228%
Foundry & forgings (46) (104) 102 -321% -199%
Others 21 1 21 2% 2020%
Total 731 (1,666) 2,123 190% -227%
Depreciation
Wind Turbine generator 1,651 1,435 913 -28% -43%
Foundry & forgings 118 267 143 132% 125%
Others 17 156 17 794% 662%

Segment EBIT
Wind Turbine generator (895) (2,998) 1,086 -341% -829%
Foundry & forgings (165) (371) (41) 331% 207%
Others 4 (155) 4 NM NM
Total (1,055) (3,523) 1,050 -199% -130%
Source: Company data, Nomura research

Changes to our estimates

We tweak our FY16F/17F EBITDA by 0/3%, as we build in slightly better margins. Our
FY16F/17F revenues, however, go down 2/3% to factor in slightly lower service
revenues in line with actual execution done over the previous years.
Overall our FY17F PAT goes up 7%, while our FY16F loss estimate is down 60%.

Fig. 18: Estimate revisions

INR mn
FY16F FY17F
New Old % change New Old % change
Revenues  92,754  95,036 ‐2%  120,631  124,670 ‐3%
EBITDA     9,824     9,572 3%     19,561     19,628 0%
PAT       (319)       (804) NA       9,992       9,372 7%
Source: Nomura estimates

Suzlon: Retain TP of INR38 based on 15x FY17F EV/EBITDA

Compared to its peer group, we think 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 12-18x 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, implying ~56% 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

8
Nomura | Suzlon Energy 4 August 2015

with SUEL’s 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.

Investment risks
• India’s 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.

9
Nomura | Suzlon Energy 4 August 2015

Appendix A-1
Analyst Certification
We, Amar Kedia and Priyankar Biswas, hereby certify (1) that the views expressed in this Research report accurately reflect our
personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our
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 our 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 Ticker Price Price date Stock rating Sector rating Disclosures
Suzlon Energy SUEL IN INR 24 04-Aug-2015 Buy N/A
Sun Pharmaceutical
Industries SUNP IN INR 830 04-Aug-2015 Reduce N/A

Suzlon Energy (SUEL IN) INR 24 (04-Aug-2015) Buy (Sector rating: N/A)
Rating and target price chart (three year history)
Date Rating Target price Closing price
06-Apr-15 Buy 27.60
06-Apr-15 38.00 27.60

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. The benchmark index
for this stock is MSCI India.

Risks that may impede the achievement of the target price 1) India’s 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.

10
Nomura | Suzlon Energy 4 August 2015

Sun Pharmaceutical Industries (SUNP IN) INR 830 (04-Aug-2015) Reduce (Sector rating: N/A)
Rating and target price chart (three year history)
Date Rating Target price Closing price
21-Jul-15 Reduce 805.25
21-Jul-15 792.00 805.25
05-Jun-15 879.00 847.90
16-Sep-14 Neutral 798.25
16-Sep-14 868.00 798.25
09-Apr-14 Buy 630.00
09-Apr-14 679.00 630.00
14-Feb-14 617.00 609.05
25-Nov-13 561.00 580.85
10-Sep-13 593.00 549.70
10-Aug-13 521.00 505.70
12-Feb-13 421.00 385.85
29-Nov-12 363.00 354.975
13-Aug-12 345.00 341.00

For explanation of ratings refer to the stock rating keys located after chart(s)

Valuation Methodology To derive our SOTP-based target price of INR792, we value Taro at 152/share (14x FY17F Taro
earnings), SUNP ex Taro ex MK-3222 investments at INR634/share (23x FY17F Sun EPS ex Taro earnings), and Gleevec
exclusivity at INR5.6/share. The benchmark index for this stock is the MSCI India.

Risks that may impede the achievement of the target price Key upside risks: 1) positive surprises in US revenues due to
resolution of USFDA issues and product approvals; 2) value-accretive acquisitions; 3) higher-than-anticipated synergies from
the Ranbaxy acquisition; and 4) greater-than-expected value unlocking of the psoriasis drug MK-3222.

Important Disclosures
Online availability of research and conflict-of-interest disclosures
Nomura research is available on www.nomuranow.com/research, Bloomberg, Capital IQ, Factset, MarkitHub, Reuters and ThomsonOne.
Important disclosures may be read at http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx or requested
from Nomura Securities International, Inc., on 1-877-865-5752. If you have any difficulties with the website, please
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
FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held
by a research analyst account.

Nomura Global Financial Products Inc. (“NGFP”) Nomura Derivative Products Inc. (“NDPI”) and Nomura International plc. (“NIplc”) are
registered with the Commodities Futures Trading Commission and the National Futures Association (NFA) as swap dealers. NGFP, NDPI, and
NIplc are generally engaged in the trading of swaps and other derivative products, any of which may be the subject of this report.

Any authors named in this report are research analysts unless otherwise indicated. Industry Specialists identified in some Nomura International
plc research reports are employees within the Firm who are responsible for the sales and trading effort in the sector for which they have
coverage. Industry Specialists do not contribute in any manner to the content of research reports in which their names appear.

Distribution of ratings (Global)

The distribution of all ratings published by Nomura Global Equity Research is as follows:
47% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 42% of companies with this
rating are investment banking clients of the Nomura Group*.
42% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 55% of companies with
this rating are investment banking clients of the Nomura Group*.
11% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 21% of companies with
this rating are investment banking clients of the Nomura Group*.
As at 30 June 2015. *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 analyst’s 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

11
Nomura | Suzlon Energy 4 August 2015

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 ex-
Japan: 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
This document contains material that has been prepared by the Nomura entity identified on page 1 and/or with the sole or joint contributions of
one or more Nomura entities whose employees and their respective affiliations are also specified on page 1 or identified elsewhere in the
document. 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 including: Nomura Securities Co., Ltd. ('NSC') Tokyo, Japan; Nomura International plc ('NIplc'), UK; Nomura
Securities International, Inc. ('NSI'), New York, US; Nomura International (Hong Kong) Ltd. (‘NIHK’), Hong Kong; Nomura Financial Investment
(Korea) Co., Ltd. (‘NFIK’), Korea (Information on Nomura analysts registered with the Korea Financial Investment Association ('KOFIA') can be
found on the KOFIA Intranet at http://dis.kofia.or.kr); Nomura Singapore Ltd. (‘NSL’), Singapore (Registration number 197201440E, regulated by
the Monetary Authority of Singapore); Nomura Australia Ltd. (‘NAL’), Australia (ABN 48 003 032 513), regulated by the Australian Securities and
Investment Commission ('ASIC') and holder of an Australian financial services licence number 246412; P.T. Nomura Indonesia (‘PTNI’),
Indonesia; Nomura Securities Malaysia Sdn. Bhd. (‘NSM’), Malaysia; NIHK, Taipei Branch (‘NITB’), Taiwan; Nomura Financial Advisory and
Securities (India) Private Limited (‘NFASL’), Mumbai, India (Registered Address: Ceejay House, Level 11, Plot F, Shivsagar Estate, Dr. Annie
Besant Road, Worli, Mumbai- 400 018, India; Tel: +91 22 4037 4037, Fax: +91 22 4037 4111; CIN No : U74140MH2007PTC169116, SEBI
Registration No: BSE INB011299030, NSE INB231299034, INF231299034, INE 231299034, MCX: INE261299034) and NIplc, Madrid Branch
(‘NIplc, Madrid’). ‘CNS Thailand’ next to an analyst’s name on the front page of a research report indicates that the analyst is employed by
Capital Nomura Securities Public Company Limited (‘CNS’) to provide research assistance services to NSL under a Research Assistance
Agreement. ‘NSFSPL’ next to an employee’s name on the front page of a research report indicates that the individual is employed by Nomura
Structured Finance Services Private Limited to provide assistance to certain Nomura entities under inter-company agreements.
THIS MATERIAL IS: (I) FOR YOUR PRIVATE INFORMATION, AND WE ARE NOT SOLICITING ANY ACTION BASED UPON IT; (II) NOT TO
BE CONSTRUED AS AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY IN ANY JURISDICTION WHERE
SUCH OFFER OR SOLICITATION WOULD BE ILLEGAL; AND (III) BASED UPON INFORMATION FROM SOURCES THAT WE CONSIDER
RELIABLE, BUT HAS NOT BEEN INDEPENDENTLY VERIFIED BY NOMURA GROUP.
Nomura Group does not warrant or represent that the document is accurate, complete, reliable, fit for any particular purpose or merchantable
and does not accept liability for any act (or decision not to act) resulting from use of this document and related data. To the maximum extent
permissible all warranties and other assurances by Nomura group are hereby excluded and Nomura Group shall have no liability for the use,
misuse, or distribution of this information.
Opinions or estimates expressed are current opinions as of the original publication date appearing on this material and the information, including
the opinions and estimates contained herein, are subject to change without notice. Nomura Group is under no duty to update this document.
Any comments or statements made herein are those of the author(s) and may differ from views held by other parties within Nomura Group.

12
Nomura | Suzlon Energy 4 August 2015

Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and, if appropriate,
seek professional advice, including tax advice. Nomura Group does not provide tax advice.
Nomura Group, and/or its officers, directors and employees, may, to the extent permitted by applicable law and/or regulation, deal as principal,
agent, or otherwise, or have long or short positions in, or buy or sell, the securities, commodities or instruments, or options or other derivative
instruments based thereon, of issuers or securities mentioned herein. Nomura Group companies may also act as market maker or liquidity
provider (within the meaning of applicable regulations in the UK) in the financial instruments of the issuer. Where the activity of market maker is
carried out in accordance with the definition given to it by specific laws and regulations of the US or other jurisdictions, this will be separately
disclosed within the specific issuer disclosures.
This document may contain information obtained from third parties, including ratings from credit ratings agencies such as Standard & Poor’s.
Reproduction and distribution of third-party content in any form is prohibited except with the prior written permission of the related third-party.
Third-party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and
are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such
content. Third-party content providers give no express or implied warranties, including, but not limited to, any warranties of merchantability or
fitness for a particular purpose or use. Third-party content providers shall not be liable for any direct, indirect, incidental, exemplary,
compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including lost income or profits and
opportunity costs) in connection with any use of their content, including ratings. Credit ratings are statements of opinions and are not statements
of fact or recommendations to purchase hold or sell securities. They do not address the suitability of securities or the suitability of securities for
investment purposes, and should not be relied on as investment advice.
Any MSCI sourced information in this document is the exclusive property of MSCI Inc. (‘MSCI’). Without prior written permission of MSCI, this
information and any other MSCI intellectual property may not be reproduced, re-disseminated or used to create any financial products, including
any indices. This information is provided on an "as is" basis. The user assumes the entire risk of any use made of this information. MSCI, its
affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of
originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any
of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information
have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its affiliates.
Russell/Nomura Japan Equity Indexes are protected by certain intellectual property rights of Nomura Securities Co., Ltd. and Russell
Investments. Nomura Securities Co., Ltd. and Russell Investments do not guarantee the accuracy, completeness, reliability, or usefulness
thereof and do not account for business activities and services that any index user and its affiliates undertake with the use of the Indexes.
Investors should consider this document as only a single factor in making their investment decision and, as such, the report should not be
viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment decision. Nomura Group produces a
number of different types of research product including, among others, fundamental analysis and quantitative analysis; recommendations
contained in one type of research product may differ from recommendations contained in other types of research product, whether as a result of
differing time horizons, methodologies or otherwise. Nomura Group publishes research product in a number of different ways including the
posting of product on Nomura Group portals and/or distribution directly to clients. Different groups of clients may receive different products and
services from the research department depending on their individual requirements.
Figures presented herein may refer to past performance or simulations based on past performance which are not reliable indicators of future
performance. Where the information contains an indication of future performance, such forecasts may not be a reliable indicator of future
performance. Moreover, simulations are based on models and simplifying assumptions which may oversimplify and not reflect the future
distribution of returns.
Certain securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or price of, or income derived
from, the investment.
The securities described herein may not have been registered under the US Securities Act of 1933 (the ‘1933 Act’), and, in such case, may not
be offered or sold in the US or to US persons unless they have been registered under the 1933 Act, or except in compliance with an exemption
from the registration requirements of the 1933 Act. Unless governing law permits otherwise, any transaction should be executed via a Nomura
entity in your home jurisdiction.
This document has been approved for distribution in the UK and European Economic Area as investment research by NIplc. NIplc is authorised
by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. NIplc is a
member of the London Stock Exchange. This document does not constitute a personal recommendation within the meaning of applicable
regulations in the UK, or take into account the particular investment objectives, financial situations, or needs of individual investors. This
document is intended only for investors who are 'eligible counterparties' or 'professional clients' for the purposes of applicable regulations in the
UK, and may not, therefore, be redistributed to persons who are 'retail clients' for such purposes. This document has been approved by NIHK,
which is regulated by the Hong Kong Securities and Futures Commission, for distribution in Hong Kong by NIHK. This document has been
approved for distribution in Australia by NAL, which is authorized and regulated in Australia by the ASIC. This document has also been
approved for distribution in Malaysia by NSM. In Singapore, this document has been distributed by NSL. NSL accepts legal responsibility for the
content of this document, where it concerns securities, futures and foreign exchange, issued by their foreign affiliates in respect of recipients
who are not accredited, expert or institutional investors as defined by the Securities and Futures Act (Chapter 289). Recipients of this document
in Singapore should contact NSL in respect of matters arising from, or in connection with, this document. Unless prohibited by the provisions of
Regulation S of the 1933 Act, this material is distributed in the US, by NSI, a US-registered broker-dealer, which accepts responsibility for its
contents in accordance with the provisions of Rule 15a-6, under the US Securities Exchange Act of 1934. The entity that prepared this
document permits its separately operated affiliates within the Nomura Group to make copies of such documents available to their clients.
This document has not been approved for distribution to persons other than ‘Authorised Persons’, ‘Exempt Persons’ or ‘Institutions’ (as defined
by the Capital Markets Authority) in the Kingdom of Saudi Arabia (‘Saudi Arabia’) or 'professional clients' (as defined by the Dubai Financial
Services Authority) in the United Arab Emirates (‘UAE’) or a ‘Market Counterparty’ or ‘Business Customers’ (as defined by the Qatar Financial
Centre Regulatory Authority) in the State of Qatar (‘Qatar’) by Nomura Saudi Arabia, NIplc or any other member of Nomura Group, as the case
may be. Neither this document nor any copy thereof may be taken or transmitted or distributed, directly or indirectly, by any person other than
those authorised to do so into Saudi Arabia or in the UAE or in Qatar or to any person other than ‘Authorised Persons’, ‘Exempt Persons’ or
‘Institutions’ located in Saudi Arabia or 'professional clients' in the UAE or a ‘Market Counterparty’ or ‘Business Customers’ in Qatar . By
accepting to receive this document, you represent that you are not located in Saudi Arabia or that you are an ‘Authorised Person’, an ‘Exempt
Person’ or an ‘Institution’ in Saudi Arabia or that you are a 'professional client' in the UAE or a ‘Market Counterparty’ or ‘Business Customers’ in
Qatar and agree to comply with these restrictions. Any failure to comply with these restrictions may constitute a violation of the laws of the UAE
or Saudi Arabia or Qatar.
NO PART OF THIS MATERIAL MAY BE (I) COPIED, PHOTOCOPIED, OR DUPLICATED IN ANY FORM, BY ANY MEANS; OR (II)
REDISTRIBUTED WITHOUT THE PRIOR WRITTEN CONSENT OF A MEMBER OF NOMURA GROUP. If this document has been distributed
by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be
intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors
or omissions in the contents of this document, which may arise as a result of electronic transmission. If verification is required, please request a
hard-copy version.

13
Nomura | Suzlon Energy 4 August 2015

Nomura Group manages conflicts with respect to the production of research through its compliance policies and procedures (including, but not
limited to, Conflicts of Interest, Chinese Wall and Confidentiality policies) as well as through the maintenance of Chinese walls and employee
training.
Additional information is available upon request and disclosure information is available at the Nomura Disclosure web
page: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx
Copyright © 2015 Nomura International (Hong Kong) Ltd. All rights reserved.

14