Centrum Broking has reiterated its 'buy' recommendation for Suzlon Energy Ltd., forecasting a significant upside for the wind energy company's shares. Despite reducing its target price to Rs 68 from an earlier Rs 74, Centrum suggests this new target still implies a potential 100% rally from recent closing prices, driven by a robust order book and strategic growth initiatives.
The brokerage's revised outlook follows Suzlon's second-quarter FY27 results, which were largely in line with expectations. However, Centrum adjusted its earnings estimates for FY27-FY29 downwards, primarily citing weaker operating margins.
Strong Revenue Growth and Order Book Visibility
Suzlon Energy reported a 26% year-on-year increase in revenue, reaching Rs 4,880 crore, fueled by higher turbine deliveries and commissioning. Deliveries surged to 710 MW from 506 MW in the previous quarter, with commissioning also rising significantly to 454 MW.
A key factor underpinning Centrum's positive stance is Suzlon's substantial 6.01 GW order book, which provides an estimated 18 months of revenue visibility. Public sector undertakings (PSUs) and commercial and industrial (C&I) clients account for 78% of this order book, indicating stable demand. The company also secured 1.5 GW in new orders during the first half of FY27.
Margin Pressures and Strategic Initiatives
Despite strong revenue performance, Suzlon's EBITDA margin declined by 80 basis points sequentially to 15%, falling below estimates. This was attributed to higher direct costs, customer and EPC mix, commodity and foreign exchange volatility, and non-recurring expenses related to the company's 'Suzlon 2.0' initiatives. Management anticipates FY27 margins to remain around 15%, with potential upside from operating leverage in the second half and ongoing cost-optimization efforts.
Centrum highlights several 'Suzlon 2.0' initiatives expected to support future growth. These include the development of higher-capacity turbines, expansion of its DevCo business (which has secured 900 MW in orders), repowering older projects, renewable asset management, and a push into export markets starting from FY28. The brokerage also expects Suzlon to benefit from India's increasing wind capacity additions and tender activity.
Brokerage Consensus and Risks
While Centrum maintains a 'buy' rating, other brokerage firms have offered mixed views. JM Financial and Axis Capital downgraded Suzlon to 'add' with revised targets of Rs 40 and Rs 42, respectively. Anand Rathi downgraded to 'hold' with a Rs 38 target. Conversely, ICICI Securities and Investec maintained their 'buy' ratings, albeit trimming their targets to Rs 55 and Rs 56.
Key risks identified by Centrum include commodity and foreign exchange volatility, potential execution delays in project delivery, and working-capital intensity. However, Suzlon's established operations and maintenance business and a net cash position of Rs 2,048 crore provide financial flexibility and recurring earnings support.