Multibagger Suzlon Energy stock climbs 5% to attain level last seen in April 2011; what’s behind the rally?

Renewable energy stocks in recent years have been gaining considerable momentum on Dalal Street, continually breaking new ground each day, with Suzlon Energy emerging as a standout performer in this sector.

In today's trade, the company's shares have gained 5% to hit the ₹53 mark, a level not seen since April 2011. After experiencing a prolonged downturn between 2008 and 2019, the shares rebounded significantly in 2020 with a 246% gain.

The shares continued their upward momentum in the following years, with gains of 60% in CY21, 13% in CY22, and an impressive 260% in the previous calendar year. So far this year, they have soared by 42%.

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This strong rally in shares is attributed to the company's steady order wins and its focus on debt reduction and efficient working capital management.

Suzlon Group is one of the leading renewable energy solutions providers in the world, with approximately 20.7 GW of wind energy capacity installed across 17 countries. Headquartered at Suzlon One Earth in Pune, India, the group comprises Suzlon Energy Limited and its subsidiaries.

The company is the country's largest wind energy service firm, with the largest portfolio of over 14.7 GW in wind energy assets. The group has 6 GW of installed capacity outside India. Suzlon offers a comprehensive product portfolio led by the 2 MW and 3 MW series of wind turbines, as outlined by the company on its website. 

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Positive outlook on Suzlon Energy

Domestic and global brokerage firms have recently initiated coverage on the stock, highlighting that the market has yet to fully appreciate the growth potential of this wind energy player.

Nuvama: Target price - ₹53

Recently, domestic brokerage firm Nuvama Institutional Equities initiated coverage on Suzlon with a 'buy' call and target price of ₹53 per share. However, the stock in today's trade breached the target price. 

Nuvama highlighted the company's financial turnaround and the structural upturn in the wind sector. 

It said that the company's ability to maintain its leadership in WTG/turnkey EPC execution will lead to a 21% order book (OB) and 61% PAT CAGR over FY24–27E. 

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The brokerage believes Suzlon is well-positioned to reclaim its previous highs and sustain its leadership, projecting the company to maintain a market share of around 30% and show a strong pickup in order intake and execution.

Morgan Stanley: Target price - ₹58.5

Likewise, global brokerage firm Morgan Stanley in early June initiated coverage on the stock with an 'Overweight' rating and set a target price of ₹58.5 apiece. Over the next five years, Suzlon could see wind orders of around 32 GW, or $31 billion. Earnings are likely to grow at a 57% CAGR from FY24 to FY27, the brokerage estimated.

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After going through significant deleveraging, and cutting fixed operation costs, Suzlon is much stronger and leaner. However, the wind energy player's growth potential has not been fully appreciated by the market, noted Morgan Stanley

ICICI Securities: Target price - ₹60

Similarly, ICICI Securities has also retained its 'buy' rating on the stock with a target price of ₹60 per share. The brokerage noted Suzlon Energy's focus on debt reduction and efficient working capital management over the past 15 months. 

It also highlighted the company's continuous efforts to enhance corporate governance, noting recent steps taken to improve transparency. It expressed confidence in Suzlon's ability to address specific corporate governance issues.

Anand Rathi: Target price - ₹58

In May, another domestic brokerage firm, Anand Rathi, also reiterated its 'buy' recommendation on Suzlon Energy with a price target of ₹58 per share. 

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The brokerage emphasised the company's significant market position in India's wind turbine sector and its achievement of net cash totaling ₹11.4 billion in FY24, marking the first instance since FY06.

The brokerage said that the company has faced turbulence in the past due to weak demand and high debt, hurting its prospects. However, its balance sheet turned around sharply, and with greater demand aided by ambitious government targets, it expects deliveries of 1.5–2 GW for FY25–26.

Sustaining growth

India’s resilience in the face of global challenges has been remarkable. As the country continues to grow, energy demand is expected to increase at an accelerated pace. In 2023, India’s power demand peaked at an unprecedented 243 GW.

Over the last decade, India’s peak power demand grew by over 5% annually. This growth is expected to continue, with India projected to experience the largest increase in energy demand globally until 2030. This surge is driven by efforts to provide electricity to every household, including those in the remotest villages. The increasing pace of economic activity and digitalisation is likely to boost power demand across industrial, commercial, and residential sectors.

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As of March 31, 2024, India has an installed power generation capacity of 442 GW. Out of this, 199 GW is from non-fossil fuel sources, representing 45% of the total capacity. Renewable energy dominated India’s power capacity additions, accounting for about 71% of the total in FY 2023–24.

The target of achieving 500 GW of non-fossil fuel capacity by 2030 has become even more crucial in light of recent developments emphasising energy security, affordability, and clean energy. To reach this goal, the government has set an ambitious plan to tender 50 GW of renewable energy bids every year up to FY 2027–28.

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Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.