Wind energy stocks experienced a downturn in recent sessions amid the sell-off in mid-and small-cap stocks. Additionally, reports suggesting that the government is considering reverting to the old method of 'reverse auctions' for auctioning wind power capacity to energy companies have also impacted wind energy stocks.
Suzlon Energy shares are currently trading at a 26% discount from their 52-week high of ₹50.6 per share, while Inox Wind shares are trading 30% lower than their one-year high of ₹648 per share.
Recognising this correction in the stocks as a favorable buying opportunity, domestic brokerage firm ICICI Securities has upgraded its rating on these two stocks.
According to the brokerage, the company has undergone a remarkable transformation following a challenging decade. Within the past three years, the company has significantly reduced its debt, which stood at ₹120 billion in FY20, primarily through debt-to-equity conversions.
This has propelled Suzlon Energy to achieve a positive net cash position, boasting a cash reserve of ₹7 billion as of December 2023, aided by a successful equity raise of ₹20 billion in Q2 FY24 focused on debt reduction, it highlighted.
Additionally, it says that favorable shifts in regulatory policies, coupled with advancements in the business landscape, present promising prospects for the wind industry.
The government's decision to tender out a minimum of 10 GW of wind capacity annually, alongside growing demand from commercial and industrial sectors for uninterrupted power supply, sets a positive trajectory for Suzlon, the leading player in the wind turbine industry, as per the brokerage.
As renewable energy (RE) projects evolve towards greater complexity, encompassing hybrid, round-the-clock (RTC), and firm day-ahead (FDRE) capabilities, wind energy is expected to remain integral to the RE generation landscape.
Suzlon has witnessed robust order inflows exceeding 3.1 GW in the year-to-date of FY24, a significant increase compared to less than 400 MW in FY23.
Given the sharp fall in the stock in the last week, the brokerage has upgraded to 'buy' and maintained its ₹48 target price, valuing the business at 35x FY26E EPS of ₹1.4 per share.
The brokerage highlighted Inox Wind's significant recovery following a period of slowdown in line with the wind energy sector, during which the company experienced a notable increase in debt. However, Inox Wind has been actively reducing its debt burden, and it is projected that its net debt will decrease to ₹4.7 billion by the end of FY24.
Furthermore, ICICI said that the company has seen a notable improvement in order inflows, particularly with an inflow of 1,829 MW in Q3 FY24. This increase is primarily attributed to a 1,500 MW order from CESC, which is anticipated to be completed over the next 3–4 years. This surge in orders has enhanced visibility in terms of execution growth over the next few years.
Additionally, there is a promising pipeline of order inflows expected over the coming quarters, driven by increased activity in awarding hybrid and wind projects during YTD–FY24, it noted.
With the recent decline in the stock price over the past week, the brokerage has upgraded its rating to 'buy' and maintained a P/E-based target price of ₹675 apiece, valuing the business at 28x FY26E EPS.
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 making any investment decisions.
