Suzlon: A profitable Q3-17 comforts; does not support a stock price break out

SoEvery profitable quarter for Suzlon adds to our comfort in the outlook and the turnaround story at play. While  we are comforted by a profitable quarter, we also observe certain issues which indicate the outlook and turnaround story is not as rosy as Suzlon would want us to believe.

Observation 1: Not winning market share

We do not believe in Suzlon managements claim that it is on a path to moving towards a market share of around 50%. Comparing the order backlog of Suzlon with its listed competitor Inox Wind makes it very clear that Suzlon is very far from a getting a market share of around 50%

Order Backlog (MW) Suzlon Vs Inox Wind

Quarter Ending Suzlon Inox Wind
31-Dec-17 1,231
30-Sep-16 1,136 1,346
30-Jun-16 1,205 1,240
31-Mar-16 1,243  1,104
31-Dec-15 897 1,146
30-Sep-15 1,092 1,202
30-Jun-15 1,107  1,220
31-Mar-15 1,123  1,178

Observation 2: Order book looks flat

The order book is flat and not showing any signs of growing.

Order Book as of Quarter Ending Order Book (MW)
31-Dec-17 1,231
30-Sep-16 1,136
30-Jun-16 1,205
31-Mar-16 1,243
31-Dec-15 897
30-Sep-15 1,092
30-Jun-15 1,107
31-Mar-15 1,123

Observation 3: Order book yielding a lower realization per MW

We see the order book yielding the lowest realization of Rs 6.11 Cr per MW in the last 8 quarters. Incidentally, Suzlon had highlighted the realization of Rs 6.43 Cr per MW for the quarter ended 31-Mar-16. We did not notice a mention of the same metric after 31-Mar-16.

The secular trend of realizations trending lower does not bode well for the margin profile of Suzlon.

Quarter Ending Order Backlog(MW) Order Backlog(Cr)  Realization(Cr/MW)
31-Dec-17 1,231 7,523 6.11
30-Sep-16 1,136 7,165 6.31
30-Jun-16 1,205 7,657 6.35
31-Mar-16 1,243 7,989 6.43
31-Dec-15 897 5,527 6.16
30-Sep-15 1,092 6,812 6.24
30-Jun-15 1,107 6,839 6.18
31-Mar-15 1,123 6,886 6.13

So What?

If you have a position in Suzlon then one needs to sit tight and be patient. If you are done being patient, then use the volatility in price to be on the lookout for a profitable/ break even exit.

If you are looking to buy Suzlon, then you need to use volatility in prices to enter into the stock. We have a psychological benchmark of Rs 18 per share, the price at which DSA entered Suzlon. If one gets entry at a point significantly below the psychological benchmark then one could consider an entry.

Additional Reading

Suzlon: Not for the faint hearted and impatient investor

Suzlon: Q1-17 is not good

Suzlon: Q2-17 looks better; but not enough to rerate the stock price

Suzlon: A profitable Q3-17 comforts; does not support a stock price break out

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