Caught in headwinds

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Jan 16 2012, 01:48 IST

We continue to expect Suzlon to end FY12 in the black after two consecutive years of losses. However, we reduce volume sales and margin assumptions because: (I) a weak global macro environment has tightened project financing and we expect shipment delays for REpower despite a strong order book of 2.7GW (as at October 2011), even if this is compensated by a higher EUR/INR rate (9% in the past five months); (ii) we expect the Indian wind market to decline in 2012/13 and anticipate more pricing pressure leading to margin compression. We cut our FY12 and FY13 EPS (pre-exceptional) by 90% and 60% respectively, and remain below management guidance for FY12 and consensus.

In on our global wind update, we cut our medium-term global wind installation forecast largely driven by the regulatory uncertainty in southern Europe and the US. In view of this cut and a likely tightening in the project finance market on the back of a weak macro environment, we expect some delays in turbine off-take by developers, especially for Repower.

We therefore cut our short- to medium-term volume sales forecasts for Suzlon group in spite of a relatively strong order book. However we note that this volume decline is compensated by a higher EUR/INR rate especially for FY12 and FY13. We have also adjusted our interest rate assumptions to factor the increase in interest rates in India over the past few months, which was also reflected in the company’s performance in the last quarter. For FY12, our revised forecast also

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