Anand Rathi suggests these two renewable energy stocks on strong finances

“We initiate coverage of these two companies, with Buy ratings, at TPs of respectively Rs49 (35x FY26e PE) and Rs590 (30x FY26e PE),” the brokerage firm said.

The firm has set a target price of ₹49 for Suzlon Energy. The company has a 32 percent market share in India’s wind turbines sector, achieved a net-cash status in the first nine months of FY24, marking its first instance since FY06.

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“India’s wind-turbine generators were hit by little capacity added and high debt. Suzlon, however, with ~32% of India’s installed wind-energy capacity, turned net cash (H1 FY24) for the first time since FY06, while Inox re-structured its balance sheet, which would support faster growth ahead. We expect keener competition as demand recovers, especially from those like Envision,” it said in a note.

Meanwhile, for Inox Wind, the brokerage firm predicts a target price of ₹590. With its complete integration in the wind energy sector, Inox Wind is poised to reap the rewards of the sector’s upswing, as per Anand Rathi.

Following a prolonged period of stagnation since FY17, Suzlon Energy and Inox Wind have witnessed significant boosts in their order books, thereby ensuring earnings stability, according to the brokerage. Additionally, the brokerage noted a decrease in competitive pressure within the sector as several players have exited, leaving only two major players to dominate the market.

Over the last year, both stocks have surged multiple times, propelled by promising growth prospects. The brokerage firm foresees upside potential in both of them.

It further noted that during the FY08 rally, Suzlon Energy Ltd traded at a price-to-earnings ratio (PER) of 28, reaching its peak before the global financial crisis impacted businesses worldwide. As Suzlon Energy’s WTG (Wind Turbine Generator) business began recovering during FY16-17, both Suzlon Energy and Inox Wind traded at PERs ranging from 10 to 12.5, with respective earnings in FY16/17 (and EV/EBITDA ratios ranging from 6 to 15).

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The significant rise in multiples re-evaluations can be attributed to several factors: notably, the improving return on equity anticipated for Suzlon Energy and Inox Wind in FY25 and FY26, expected to range between 20-39% compared to the previous -13% to 28% in FY16/17. This shift is accompanied by reduced competition following sector consolidation and a dedicated effort towards bolstering financials, with both companies nearing debt-free status.

Suzlon Energy stock was trading over 5% higher on Thursday, closed at ₹40 per share. Whereas, Inox Wind shares closed lower 2.13% at ₹518.

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Published: 28 Mar 2024, 10:36 PM IST