WORLD WIND ENERGY NET

UBS Investment has lowered its FY09 EPS estimate for Suzlon Energy by 20.5% to Rs 8.6, and FY10 estimate by 23.4% to Rs 12.2. It has also lowered the target price from Rs 305 to Rs 225, but has retained ‘neutral’ rating on the stock. The lower earnings estimates reflect lower sales volumes and lower EBITDA margins due to higher provisioning costs and raw material prices.

The revised estimates are 24-30 % lower than FY09 consensus estimates. UBS remains bullish on the long-term prospects of the wind energy sector, especially in China and the West. It estimates wind energy to be cheaper than coal and CCGT, including carbon costs. There have also been successful fundraisings by renewable utilities in Europe.

The acquisition of Honiton Energy in China by Suzlon’s main shareholder can potentially lead to orders in China , which is a hugely competitive market.

Hansen and REpower account for 40% of Suzlon’s m-cap . Hence, 60% of the valuation is accounted for by Suzlon’s remaining business, which contributes 90% to its consolidated earnings , indicating a better valuation for the acquired subsidiaries than for Suzlon . This valuation gap for Suzlon is likely to persist, given the execution slippages . Suzlon trades at a P/E of 22.5x for FY09, and 16x for FY10, compared to 30-32 x and 23x, respectively, for its peers.