- Suzlon Energy shares dropped nearly 10% despite 26% revenue growth in Q2 FY27
- Q2 net profit fell 69%, mainly due to a high base from deferred tax asset in prior year
- EBITDA margin contracted to 14.8% from 18.6%, with cash flow turning negative in H1 FY27
Suzlon Energy shares tumbled nearly 10% on Friday, October 30, even as the wind turbine maker reported 26% year-on-year revenue growth and record quarterly deliveries in Q2 FY27.
The stock's sharp decline came amid concerns over contracting operating margins, weak cash conversion and a more challenging growth outlook, leading brokerages to reassess their calls.
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JM Financial downgraded Suzlon to 'Add' from 'Buy' and cut its target price to Rs 40 from Rs 46. Nuvama Institutional Equities retained its 'Hold' rating but lowered its target to Rs 41 from Rs 51. UBS, meanwhile, maintained its 'Buy' rating, although it reduced its target price to Rs 58 from Rs 66, implying an upside of around 58% from the stock's recent levels.
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On the BSE, Suzlon Energy shares fell as much as 9.73% to an intraday low of Rs 33.21. At 10:06 am, the stock was trading at Rs 33.90, down 7.8%. In comparison, the Sensex was up 0.12% at 74,239.
Suzlon Energy Q2 Results: Revenue Grows 26%, But Margins Take A Hit
Suzlon Energy reported a 69.2% year-on-year decline in consolidated net profit to Rs 394 crore in Q2 FY27. However, the steep fall in reported profit was largely due to a high base in the year-ago quarter, when the company recognised a deferred tax asset worth Rs 891 crore.
Excluding this one-off impact, net profit increased 1.3% to Rs 394 crore from Rs 389 crore in Q2 FY26, according to the company's earnings presentation.
Revenue rose 26% to Rs 4,869 crore from Rs 3,866 crore a year earlier. However, EBITDA remained almost flat at Rs 720 crore against Rs 721 crore in the corresponding quarter last year.
The pressure was more visible at the operating level. EBITDA margin contracted to 14.8% from 18.6% a year ago, while profit before tax declined to Rs 518 crore from Rs 563 crore.
Suzlon delivered 710 megawatts (MW) during the quarter, up from 565 MW in Q2 FY26. Installations also increased sharply, with the company commissioning 454 MW during the period.
Its order book stood at more than 6 gigawatts (GW), while order intake exceeded 1.5 GW in the first half of FY27. Public sector undertakings and commercial and industrial customers accounted for 78% of the order book.
The company's consolidated net worth stood at Rs 10,277 crore, while its net cash position was Rs 2,048 crore. CRISIL also upgraded Suzlon's long-term credit rating to AA-/Stable.
JM Financial Downgrades Suzlon To Add, Flags Competition And Growth Risks
JM Financial downgraded Suzlon Energy to 'Add' from 'Buy' and cut its target price to Rs 40 from Rs 46, citing concerns over margin pressure and the company's growth prospects beyond FY28.
The brokerage noted that Q2 revenue came in at Rs 4,900 crore, while EBITDA margin fell to 15% from 18.6% a year ago. It attributed the margin decline primarily to a higher engineering, procurement and construction (EPC) mix.
Suzlon's order book had an EPC share of 38% in Q2, compared with 32% in Q1. Management is targeting an increase in this share to 50% by FY28.
JM Financial expects deliveries of 3 GW, 3.3 GW and 3.5 GW in FY27, FY28 and FY29, respectively. However, it has lowered its EBITDA margin assumptions for these years to 15%, 16% and 15%, in line with management guidance.
The brokerage flagged a more challenging industry environment from FY28 onwards, citing India's estimated annual wind market of 7-8 GW and industry capacity of 15-20 GW. It also highlighted rising competition and the execution challenges associated with a single-product business.
Nuvama Retains Hold, Flags Negative Operating Cash Flow
Nuvama Institutional Equities retained its 'Hold' rating on Suzlon but reduced its target price to Rs 41 from Rs 51.
The brokerage acknowledged strong execution, with deliveries of 710 MW exceeding its estimate of 690 MW. However, EBITDA margin came in at 14.8%, below its estimate of 16.6%, resulting in an approximately 10% miss on EBITDA and profit after tax.
Nuvama attributed the margin weakness to foreign exchange and commodity headwinds, which affected margins by around 50 basis points, and Suzlon 2.0-related costs, which had an impact of approximately 100 basis points. It estimated the normalised margin at 16.5-17%.
Cash conversion was another concern. Receivables and inventory increased by Rs 540 crore and Rs 950 crore, respectively, contributing to negative operating cash flow of Rs 180 crore during the quarter.
Nuvama cut its FY27 and FY28 earnings-per-share estimates by 9% and 7%, respectively, and introduced FY29 estimates. It now values Suzlon at 20 times FY29 earnings.
UBS Maintains Buy, But Cuts Target Price To Rs 58
UBS remains more optimistic than its peers, retaining a 'Buy' rating on Suzlon Energy despite reducing its target price to Rs 58 from Rs 66. The revised target still implies an upside of around 58%.
The brokerage highlighted the 26% revenue growth and 26% increase in wind turbine deliveries to 710 MW. However, it pointed to the 386-basis-point year-on-year contraction in EBITDA margin to 14.8%.
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UBS also flagged the company's weaker cash flow, with operating cash flow turning negative by around Rs 2 billion in the first half of FY27. It noted that Suzlon had lowered its FY27 EBITDA margin guidance to 15-16% from 17%.
The brokerage cut its FY27, FY28 and FY29 EPS estimates by 10%, 11% and 9%, respectively. However, it retained the company's longer-term FY31 ambitions of around 40% market share and annual sales of approximately 10 GW.
Suzlon Energy: Three Brokerages, Three Different Calls
The latest brokerage assessments point to a common concern over Suzlon's margins and cash generation, but differ on the stock's longer-term potential.
JM Financial has turned more cautious, downgrading the stock to 'Add' and flagging competition and market constraints beyond FY28. Nuvama continues to recommend 'Hold', citing margin pressure and weak cash conversion. UBS remains bullish, arguing that the company's execution and longer-term growth ambitions support its 'Buy' call, despite lower earnings estimates and a reduced target price.
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