Suzlon Energy sees strong execution as Suzlon 2.0 investment weighs on margins

Investment View and Key Takeaways

Anand Rathi Research maintains a BUY rating on Suzlon Energy following a strong Q1 FY27 execution performance that exceeded its delivery and revenue expectations, although profitability missed estimates. The broker believes Suzlon is positioned to benefit from the domestic wind opportunity, supported by a healthy order book, execution visibility and a widening product portfolio.

Operating leverage is expected to improve in H2 FY27 as execution accelerates. The S175 platform, the DevCo model and selective international expansion provide medium-term growth avenues. Following the recent correction, Anand Rathi believes the valuation offers better risk-reward, supported by Suzlon's market position, execution pipeline and industry tailwinds.

Q1 FY27 Financial Performance

Suzlon delivered a record 506 MW of wind turbine generators in Q1 FY27, up 14 per cent year on year and above Anand Rathi's estimate of 484 MW. Higher EPC projects lifted realisation to Rs 6.27 crore per MW, an 11.7 per cent year-on-year increase. Consolidated revenue rose 22.3 per cent year on year to Rs 3,829 crore, ahead of Anand Rathi's estimate of Rs 3,550 crore and broadly in line with consensus of Rs 3,850 crore.

Profitability was below expectations, with EBITDA declining 0.6 per cent year on year to Rs 595 crore, compared with Anand Rathi's estimate of Rs 667 crore and consensus of Rs 630 crore. Adjusted PAT fell 15.2 per cent to Rs 389 crore, versus the broker's estimate of Rs 490 crore and consensus of Rs 410 crore.

Margin Pressure and Operating Leverage

EBITDA margin contracted 358 basis points year on year to 15.6 per cent, compared with Anand Rathi's estimate of 18.8 per cent, while adjusted PAT margin declined to 10.2 per cent. The margin shortfall reflected a richer EPC mix, geopolitical disruptions affecting deliveries, lower fixed-cost absorption and upfront Suzlon 2.0 expenditure.

EPC projects accounted for 32 per cent of scope in Q1 FY27, compared with 22 per cent in Q1 FY26. Wind turbine generator and renewable solutions revenue grew 27.2 per cent year on year to Rs 3,174 crore, but segment EBIT margin declined 524 basis points to 8.3 per cent.

Management expects the incremental costs to be absorbed as delivery volumes rise in H2 FY27. It retained EBITDA-margin guidance of 17-18 per cent, with a potential variation of 50-100 basis points.

Order Book and Execution Visibility

The order book stood at 5,933 MW at the end of Q1 FY27 and increased to 6,135 MW by July 2026, aided by about 1 GW of FY27 year-to-date inflows. S144 represented 88 per cent of the order book, S120 represented 10 per cent and the newly unveiled 5 MW S175 platform represented 2 per cent.

About 84 per cent of the order book was from PSU and commercial and industrial customers, which management indicated improves cash conversion. Despite logistics disruptions affecting about 10-20 per cent of deliveries, installations increased about 2.3 times year on year to 269 MW. More than 1.2 GW had been erected and was awaiting commissioning.

Renewable Energy Asset Management and Manufacturing

Renewable energy asset management remained Suzlon's stable, high-margin annuity business. Q1 FY27 revenue grew 8.1 per cent year on year to Rs 632 crore as the managed fleet reached 16.1 GW. EBIT margin expanded 450 basis points to 33.6 per cent.

Management said asset-management EBITDA margin of about 43 per cent in the quarter reflected timing factors and expects a sustainable range of 38-40 per cent, supported by more than 95 per cent machine availability.

Foundry and forging revenue declined 14.1 per cent to Rs 126 crore. Forging capacity utilisation improved marginally to 32 per cent, while Suzlon's share of SE Forge revenue increased to 71 per cent from 62 per cent a year earlier.

Growth Investments and Strategic Initiatives

Management reiterated capital-expenditure guidance of about Rs 700 crore for capacity expansion, blade facilities and next-generation platforms. Working-capital requirements are expected to rise as the DevCo model scales.

Suzlon has secured about 602 MW of DevCo projects and plans calibrated investment of about Rs 500 crore, compared with about Rs 200 crore currently. It intends to use its land bank and grid connectivity to enable faster execution and deeper value capture.

Management expects international revenue to scale over 18-24 months through the S175 rollout and a selective strategy targeting repowering markets and areas with an existing Suzlon fleet. The first domestic S175 order delivery is expected by FY27.

Revised Estimates and Valuation

Anand Rathi reduced its FY27E and FY28E EBITDA estimates by 3.3 per cent and 2.2 per cent, respectively, to reflect the higher EPC mix and slower absorption of growth investments.

The target price was reduced to Rs 56 from Rs 60, based on 15 times FY28E EBITDA. The recommendation remains BUY.

Key Risks

• Execution and margin pressure arising from Suzlon 2.0 investment.
• A slower-than-expected shift to firm and dispatchable renewable energy and co-development projects.
• A delay in international operations achieving scale and operating leverage.