Suzlon Energy: Q2-25 Earnings Call Highlights
Strong order book. Expansion into the multi-brand O&M market. Focused on operational efficiency & capacity expansion. competitive increasing. Confident to maintain market leadership position
suzlon.com | NSE: SUZLON
1. Key Takeaways
1.1 TLDR
The Q2 FY25 earnings call paints a positive picture for Suzlon Energy.
The company is experiencing robust growth driven by a strong order book and strategic expansion into the multi-brand O&M market.
Management is focused on operational efficiency and capacity expansion to meet future demand.
While competitive intensity is acknowledged, Suzlon is confident in their ability to maintain their market leadership position.
Management addressed investor concerns regarding execution capabilities and margin sustainability, emphasizing their commitment to profitable growth. Future strategic moves to expand into new areas and enhance stakeholder value will be keenly watched by the market.
1.2 Operational Highlights:
Financial Performance
Robust Revenue Growth: Suzlon achieved a consolidated revenue of ₹2,930 crore in Q2 FY25, marking a significant 48% increase compared to Q2 FY24. This growth is primarily attributed to increased deliveries, reaching 256 MW, the highest second-quarter delivery in the past seven years
Strong EBITDA Performance: Earnings before interest, taxes, depreciation, and amortisation (EBITDA) also demonstrated a healthy growth of 31%, reaching ₹294 crore in Q2 FY25. While the EBITDA margin slightly decreased to 14.1% compared to Q2 FY24, this is attributed to strategic investments in organisational build-up, technology, and capacity expansion.
Profitability Increase: Profit after tax (PAT) soared by an impressive 96% year-on-year, reaching ₹101 crore in Q2 FY25.
Strong Balance Sheet: Suzlon boasts a strong consolidated net worth of ₹4,495 crore and a net cash position of ₹1,277 crore as of September 2024.
Contribution Margin Stability: Despite some concerns about a dip in gross margin, the management clarified that the contribution margin for the WTG business remained stable, with gross margins in the late teens to early twenties. Any minor fluctuations are attributed to commodity price variations and other cost of goods sold (COGS) items.
Impact of Acquisitions and Divestitures: Suzlon's Q2 FY25 financials include the consolidation of REOM's performance for a 25-day period following the acquisition in early September. The divestiture of the One Earth property resulted in a monthly lease expense of approximately ₹4 crore.
Factors Influencing Financial Performance:
Increased Deliveries: The surge in revenue and profitability is directly linked to Suzlon's increased deliveries, demonstrating their ability to execute projects and convert their order book into revenue.
Strategic Investments: Investments in capacity expansion, technology, and human resources are positioning Suzlon to meet future demand and drive long-term growth, even though they impact short-term margins.
Focus on High-Value Orders: Suzlon is prioritising "quality orders with higher value and better margins", contributing to profitability and a robust financial position.
Challenges and Considerations:
Industry-wide Gap Between Supplies and Commissioning: Despite strong deliveries, the industry is witnessing a lag between turbine supplies and actual commissioning (COD), impacting revenue recognition timing. Factors like monsoon disruptions, delays in substation readiness, and grid connectivity issues contribute to this gap
Competitive Intensity: The influx of new players in the Indian renewable energy market requires Suzlon to constantly adapt and optimise its cost structure while maintaining strong client relationships.
Looking Ahead:
Suzlon appears to be in a strong financial position, capitalising on the growing demand for renewable energy in India.
1.3 Key Themes:
Strong Order Book and Growth Trajectory: Suzlon secured the largest ever single order in the Indian wind industry from NTPC Green for 1.166 GW. This pushed their order book to over 5 GW, providing strong revenue visibility for the next 18-24 months. The company expects a significant ramp-up in deliveries in the coming quarters.
While the first half of FY25 saw lower-than-expected installations due to monsoon disruptions, management remains confident of achieving the 5 GW target for the full fiscal year, citing a significant number of turbines in the pre-commissioning phase
Acquisition of Renom and Strategic Expansion: The acquisition of Renom marked Suzlon's entry into the multi-brand Operations and Maintenance (O&M) sector. This strategic move leverages Renom's market position and Suzlon's expertise to enhance their service offerings and profitability.
Capacity Expansion and Operational Efficiency: Suzlon is aggressively expanding its manufacturing capacity to 4.5 GW by the end of FY25. This includes restarting the Pondicherry plant and increasing capacity at the Daman facility. The company is also investing in operational efficiency improvements, including the implementation of SAP S4 HANA.
Future Strategy and Stakeholder Value: Management highlighted their focus on consolidating their core business and exploring adjacent opportunities to further enhance stakeholder value. They are engaging a leading global management consultant to assist in this process.
Key Quotes
Largest Ever Order Book: "Our order book now exceeds 5 GW, an unparalleled achievement in the industry."
"We are now well positioned to seize the multi-decade opportunity in India's energy transition equipped with the largest ever order book and a strong pipeline of projects under discussion."
Focus on PSU and C&I Segments: "On the execution front, Suzlon has now established itself as a supplier of choice for PSUs while also being a key partner for C&I customers."
Renom Acquisition: "Suzlon acquired Renom, marking a pivotal entry into the multi-brand O&M sector and unlocking significant growth potential in this area."
Robust Revenue Growth: "Suzlon continues its exponential growth trajectory with consolidated revenue showing robust growth of 48% on a year-on-year basis."
Capacity Ramp-up: "We are now ramped up to about 4.5 GW across all components of tower, blade and nacelle. So that's what our manufacturing capacity on a per annum basis would be."
Margin Profiling: "The WTG gross margin will be in the mid-to-late teens, whereas the MS business gross margin will be about 65%."
Strategic Focus: "We are now in a stage of consolidating our core business on a quarter-on-quarter basis. And once we do that in the next couple of quarters, then obviously we would look at other opportunities for growing around our core."
Competition and Differentiation: "Competition has always been there and would continue to be there. We are absolutely conscious about that and… we need to be constantly… sharpening our model… reducing our cost but not… compromise on our margins."
"Our pioneering business model of end-to-end offerings for wind energy value chain, fully integrated supply chain, track record of positive execution and best-in-class service cannot be easily replicated which provides us with a strong competitive edge."
"These decisive investments are set to significantly enhance our competitiveness, drive efficiency and elevate profitability to new heights."
Suzlon Energy Limited Q2 FY25 Earnings Call FAQ
1. What is the current status of Suzlon's order book and what is the expected execution timeline?
Suzlon's current order book stands at an impressive 5.1 GW, the largest ever in the company’s history. The company expects to execute this order book within the next 18 to 24 months. This robust order book reflects strong demand and the company’s leadership in the wind energy sector. Importantly, Suzlon only includes confirmed projects with financial commitments in its order book, excluding framework agreements.
2. How has the recent acquisition of Renom strengthened Suzlon's market position?
The acquisition of Renom marks Suzlon's strategic entry into the multi-brand operations and maintenance (O&M) sector. This move significantly expands Suzlon's service portfolio by leveraging Renom's strong market position and expertise in independent service provider (ISP) services. This expansion will allow Suzlon to access a broader customer base and unlock substantial growth opportunities.
3. What are Suzlon's plans to expand production capacity to meet the growing demand?
Suzlon is actively increasing production capacity to align with its robust order book and anticipated market growth. By March 2025, the company aims to achieve a total manufacturing capacity of 4.5 GW across all key components, including towers, blades, and nacelles. This expansion involves restarting the Pondicherry plant and upgrading facilities at the Daman plant. The company emphasizes a phased approach to ensure seamless ramp-up and efficient execution.
4. Why were wind installations lower than expected in the first half of FY25 and what is the outlook for the rest of the year?
Wind installations in the first half of FY25 were impacted by severe monsoon disruptions in key regions like Gujarat and Karnataka. However, a significant number of turbines are in the pre-commissioning phase and expected to be completed in the second half of the year. Suzlon remains confident of achieving wind installations close to 5 GW for the full financial year, driven by the completion of these pending projects.
5. How do Suzlon's profit margins in the wind turbine generator (WTG) and the maintenance services (MS) segments compare?
Suzlon maintains distinct margin profiles for its WTG and MS businesses. The WTG business operates with gross margins in the mid to late teens, while the MS business boasts a significantly higher gross margin of around 65%. While consolidated margins might show fluctuations due to the varying contributions of these segments, Suzlon emphasizes a focus on both top-line growth and profitability optimization.
6. What is Suzlon's strategy for addressing competition in the wind energy market?
Suzlon acknowledges the intensifying competition from both domestic and international players, particularly Chinese companies entering the Indian market. The company plans to leverage its strong relationships with repeat customers, cost optimization strategies, and continuous innovation to maintain its competitive edge. Suzlon remains committed to delivering high-quality products and services while ensuring sustainable growth and value creation for stakeholders.
7. Does Suzlon have any plans to diversify its business beyond wind energy, specifically into solar energy?
While Suzlon remains focused on its core wind energy business, the company is open to exploring adjacent opportunities that complement its existing strengths and enhance stakeholder value. At present, there are no concrete plans to venture into solar energy independently. However, Suzlon is willing to undertake hybrid projects that include both wind and solar components if requested by clients seeking a single supplier.
8. Is Suzlon exploring opportunities to expand its operations and services outside of India?
Yes, Suzlon is actively seeking international expansion opportunities, particularly in its service business and specialized components division. The company aims to grow its service presence outside India by regaining lost ground and capitalizing on new markets. In the specialized components division, the focus is on expanding exports and diversifying into non-wind segments such as defense, railways, and other industrial applications.
Source: Link to Earning Call Recording
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