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Morgan Stanley has downgraded Suzlon Energy's stock rating to 'equalweight' from 'overweight,' despite raising the price target to Rs 88 per share, implying an 8 percent upside from Thursday's closing price. This decision follows a significant 217 percent rally in Suzlon's stock over the past year, which has more than doubled investors' capital. In comparison, the Nifty has gained 30 percent during the same period.
The downgrade comes despite the brokerage acknowledging Suzlon's strong performance, driven by a burgeoning order book and improvements in its balance sheet and cash flows from operations. Suzlon's order book has reached an all-time high, nearing 5 GW, making the company a major beneficiary of India's wind energy growth. Analysts at Morgan Stanley anticipate Suzlon to further increase its market share to between 35 percent and 40 percent, fueled by continued strong ordering activity in the renewable energy sector. They expect 32 GW of new orders between FY25-30.
However, Morgan Stanley highlights execution risks that could impact Suzlon, despite the company's prudent order intake. The brokerage emphasizes that Suzlon's focus on C&I and captive customers, along with a large order from NTPC, provides some level of insulation from these risks. The acquisition of Renom by Suzlon, which provides the company access to the multi-brand O&M business, is also a positive development. While the brokerage is awaiting customer sign-ups in this new venture, it sees the potential for significant earnings growth from this segment.
Despite Suzlon's strong performance, Morgan Stanley believes the risk-reward profile of the stock has become more balanced. They emphasize the need for stronger execution compared to their base case scenario before turning constructive on the stock again. This sentiment underscores the brokerage's cautious optimism about Suzlon's future prospects.
Source: Suzlon Energy stock downgraded by Morgan Stanley after doubling YTD, target price still raised