Renewable energy companies underwent a ‘painful transition’ in the first quarter of financial year 2017-18, as various states moved from a feed-in tariff (FIT) to an auction-based one, according to a report by HSBC Global Research.
With the auction prices setting in and attaining ‘grid parity’ levels, wind-based power has become substantially competitive and commercially viable, it added.
HSBC sees the wind energy market recovering and improving by 2021-22.
However, due to transitionary glitches, the brokerage has lowered its volume, profit, revenue and earnings before interest, tax, depreciation and amortisation estimates for both Inox Wind Ltd. and Suzlon Energy Ltd.
Many states postponed the signing of power purchase agreements (PPAs) on projects that would be entitled to higher tariffs due to the change in regime.
As a result, many developers have resorted to abandoning projects or delaying payments to vendors as they await clarity from State governments.
The brokerage has made material changes in FY18 margin estimates, as Inox has cancelled all orders, while Suzlon managed to find customers, that had a high probability of securing PPAs.
- Inox Wind Ltd. has written down its entire order book and reported significant receivables
- EBITDA estimates for FY19 lowered by 120 basis points to 13.1 percent
- Stock upgraded to ‘Buy’ from ‘Hold’, and target price cut to Rs 166 from Rs 206
- Despite the transitionary obstacles, Suzlon managed to find some developers that are willing to take risks and continue with projects
- However, the company still guides for lower margins as the auction results will put pricing under pressure, added the brokerage
- EBITDA estimates for FY19 lowered by 20 basis points to 14 percent
- Maintained ‘Buy’ rating on the stock and target price cut to Rs 22 from Rs 26