Suzlon Energy stock slumps 5% after independent director quits; Nuvama retains 'buy' rating

On the morning of June 10, Suzlon Energy's shares fell by more than 5% following the resignation of Marc Desaedeleer, an Independent Director, effective from June 8. Desaedeleer's resignation letter cited several instances where the company's governance standards failed to meet his expectations, specifically mentioning that "communications lacked the level of openness and transparency" he anticipated.

In the resignation letter, Desaedeleer, who joined Suzlon's board in 2016, wrote, that he "expressed satisfaction with the company's operational and financial performance over the past eighteen months, but raised concerns over compliance and transparency. Several situations occurred where the corporate governance standards applied by the company did not meet my expectations, including situations where communications lacked the level of openness and transparency I would have liked to see."

The CEO of Suzlon Energy explained that the concerns raised were related to softer, process-oriented matters that would be addressed over time. The management emphasized that all legal and financial disclosures have been fully adhered to, in accordance with regulatory requirements.

Suzlon management in its statement sad, "None of the suggestions revolved around financial or operational irregularities or non-compliance with law. Suggestions were on the matters that did not meet Desaedeleer’s personal standard of expectations and speed of implementation." It is to be noted that Desaedeleer’s term was scheduled to end later this year in September.

After Suzlon's clarification, Nuvama Institutional maintained its positive outlook on the stock. Consequently, Suzlon Energy shares closed slightly higher at ₹49.90 on the National Stock Exchange (NSE) in the last session. In 2024, the stock has surged over 30%, significantly outperforming the benchmark Nifty's 7% return.

Suzlon Energy has the potential to sustain its leadership in WTG/turnkey EPC execution, resulting in a 21% order book (OB) and a 61% profit after tax (PAT) compound annual growth rate (CAGR) over FY24–27E, according to Nuvama's earlier report. The report, which initiated coverage on the stock, gave it a ‘Buy’ rating and set a target price of ₹53. "Peer group capital goods stocks with similar growth and RoE profiles trade at significant premiums," it said.

Suzlon Energy is now net debt-free and has arranged a working capital tie-up with REC. Analysts at Nuvama believe the company is well-positioned to reclaim its previous highs and sustain its leadership. The brokerage anticipates Suzlon Energy to maintain a market share of around 30%, with a significant increase in order intake and execution.

With Suzlon improving its financial position and anticipating an operational ramp-up in FY25, the management plans to prioritize addressing the business's needs. They intend to implement best-in-class suggestions over time. "We, hence, find no reason to stray away from our ‘BUY’ thesis on Suzlon (unchanged TP ₹53) driven by the upturn in the wind sector and financial turnaround of the company,” it added.

Recently, Morgan Stanley issued an 'Overweight' rating on Suzlon, identifying it as a key beneficiary of India's energy transition and well-positioned to capitalize on the shift to greener, cleaner energy. The brokerage predicts that Suzlon could receive wind orders amounting to approximately 32 GW or $31 billion over the next five years. Additionally, earnings are expected to grow at a 57% CAGR from FY24 to FY27, according to their note.

Over the past 12 months, Suzlon Energy stock has delivered multibagger returns of over 245%, more than tripling investors' money. In the last three years, the stock has achieved astronomical returns of 588%.