Suzlon Energy Vs CG Power: India is currently undergoing a revolution in its energy space. The country that has always been massively dependent on burning coal is now shifting to something greener & cleaner.
The Companies that we will look at are at the forefront of this space. Although the Companies are slightly different, one manufactures products that generate energy while the other manufactures products to store this energy.
Table of Contents
Suzlon Energy Vs CG Power
In today’s article, we will look into when both these Companies came into existence & what it is that they manufacture today. We will run an extensive fundamental analysis of their financials. Then we will reach a conclusion on which is the better stock to bet on India’s energy revolution.
Company Overview
Suzlon Energy
Suzlon Energy Limited is a global renewable energy solutions provider. It provides services like designing, manufacturing, installation, and maintenance of wind turbines and related renewable energy components.
The Company was established by Late Shri Tulsi R. Tanti in 1995, in a technical collaboration with Sudwind Energy, Germany. 1996 it constructed its first 0.27 GW Wind Turbine Generator (WTG) in Gujarat.
Over the years, the Company has expanded its presence in over 17 countries, having constructed over 12,700+ WTGs with 20.1 Gigawatt of cumulative capacity. Asia & North America are Suzlon’s biggest markets contributing to 75% & 14% of the total installation capacity respectively.
The Suzlon Group has its in-house R&D centers in Germany, the Netherlands, Denmark & India. Apart from this, the Company has 14 manufacturing facilities across India, employing over 6,000 professionals.
Suzlon offers its wind turbines in three specific variants: S111-120, S120-140 & S144-140/160
- S111-120: It’s the smallest Wind turbine offered by the Company which has a hub height of 120m from the ground. Its turbine rotors spread across 111m in diameter. It can generate 2.1 MW of power.
- S120-140: This is the mid-variant that can be placed at a maximum hub height of 140m above its ground and has slightly larger wings with a turbine of 120m.
- S144-140/160: This is the latest offering by the Company, with a peak capacity to produce 3 – 3.15 MW of peak power. At 160m Hub height, these become India’s largest turbines. They are also 40-43% more efficient than the mid-variant offered by the Company.
Suzlon has a vast client base of Companies from both the private & public sectors. Public sector clients include GAIL, ONGC, IPCL, etc. The private players include the likes of ACC, Bajaj, Hero, ITC, and a lot more.
CG Power and Industrial Solutions Ltd
CG Power (Crompton-Greaves) is a business whose history dates back to as long as 1837 in Essex, England. Colonel REB Crompton started the business under the name REB Crompton to engage in manufacturing electrical equipment. The business then went on to merge with F&A Parkinson Ltd in England.
The Company made its first presence in India, with the establishment of a wholly owned subsidiary Crompton Parkinson Works Ltd, along with a sales organization named Greaves Crompton Parkinson Ltd. This led to the merging of the names Crompton & Greaves, the name that is synonymous with the Company today.
The Brand finally became Indian in 1947, as it was purchased by an Indian Industrialist Lala Karamchand Thapar. In 2020, the Murugappa Group via its subsidiary Tube Investments of India (TII) acquired a controlling stake in CG Power and Industrial Solutions Ltd.
CG Power’s business can be divided into two specific business segments: Industrial Systems and Power Systems
- Industrial Systems: The Company deals with manufacturing high & Low – Tension wires, drives, and other automation tools for factories. It also produces heavy-duty electrical motors for Railways of both Electric and diesel-run locomotives.
- Power Systems: CG Power manufactures Power Transformers, Distribution & locomotive transformers, heavy-duty switchgear & a lot more.
Besides its India business, CG’s industrial systems business operates the Drives & Automation segment in Europe. With a production unit in Sweden and Germany, the European business addresses 4 core markets namely Nordic, Germany, Netherlands, and MEA through distributors and partners at multiple markets outside of the home markets.
Industry Overview
As per the India Brand Equity Foundation (IBEF), India is the fourth largest in renewable energy and the fifth largest in solar power capacity. The sector is expected to grow at a CAGR of 16% doubling its capacity by 2026. The Government has allocated a budget of Rs. 19,500 Cr for manufacturing high-efficiency solar modules through a Production Linked Incentive (PLI) scheme for 280 GW solar capacity addition by 2030.
As of October 2022, India’s installed renewable energy capacity (including hydro) stood at 165.94 GW, accounting for 40.6% of the overall installed power capacity. The country has set a robust target of achieving 500 GW of installed renewable energy capacity by 2030, with solar energy expected to contribute over 60% towards this objective.
As of March 31, 2023, India’s total installed wind capacity stood at 42,633.13 MW, up by 5.6% from the previous year. India is likely to add another 21 GW of onshore wind capacity between 2023 and 2027. According to the Central Electricity Authority (CEA), India’s electricity demand is expected to grow by 75% by 2031-32 and 170% by 2041- 42.
Currently, Tamil Nadu has the highest total installed wind capacity of 10.01 GW, closely followed by Gujarat (9.97 GW), Karnataka (5.29 GW), Rajasthan (5.19 GW), Maharashtra (5.01 GW), Andhra Pradesh (4.09 GW) and Madhya Pradesh (2.84 GW).
The Ministry of New and Renewable Energy (MNRE) has outlined a wind-specific renewable purchase obligation (RPO) plan for 2030 with a target of 8 GW onshore wind tender every year between 2023 and 2030. As per the MNRE, India will invite Renewable Energy Project bids for 50 GW per annum, including 10 GW of Wind Energy Projects from FY24 to FY28.
The MNRE collaborated with the Danish Energy Agency, to publish a conceptual plan for 15 offshore wind projects, paving the way for offshore wind development. The increase in commodity prices in Europe presents a significant opportunity for India in the wind energy supply chain, further boosting the wind energy sector in India.
Suzlon Energy Vs CG Power – Financials
Revenue & Net Profit
Suzlon Energy saw a 9% drop in its revenue falling from Rs. 6604 Cr in FY22 to Rs. 5990 Cr in FY23. The Company’s revenue has been on a roller coaster ride in terms of volatility. However, in the past 5 years, the Company grew at a CAGR of just 4%.
CG Power saw a spectacular jump in revenue of 28%, from Rs. 5521 Cr in FY22 to Rs. 7040 Cr in FY23. Although the Company has been scaling revenue ever since FY21, its revenues were still extremely volatile in the long term. The Company saw a 3% CAGR drop in the past 5 years.
| Particulars / Fiscal Year | 2019 | 2020 | 2021 | 2022 | 2023 | 4 Year CAGR |
|---|---|---|---|---|---|---|
| Suzlon Energy - Revenue | ₹5,074.64 | ₹3,000.42 | ₹3,365.59 | ₹6,603.97 | ₹5,990.16 | 4% |
| YoY Growth (%) | -41% | 12% | 96% | -9% | ||
| CG Power & Infra - Revenue | ₹8,048.82 | ₹5,158.11 | ₹3,075.37 | ₹5,521.10 | ₹7,040.30 | -3% |
| YoY Growth (%) | -36% | -40% | 80% | 28% | ||
Suzlon reported a Net Profit of Rs. 2887 Cr in FY23, a significant improvement from its Rs. 177 Cr loss in FY22. The high Net Profit is a result of extraordinary gain worth Rs. 2720 Cr. Excluding the gain, its Net Profit would come to around Rs. 167 Cr.
Net Profits of CG Power increased only marginally by 5%, from Rs. 913 Cr in FY22 to Rs. 963 Cr in FY23. This was due to the reporting of Profit from discontinued operations in FY22 which was higher than the current year.
| Particulars / Fiscal Year | 2019 | 2020 | 2021 | 2022 | 2023 | 4 Year CAGR | |
|---|---|---|---|---|---|---|---|
| Suzlon Energy - Net Profit | (₹1,537.19) | (₹2,691.84) | ₹103.59 | (₹176.55) | ₹2,887.29 | N/A | |
| YoY Growth (%) | 75% | -104% | -270% | -1735% | |||
| CG Power & Infra - Net Profit | (₹507.13) | (₹1,331.14) | ₹1,279.60 | ₹913.07 | ₹962.97 | N/A | |
| YoY Growth (%) | 162% | -196% | -29% | 5% |
Profit Margins
Suzlon & CG Power reported Operating Margins of 13.93% & 14.42% respectively. Suzlon became Operating Profit positive only in FY21, while CG Power has stayed positive over the entire 5-year period.
In terms of Net Profit Margins, both Companies have stayed volatile. Suzlon reported its FY23 number as 48.36%, exponentially higher compared to 11.42% of CG Power. Suzlon’s Margins are highly influenced by regular extraordinary gains, while CG Power has been more stable since FY21.
| Particulars / Fiscal Year | 2019 | 2020 | 2021 | 2022 | 2023 | 5 Year Avg |
|---|---|---|---|---|---|---|
| Suzlon Energy - Operating Margins | -1.53% | -28.92% | 15.97% | 12.58% | 13.93% | 2.41% |
| CG Power & Infra - Operating Margins | 3.93% | 0.74% | 3.91% | 11.79% | 14.42% | 6.96% |
| Suzlon Energy - Net Profit Margins | -30.47% | -90.53% | 3.00% | -2.53% | 48.36% | -14.43% |
| CG Power & Infra - Net Profit Margins | -6.15% | -25.91% | 43.17% | 11.48% | 11.42% | 6.80% |
Return Ratios
Extraordinary gains reported as a result of a change in its financial reporting led to Suzlon Energy reporting a Return on Equity of 262.69%. CG Power on the other hand also reported a strong ROE of 57.55%.
Return on Capital Employed by Suzlon Energy & CG Power came around 20.27% and 65.51% respectively. Both Companies have been significantly deleveraging their balance sheet, leading to better return ratios.
| Particulars / Fiscal Year | 2019 | 2020 | 2021 | 2022 | 2023 | 5 Year Avg |
|---|---|---|---|---|---|---|
| Suzlon Energy - RoE | 0.00% | 24.38% | -3.05% | 4.96% | 262.69% | 57.8% |
| CG Power & Infra - RoE | -19.61% | 0.00% | 0.00% | 146.30% | 57.55% | 36.85% |
| Suzlon Energy - RoCE | -6.67% | -50.56% | 38.85% | 28.10% | 20.27% | 6.00% |
| CG Power & Infra - RoCE | -0.47% | -33.45% | 150.83% | 60.94% | 65.51% | 48.67% |
Debt Analysis
Despite working on reducing Debt, Suzlon’s Debt to Equity stands high at 1.73x. CG Power on the other hand has successfully become virtually debt-free. Ever since CG Power was acquired by Tube Investments, the Company has been working on Corporate restructuring to improve its efficiency.
Both Companies have high Interest Coverage ratio of 7.87x & 36.57x respectively. This shows that both Companies are earning enough in a year to pay off their interest obligation.
| Particulars / Fiscal Year | 2019 | 2020 | 2021 | 2022 | 2023 | 5 Year Avg |
|---|---|---|---|---|---|---|
| Suzlon Energy - Debt to Equity | -1.36 | -1.2 | -1.91 | -1.79 | 1.73 | -0.91 |
| CG Power & Infra - Debt to Equity | 1.59 | -1.4 | -11.98 | 0.36 | 0.00 | -2.29 |
| Suzlon Energy - Interest Coverage | -0.22 | -0.96 | 1.11 | 1 | 7.87 | 1.76 |
| CG Power & Infra - Interest Coverage | -0.06 | -2.83 | 7.94 | 10.22 | 36.57 | 10.37 |
Future Outlook
Suzlon Energy
- Suzlon, in recent times, had been losing out to other players like Adani Green or Tata Power. The Company plans to improve its market share and build its order book. It will also focus on expanding its wings in hybrid (wind and solar) space.
- In the past couple of years, the Company has been looking to reduce debt & deleverage its balance sheet. It has reduced its long-term borrowings by 73% in a year.
- Suzlon will work on developing futuristic windmills with even lower Levelized Cost of Energy (LCOE) through better technology and products more specific to the market conditions.
CG Power
- CG is intensifying its focus on the export of Power transformers to emerging countries in Africa where the complete electricity network is shifting to higher ratings from 132kV to 225kV & 330kV.
- It is also looking to expand its export footprint with dedicated strategies for Motors and alternators as well as Drives and automation. The Company wants to strengthen the distribution network in North America, Europe, the Middle East, and African regions.
- CG Power is also looking into expanding its presence in the Cement, sugar, paper, steel, and oil & gas sectors. It will do so by creating products of higher value in the specific segment.
Key Metrics Of Suzlon Energy Vs CG Power
We have now understood both the Companies’ business as well as taken a good comparative look at their financials. Now let us look at a few Key Metrics.
| Particulars | Suzlon Energy | CG Power & Infra |
|---|---|---|
| CMP | ₹39.3 | ₹391.15 |
| Market Cap (Cr.) | ₹53,497 | ₹59,740 |
| EPS | ₹2.64 | ₹6.35 |
| Stock P/E | 95.24 | 54.27 |
| RoE | 262.69% | 57.55% |
| Book Value | ₹2.53 | ₹14.56 |
| Price to Book Value | 14.30 | 25.9 |
| Promoter Holding | 13.30% | 58.12% |
Conclusion
We finally reach the end of our article Suzlon Energy Vs CG Power, having understood what it is that these Companies do. One thing that we can agree upon is that both Companies are operating in a highly capital-intensive environment. This is what makes their earnings volatile, shifting between losses and profits.
However, ever since CG Power was acquired by Tube Investments its financials have stabilized. The management has already been successful in making it a debt-free Company and has a clear focus on expanding its export market.
However, both Companies are still in a dire state with any significant earnings coming in the form of extraordinary gains & not via ordinary course of business. This is why we suggest Investors invest in these Companies with a ten-foot pole as they still hold high risk.
So, what do you think about our understanding of these Companies? Do you think they are also destined for revolution just like the country’s energy infrastructure?
Written By Nasir Hussain
By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks also get updated with stock market news, and make well-informed investment.
