Suzlon Energy Q2 FY26: Stellar Profit Surge Masks Valuation Concerns

The September quarter marked a watershed moment for Suzlon, with the company achieving its highest-ever quarterly revenue and profit. Year-on-year comparisons reveal even more dramatic growth, with net profit up 539.08% and revenue rising 84.03% compared to Q2 FY25. This remarkable performance underscores the robust demand environment in India's renewable energy sector, particularly in wind power generation, where Suzlon commands significant market share.

The quarter's standout feature was the exceptional profit margin expansion, with PAT margin surging to 33.10% from just 10.40% in the previous quarter. This extraordinary improvement, however, requires careful scrutiny as it was significantly aided by tax credits rather than purely operational excellence. The company recorded a negative tax rate of -127.46% in Q2 FY26, resulting in a tax credit of ₹716.94 crores that substantially boosted bottom-line profitability.

Financial Performance: Operational Strength Meets Tax Windfall

Suzlon's Q2 FY26 revenue performance demonstrated strong execution momentum, with net sales reaching ₹3,870.78 crores, marking the company's highest quarterly revenue in recent history. The 23.60% sequential growth reflects robust order book execution and improved project delivery timelines. On a year-on-year basis, the 84.03% revenue surge highlights the company's successful capitalisation on India's accelerating renewable energy transition.

Operating profitability remained resilient, with PBDIT (excluding other income) at ₹720.84 crores in Q2 FY26, representing the highest quarterly operating profit in the company's recent history. However, operating margins compressed marginally to 18.65% from 19.22% in Q1 FY26, suggesting some pressure from rising input costs or competitive pricing dynamics. Despite this minor contraction, the operating margin remains significantly healthier than the 14.06% recorded in Q2 FY25, indicating sustained operational improvements.

The quarter's most striking feature was the dramatic profit expansion driven by a substantial tax credit. At ₹1,279.44 crores, net profit more than quadrupled sequentially, pushing PAT margin to an exceptional 33.10%. This performance, while impressive on paper, was significantly influenced by the negative tax rate of -127.46%, which contributed ₹716.94 crores as a tax reversal. Stripping out this extraordinary tax benefit reveals a more normalised profit picture, though still robust by historical standards.

Interest costs continued their upward trajectory, rising to ₹109.66 crores in Q2 FY26 from ₹103.07 crores in the previous quarter, reflecting the company's ongoing capital requirements for capacity expansion and working capital management. On a half-yearly basis, interest expenses at ₹212.73 crores have grown 37.91%, a concerning trend that warrants monitoring despite the company's strengthening revenue base.

Balance Sheet Transformation: From Distress to Stability

Suzlon's balance sheet has undergone a remarkable transformation over the past three years, reflecting a strategic turnaround from near-bankruptcy to financial stability. As of March 2024, shareholder funds stood at ₹3,920.31 crores, a dramatic improvement from negative equity of ₹3,525.73 crores in March 2022. This restoration of positive net worth marks a critical milestone in the company's recovery journey.

Return metrics paint a mixed picture of capital efficiency. The company's average return on equity (ROE) of 13.60% remains below industry benchmarks and reflects the capital-intensive nature of the wind turbine manufacturing business. However, the latest ROE of 33.93% shows significant improvement, driven by both profit growth and the restoration of positive equity. Return on capital employed (ROCE) at 30.31% for the latest period demonstrates strong operational efficiency, though the five-year average of 16.94% suggests this elevated performance may not yet be fully sustainable.

Industry Dynamics: Riding the Renewable Energy Wave

India's wind energy sector is experiencing a resurgence after several years of subdued activity, driven by ambitious government targets and improving project economics. The government's target of 140 GW of wind power capacity by 2030, up from approximately 45 GW currently, provides a substantial growth runway for established players like Suzlon. The company's dominant position in the domestic market, with significant installed capacity and a comprehensive service network, positions it well to capture this opportunity.

However, the competitive landscape is intensifying as global wind turbine manufacturers increase their focus on the Indian market, attracted by the favourable policy environment and large-scale project pipelines. Pricing pressure from international competitors with larger scale and technological advantages could challenge Suzlon's margin sustainability. The company's ability to maintain its 18-19% operating margins while competing against well-capitalised global players will be crucial for long-term profitability.

The sector's project execution cycle remains elongated, with typical timelines spanning 18-24 months from order booking to revenue recognition. This characteristic creates inherent lumpiness in quarterly results, as evidenced by Suzlon's revenue volatility over recent quarters. The June quarter's 17.37% sequential revenue decline, followed by the September quarter's 23.60% rebound, illustrates this pattern. Investors must look beyond quarterly fluctuations and focus on annual trends and order book trajectory to assess genuine business momentum.

Peer Comparison: Premium Valuation Without Premium Returns

Suzlon's valuation metrics reveal a concerning disconnect between market pricing and fundamental performance. Trading at 38.48 times trailing twelve-month earnings, the stock commands a relatively modest P/E multiple compared to peers like CG Power (109.86x) and BHEL (165.21x). However, the price-to-book ratio of 13.19x appears significantly elevated, particularly when compared to CG Power's 1.57x despite the latter's far superior ROE of 83.43%.

This valuation premium becomes even more questionable when examining return on equity. Suzlon's ROE of 13.60% lags behind ABB (18.91%) and falls dramatically short of CG Power's exceptional 83.43%. The company is essentially trading at a substantial book value premium whilst delivering below-average returns on shareholder capital. This disparity suggests the market may be pricing in aggressive future growth expectations that may prove challenging to achieve given competitive pressures and sector dynamics.

The absence of dividend payments further distinguishes Suzlon from peers like ABB (0.82% yield) and Siemens (0.38% yield). Whilst the company's focus on deleveraging and growth investments justifies retained earnings, the lack of cash return to shareholders means investors are entirely dependent on capital appreciation—a proposition that appears increasingly risky at current valuations.

Valuation Analysis: Expensive Territory Despite Growth

Suzlon's current valuation metrics flash warning signals across multiple dimensions. The stock trades at 38.48 times trailing earnings, 13.19 times book value, and 38.22 times EBITDA—multiples that appear stretched for a company operating in a capital-intensive, cyclical sector with moderate returns on capital. The enterprise value-to-EBIT multiple of 44.23x and EV-to-sales ratio of 6.64x further reinforce concerns about valuation sustainability.

The proprietary Mojo scoring system assigns Suzlon a score of 47 out of 100, placing it firmly in "SELL" territory. This assessment reflects the confluence of "Very Expensive" valuation, "Average" quality grade, and "Mildly Bearish" technical trend. The PEG ratio of 0.31, whilst seemingly attractive, must be viewed cautiously given the sustainability questions around current growth rates and the extraordinary tax benefits that have flattered recent profit figures.

Historical valuation analysis shows the stock has been classified as "Very Expensive" since August 2023, with only brief interruptions. The current market capitalisation of ₹81,121 crores implies aggressive expectations for sustained high growth and margin expansion—expectations that appear challenging to justify given competitive dynamics, capital intensity, and the sector's inherent cyclicality. The stock's 19.04% decline from its 52-week high of ₹74.30 suggests some valuation normalisation, but significant downside risk remains if growth momentum falters or margins compress.

Shareholding Pattern: Promoter Reduction Raises Questions

The shareholding pattern reveals a notable decline in promoter holding from 13.25% in March 2025 to 11.73% in September 2025, representing a 1.52 percentage point reduction over two quarters. Whilst the absolute promoter stake remains relatively low compared to typical Indian corporates, the directional trend of reduction during a period of strong operational performance raises questions about management's confidence in sustaining current valuations.

Foreign institutional investors maintain a substantial 22.70% stake, though this has declined marginally from 23.72% a year ago. The presence of 662 FIIs suggests broad international interest in India's renewable energy story, but the sequential reduction of 0.33 percentage points in the September quarter indicates some profit-booking at elevated valuations. Mutual fund holding at 4.91% appears modest given the stock's mid-cap status and strong recent performance, with a sequential decline of 0.33 percentage points suggesting domestic institutional investors are also trimming positions.

The increase in insurance company holdings to 2.65% from 2.00% in March 2025 provides some positive signal, as does the uptick in other DII holdings to 2.59%. However, the overall institutional holding of 32.86% remains moderate, and the mixed directional trends across investor categories suggest a lack of strong conviction at current price levels. The 55.40% non-institutional holding, whilst providing liquidity, also contributes to price volatility and susceptibility to sentiment-driven swings.

Stock Performance: Stellar Long-Term Gains, Recent Weakness

Suzlon's stock performance presents a tale of two narratives. Over longer timeframes, returns have been nothing short of spectacular—1,955.35% over five years and 637.13% over three years—reflecting the company's dramatic turnaround from near-bankruptcy to operational profitability. These extraordinary gains have rewarded patient investors who maintained conviction through the company's darkest days and recognised the value in its restructuring story.

However, recent performance tells a more sobering story. The stock has declined 9.33% over the past year, underperforming the Sensex by 15.56 percentage points and delivering negative alpha. Year-to-date returns of -3.34% compare unfavourably with the Sensex's 7.10% gain, suggesting the market has reassessed Suzlon's growth prospects and valuation premium. The three-month decline of 7.52% against the Sensex's 3.30% gain further reinforces concerns about momentum loss.

Technical indicators paint a cautious picture, with the stock in a "Mildly Bearish" trend after transitioning from "Bearish" on October 29, 2025. Trading at ₹60.15, the stock remains below key moving averages including the 100-day (₹60.41) and 200-day (₹58.69) levels. The high beta of 1.20 indicates significant volatility, with the stock amplifying market movements—a characteristic that increases risk during market corrections. The 41.20% volatility over the past year places Suzlon in the "high risk, low return" category based on recent performance.

Investment Thesis: Growth Story Meets Valuation Reality

Suzlon's investment thesis rests on several compelling structural advantages. The company operates in a high-growth sector benefiting from strong government support and increasing corporate focus on renewable energy. India's wind power capacity targets provide a substantial addressable market, and Suzlon's established market position, comprehensive service network, and local manufacturing capabilities offer competitive advantages against international competitors.

The financial turnaround has been impressive, with the company successfully deleveraging its balance sheet, restoring positive net worth, and achieving consistent operating profitability. The transformation from a debt-laden entity on the brink of insolvency to a net cash company demonstrates effective management execution and operational discipline. Strong order book visibility and improving project execution capabilities support near-term revenue growth expectations.

However, these positives are more than offset by significant concerns. The "Very Expensive" valuation classification reflects multiples that appear unsustainable given the company's moderate returns on capital and capital-intensive business model. At 13.19 times book value with an average ROE of just 13.60%, the stock trades at a premium typically reserved for high-return, capital-light businesses—characteristics that don't describe Suzlon's heavy electrical equipment manufacturing operations.

Key Strengths & Risk Factors

Outlook: What to Watch

Looking ahead, Suzlon faces the challenge of sustaining its operational momentum whilst managing valuation expectations. The company's ability to convert its strong order book into consistent revenue and profit growth without margin compression will be critical. Investors should monitor quarterly operating margins closely, as any sustained decline below 18% would signal intensifying competitive pressures or execution challenges.

The tax situation requires particular attention. With Q2 FY26's exceptional profitability driven largely by tax credits, future quarters will reveal the company's normalised earning power. A return to more typical tax rates in the 25-30% range would significantly reduce reported profits and potentially trigger valuation reassessment. Management's ability to maintain profit growth even with normalised tax rates will be the true test of operational excellence.

From a technical perspective, the stock needs to reclaim the ₹60.41 level (100-day moving average) and sustain above ₹61.39 (recent high) to signal renewed bullish momentum. Failure to hold the ₹58.69 support (200-day MA) could trigger accelerated selling towards the ₹55-56 range. Given the high beta and elevated volatility, investors should brace for significant price swings in either direction.