Suzlon is the world’s third largest wind turbine manufacturer and has recently won order from Germany to supply 47 turbines with a combined output of around 115 MW.
Commenting on the trend, BOA Merrill Lynch says the company’s business visibility has improved, with the group winning 214 Mw of orders in the last two weeks. Of this, 163 Mw of orders are in India, while REPower has won a 51-Mw order.
Also the company has been shifting focus to the home market, undertaking asset sale to generate cash and fixing weaknesses in some big markets. But Equity Analysts in India refuse to get carried away with the turnaround story, as the firm needs to win orders worth 600 Mw each quarter and there is an expectation of sharp slowdown in the investment cycle in India and Europe.
While order flow may be improving, Suzlon’s balance sheet remains stretched with high debt (Rs 10,900 crore) and working capital levels (Rs 4,200 crore) at the end of the first quarter. According to Kotak, “Suzlon may have four times consolidated debt/Ebitda and two times Ebitda/interest in FY13E after building in receivables from Edison, Hansen sale proceeds.” What this essentially means is that due to the high debt, interest is a large part of its operating profit. Thus, the company could find it difficult to withstand volume disappointments and needs to deleverage quickly. Also internationally, analysts claim the company seems slightly expensive compared to rival Vestas, which is trading at a forward price to earnings of 8-9 times.
The stock has massively underperformed in last 3 years and is down more than 80% since Sep 2008. At the current market price of Rs. 41 the company commands a market value of Rs. 7,270 crores (~$1.6 billion). The Face value of the stock is Rs. 2 and 52 week high low for the stock is 66 / 34