The country’s biggest maker of wind turbines, Suzlon Energy Ltd, reported a group loss of Rs130 crore in the second quarter after currency fluctuations and expenses on turbine-blade failures in the US.
The number compared with a profit of Rs374 crore a year earlier. Sales increased 33% to Rs4,180 crore.
Suzlon made a currency loss of Rs197 crore after restating its liability on convertible bonds.
Restoration costs, including provisions and other warranty claims, from blade failures in the US and disruption of turbines in Dhule in Maharashtra increased to Rs47.8 crore in the quarter from Rs42.7 crore. The company this month suspended a rights offer to raise around Rs1,800 crore to buy an additional stake in REpower Systems AG after a slump in stock markets across the world.
Suzlon has been dogged by concern that some of its equipment is faulty, which led to a drop in its shares this year.
The stock declined 40% on October 24, the most since the company’s October 2005 listing, after a report of a broken blade in the US.
Suzlon shares declined 3.8% to Rs44.40 at close in Mumbai.
The stock has lost 89% so far this year. India’s benchmark sensitive index, which has declined 52% this year, advanced 8.2% on Friday.
German wind turbine maker REpower Systems surged in Frankfurt trading after Suzlon said it may sell stakes to private equity firms to buy Martifer SGPS SA’s stake in the Hamburg-based company.
Also See Winding Gains (Graphic)
Suzlon’s results did not include subsidiaries such as Hansen Transmission, the gear box maker and REpower AG, the German subsidiary.
Suzlon chief executive officer Tulsi Tanti spoke to Mint on his company’s plans. Edited excerpts:
The rights issue has been dropped? Does Suzlon have a Plan B in place?
If the conditions persist in the global market we will have to reduce our production as what we manufacture is a capital goods item. It is highly capital-intensive business and the wind turbine industry cannot hold stocks as inventory.
You also have to fund the acquisition of REpower?
We are financially healthy, our balance sheet is strong. Our net debt to equity ratio is below 1. In the next six months we will be making a repayment of €168 million (Rs1,055 crore).
Are banks comfortable lending to you?
Banks are comfortable dealing with us, because of our business model. We are vertically fully integrated.
But in the stock markets, your share price among a few others have borne the brunt of the hammering.
First of all, let me tell you my net worth is higher than the market capitalization of Suzlon Energy. So, this is not realistic. It is a extremely discounted valuation. Our three subsidiary companies’—SE Forge (recently IDFC’s private equity arm picked up a minority stake in this), Hansen Transmission and REpower (listed in London Stock Exchange and in Germany, respectively)—valuation is higher than the parent company’s. Risk assessment of our business by some of our investors is not what we have calculated.
Two weeks ago, there was another blade crack in USA? The broken blade was found in a corn field. Such recurrences do not help your case.
It is not recurring. The root cause analysis is going on. And we are completing this. During this period, we are continuously monitoring the Version 2 blades.
Is it a design flaw?
It is not a design flaw. There are no quality issues. It is because the required stiffness in the blade is not enough. The same blade made in earlier batches with the same composition and was tested and approved. (In) this particular lot of Version 2 blades, the stiffness was not enough. And it is not for all the blades only 100 blades out of 1,200 blades.
Thomas Kutty Abraham and Vipin Nair are with Bloomberg
Graphics by Ahmed Raza Khan / Mint