For some time now, wind turbine maker Suzlon Energy Ltd has been facing a double whammy of sorts. Apart from its struggles with an over-leveraged balance sheet, it also had to contend with quality concerns about its blades, leading to a sluggish growth in its order book.
While financing continues to be a major problem for the company, the order book seems to be improving. The company recently announced a 42MW repeat order from Duke Energy Corp., a US-based firm active in the wind energy sector. In the preceding five weeks, Suzlon won orders for additional 345MW, resulting in a 20% addition to its order book compared with the December quarter.
Analysts say that the healthy pace of order wins points to an easing in concerns about the quality of Suzlon’s products. That seems to have come as a huge relief to the company’s investors.
The company’s shares have jumped by about 70% from its lows of Rs33 in mid-March. In the same period, the Nifty index on the National Stock Exchange has risen by about 27%.
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But after deducting value of its stake in subsidiary companies, Suzlon’s current valuation factors in negligible value for its core business, mainly owing to the stretched balance sheet. These concerns are not unfounded.
According to a report by IIFL Research, Suzlon and its subsidiaries will generate operating profit of Rs2,655 crore this fiscal year that started 1 April, which can support a net debt of Rs5,310 crore. The company, however, is expected to have a net debt of Rs7,913 crore by the end of the current fiscal year, according to the brokerage’s estimates.
The company has been working on reducing its working capital to generate additional cash flow. Recently, it has also sought a change in the terms of its foreign currency convertible bonds from investors.
While these moves may help to an extent, it seems that the firm would ultimately have to either dilute more stake in Hansen Transmissions International NV or maybe in itself. The promoter group currently has a 65% stake in Suzlon.
Some of its fund-raising plans may take time, but it needs to make a payment of about Rs1,150 crore for the purchase of Martifer Group’s remaining stake in REPower Systems AG within the next two months. Suzlon already got a reprieve in December when the payment was originally due, by getting it postponed till May this year. It now faces the challenge of getting another postponement, or worse still, arranging for the funds in less than two months.
Graphics by Ahmed Raza Khan / Mint
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