Suzlon Energy Ltd’s shares have done reasonably well in the past three months, rising by 35% while the National Stock Exchange’s Nifty has risen by only around 7%.
One of the main reasons for this is that it’s managed to reduce its debt by selling a 35% stake in subsidiary Hansen Transmissions International NV. The company’s net debt has fallen by around 15% compared with the September quarter to Rs10,608 crore. This includes a loan of Rs1,175 crore from the company’s promoters, which will eventually get converted into equity. At current prices, this is expected to result in a 10% dilution in the company’s equity.
Suzlon also claims to be close to a restructuring of a large part of its remaining debt, which will lengthen the maturity of immediately payable debt into longer maturities, and create additional lines for operational requirements.
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During the December quarter, loss before taxes and exceptional items fell by half to Rs164 crore compared with the September quarter. This was primarily on account of an improvement in Suzlon’s stand-alone results. At the Ebitda (earnings before interest, tax, depreciation and amortization) level, Suzlon’s loss fell by half to Rs75 crore. Hansen’s margins improved smartly, but its contribution to consolidated results was curtailed because of the 35% stake sale. REPower Systems AG, in which Suzlon holds a 91% stake, witnessed a decline in margins on account of higher overheads.
The overall improvement in performance isn’t a big surprise since the company has been saying for a while that sales would pick up in the second half of the fiscal. Suzlon’s stand-alone revenues rose by 31% and those of REPower rose by 10% compared with the September quarter. Given a high level of fixed costs, the higher revenues have naturally helped reduce losses.
But the profit or loss incurred in the last quarter holds little importance for the stock. What’s more important is that order inflow outside India continues to be poor. In 2008-09, the Indian market had accounted for about one-fourth of overall volumes. In the past three months, it booked orders of 399MW, of which 331MW was from India.
Order flow from major markets such as the US and Europe continues to be anaemic. The company said in a conference call with analysts that order inflow should pick up in the second half of this year and sales in 2011 should be healthier. While news of the debt restructuring will be a positive for the stock, much of it is priced in. Investors are now looking for it to win some large order.
Graphics by Yogesh Kumar/Mint