Suzlon Energy weighed down by rapid expansion

Suzlon Energy weighed down by rapid expansion
Comment E-mail Print Share
First Published: Tue, Aug 04 2009. 10 19 PM IST

Updated: Tue, Aug 04 2009. 10 19 PM IST
Results of Suzlon Energy Ltd for the quarter ended 30 June were way below expectations. In fact, the lowerthan-expected profit has created fresh concerns about the company’s ability to service its monumental debt.
Consolidated earnings before interest, taxes, depreciation and amortization (Ebitda) fell from Rs539 crore in the year-ago June quarter to Rs12 crore.
If one were to exclude other operating income—income from activities other than normal business operations—which many analysts consider below the Ebitda line, the company reported a loss of Rs7 crore at the Ebitda level last quarter. After accounting for the firm’s high interest costs and depreciation, losses stood at around Rs450 crore for the three months to June.
Suzlon has a debt of over Rs13,000 crore and debt covenants on some of this will come up for testing in September. One parameter lenders closely look at, according to an analyst, is the past 12-month Ebitda. With the firm barely managing to break even in the June quarter, and the September quarter unlikely to be much better, the possibility of the firm falling short of some debt covenants is high. It has in the past renegotiated terms of its loans with its lenders.
Facing high winds: A file photo of Suzlon’s windmill power generation project in Jaisalmer, Rajasthan. Harikrishna Katragadda / Mint
Suzlon raised $202 million (Rs960 crore today) recently by issuing global depository receipts and foreign currency convertible bonds, but Citigroup Research pointed out in a post-results note: “We believe that the above fund-raising is not enough and that the company will have to sell a part/whole in Hansen and perhaps raise additional equity.” The brokerage firm estimates that interest and principal repayments in the current fiscal year would amount to around $450-500 million.
The results of Hansen Transmissions International NV, a unit of Suzlon, for the June quarter came as a negative surprise, with a marginal loss at the earnings before interest and taxes (Ebit) level. Revenues of the gearbox manufacturer were flat, while recent capacity expansion led to higher depreciation and fixed overhead costs, leading to the loss. The firm lowered its guidance from low-moderate revenue growth to flat revenue for the year to March. The weak performance and guidance could hinder Suzlon’s ability to sell the firm at a decent valuation.
Suzlon’s stand-alone wind turbine business also suffered owing to the global slowdown, with volumes falling by 64%. It was also hit because of capacity addition, leading to non-absorption of the higher depreciation charges and fixed overheads. As a result, the stand-alone business reported a loss of Rs173 crore at the Ebitda level. The company’s order book has halved year-on-year, indicating that the outlook is also relatively weak.
The company expects a sharp recovery in the second half of the year, on the back of measures by the US government to encourage investments in renewable energy. It has also pointed out that second-half sales normally account for 65% of a year’s sales. Still, with sales of only 123MW in the June quarter, and with only a gradual recovery expected in the September quarter, the company’s guidance of sales of 2,400-2,600MW seems unachievable.
Suzlon’s shares have corrected by about 9% since the middle of last week, after results of the company’s subsidiaries were declared. But they are still about three times the lows reached in early March, and further upside will be limited unless there is a substantial improvement in the company’s financing position.
Write to us at marktomarket@livemint.com
Comment E-mail Print Share
First Published: Tue, Aug 04 2009. 10 19 PM IST