Strong growth from Suzlon

The company has set aside Rs103 crore during the quarter for a retrofit programme to resolve cracks in the blades of turbines it makes. According to the company management, the programme has started and, at present, the company does not envisage further provisions in this regard. The company has accounted for these expenses as exceptional items, and “profits after tax and before exceptional items" have risen by 50%.

Earnings before interest, tax and depreciation (before exceptionals) rose 46% year-on-year. Interestingly, in spite of the rise in raw material costs, Ebitda margins increased to 14.7% in the fourth quarter compared with 12.3% in the third quarter. The management attributes this to a rise in realizations, brought about by better product and market mix, and through higher prices. Interest charges have been brought down by the replacement of loans with zero-coupon bonds.

The order book continues to rise, with the backlog at 3,454MW as of May 2008, compared with 3,251MW at the end of December 2007. The Suzlon management said at a conference call that the realization on these orders would be better than current realizations.

Not everything is hunky-dory, however. Apart from the cracks in the blades, which had sent the Suzlon stock plummeting earlier in the year, there are continuing problems with sourcing components, and soaring raw material costs could pressure margins. Replying to a question, the management said that while the company could pass on 60% of the rise in costs, 40% may have to be absorbed.

However, the company also pointed out that rising volumes and economies of scale could offset some of these costs.

As for reports on a sale of part of its stake in German company Repower Systems AG, the management said its strategy on the company had not changed. Suzlon also has enough funds for all its capex programmes as well as for buying out Areva’s stake in terms of the put option that the latter has of selling its stake in Repower.

There’s little doubt that with oil prices going through the roof and with the attention on global warming, wind energy will see strong growth. Suzlon, with its large capex programme, will no doubt cash in on this growth. The problem is, at 29 times consensus FY09 earnings, the stock is far from cheap.

BoB: no reason for the stock to underperform

The net interest income of Bank of Baroda (BoB) slipped by 2.4% in the March quarter compared with the year-ago period, and it was a combination of lower operating expenses and robust growth in non-interest income that allowed the state-run bank to post an operating profit growth of 9.47%.

While non-interest income, buttressed by treasury income and recoveries, was up 23.5%, operating expenses rose a mere 1.36%, thanks largely to lower employee expenses. The bank had made excess provisions for employee expenses in earlier quarters.

Growth in advances has been a strong 27.6%, so it’s not volumes that have pulled down net interest income. But, interest expended as a percentage of interest earned was at 69% in the March quarter, compared with 66.7% in the December quarter. The 50 basis points reduction in the bank’s benchmark prime lending rate during the quarter has hurt, as has the reduction in the proportion of low-cost current and savings accounts to 35.9% from 37.3% at end-December.

Nevertheless, the silver lining has been the reduction in non-performing assets (NPAs), with gross NPAs down to 1.84% from 2.11% at the end of December.

BoB has a high proportion of low-cost deposits, strong credit growth, low NPAs and high loan-loss coverage. Its mark-to-market losses are negligible. Yet, the stock is down much more than the Bankex index this year.

At its current price, the stock is just a tad above its consensus fiscal 2009 book value per share, which makes its valuation very attractive.

In view of its potential, there’s little reason for the stock to underperform the Bankex.

Write to us at marktomarket@livemint.com

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