Suzlon Energy Ltd’s stock has inched up 2% since its December quarter results were announced. Although it had posted a loss, investors had seemed enthused by its order book. Then, the company had won a 1,000 megawatts order just days before the results. However, it has not announced any order flows (at least in exchange notifications) ever since.
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In the past couple of days, there has been some seemingly positive news flow about the company. It has managed to sell $150 million (around Rs670 crore today) worth of foreign currency convertible bonds, with an option to raise $50 million more. Although, Suzlon has not specified what it will do with the money, presumably it will use a part of it to retire or refinance some debt—provided the bonds are converted into equity.
At the end of December, Suzlon had consolidated loans of Rs12,087 crore, according to an interim financial statement filed with the stock exchanges. For the nine months ended December, the company’s interest payments amounted to some 7.5% of its sales.
Suzlon expects to complete its buyout of subsidiary REpower Systems AG in another year. It has initiated a case against the minority shareholders following German law. Suzlon has a 95% stake in that firm. Once it gains complete control, it will be able to sell or licence REpower technology and leverage the unit’s healthy balance sheet. While that may add some heft to the profit, it’s at least a year away.
True, conditions for wind power companies have improved in Asia and the developed world. Regulations such as the generation-based incentive (cash subsidy for every unit of renewable power produced), which will be applicable for another year, and the system of tradable renewable energy certificates are expected to boost demand in India. In Europe and the US, too, financing has picked up for wind projects.
However, in recent times, potential has not translated into performance in the Indian power sector. For Suzlon, competition is increasing and realizations are dipping. While it may well post a profit this fiscal, investors would wait for some quarters of consistent performance with margin improvement and better cash flows. That’s one reason why the stock has continued to languish in recent times. That’s also why these bonds are being sold at a conversion rate that is at a 17% premium to its floor price of Rs45, one of the lowest in recent times.
Graphic by Paras Jain/Mint
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