Close on heels of its decision to sell wholly-owned unit Senvion SE for 1 bn, Suzlon has announced a preferential allotment worth `1,800 crore to a strategic investor
Suzlon Energy Ltd’s volumes have fallen significantly in the past three years owing to liquidity constraints. Things got worse last quarter, with volumes falling 75%, compared with the September quarter.
In this backdrop, it’s heartening to note that the company is taking some big steps to address balance sheet issues.
Close on the heels of its decision to sell wholly-owned subsidiary Senvion SE for €1 billion, the company has announced a preferential allotment worth ₹ 1,800 crore to a strategic investor.
Both of these measures will free credit lines considerably, enabling the company to pursue new deals and grow volumes.
Of course, along with the large number of outstanding foreign currency convertible bonds, which could get converted into equity shares, the company stares at a huge equity dilution.
But investors are unlikely to complain.
Falling volumes have meant that losses have continued to mount and, worse still, cash is getting burnt.
The Suzlon wind business reported a pre-tax loss of ₹ 588.80 crore in the December quarter, slightly less than the ₹ 723.10 crore loss in the preceding quarter. At the Ebitda (earnings before interest, taxes, depreciation and amortization) level, the loss in the past two quarters has totalled nearly ₹ 300 crore.
As pointed out in this column last month, while Suzlon’s corrective steps should have been taken earlier, these can still help it reap some of the benefits of a favourable government policy towards renewable energy. Last year, the new central government reinstated the benefit of accelerated depreciation and generation-based incentives.
Suzlon expects big gains to accrue, thanks to these incentives. According to a presentation made to investors, it states that industry volumes fell by 19% on an average in FY13 and FY14, after these benefits were removed by the previous government. For the next two years, it expects industry volumes to grow by 32% annually.
While all of this sounds good, it’s still premature to conclude that the company is out of the woods. While industry volume growth may be picking up, competition has also risen and multinational Gamesa Corporacion Tecnologica SA has taken the lead in the market in the past two years. Besides, while the asset sale and preferential allotment have eased things for Suzlon, it will still carry sizeable debt. And for the company to quickly start generating profits and cash, volumes need to rise substantially. In sum, there are still some ifs about Suzlon’s recovery.