Suzlon Energy Ltd’s turnaround story continued for the third straight quarter, as it posted a net profit at the consolidated level, but concerns remain on its sustainability.

While the firm reported a net profit of 58.6 crore in the September quarter (against a loss in the year-ago period), the number was boosted by one-off income of 219 crore. That was due to a reversal of provisions made towards diminution in investment and profit on sale of investment.

Secondly, the company’s huge debt burden means that it has to shell out almost 300-350 crore every quarter towards interest expenses. So, while it posted earnings before interest and tax of 262 crore, it was dwarfed by interest payments of 357.6 crore. That said, Suzlon did post a 34% rise in revenue over a year ago.

Wind turbines at the Suzlon Energy Ltd. wind farm in Satara, India. Photo: Bloomberg

Suzlon’s management is confident that order inflow would be strong in the coming quarters despite a slowdown in the US and Europe, but things may not be that hunky-dory.

The Financial Timesreported that growth in China, the world’s largest wind turbine market, was slowing at a time of global overcapacity. Tax breaks in the US are about to expire. In India, a 10-year tax holiday and accelerated depreciation for wind power projects get over in March.

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While that is a potential headwind for order book growth, the debt problem remains. Net debt at the end of September stood at 11,101 crore, a tad more than 10,544 crore in the previous quarter. Net working capital stood at 5,043 crore at the end of September, much above the 3,806 crore at the end of fiscal 2011. That translates into 90 net working capital days at the end of September (based on annualized sales) compared with 77 days at the end of the previous fiscal. That metric is much worse for Suzlon’s stand-alone numbers.

Still, the company says it has started reducing the debt on its balance sheet even as 2,000 crore of foreign currency convertible bonds come up for redemption next year. The stake sale in Hansen Transmissions International NV will help, as will squeezing out the minority shareholders of REpower Systems AG, which will allow it to access some 1,700 crore from the latter’s balance sheet. While that has allowed the stock to marginally outperform the BSE Power index this fiscal, order book growth and execution are what will sustain that trend.

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