Headwinds ease, tailwinds start to build for Suzlon

Wind turbine maker Suzlon Energy and positive investor reactions have seldom been comfortable bedfellows in the last two years. But the company believes it has turned the corner.

For a second straight quarter, Suzlon posted a profit in the April-June period. It posted a consolidated a net profit of Rs60.12 crore compared to a net loss of Rs912 crore a year ago.

The company’s topline, on the other hand, saw an impressive 80% jump in its topline to Rs4,326 crore spurred by its increasing focus on emerging markets like Brazil and South Africa, besides India, and on the offshore wind turbine market.

Group chief financial officer Robin Banerjee said the company has not seen any slowdown in the offshore market even in Europe and that the momentum will continue.

“But I think and hope the worst is behind us. We see no reason to revise our guidance for this fiscal,” Banerjee told DNA by telephone on Monday.
Suzlon, the world’s fifth largest wind turbine producer, had projected an operating profit margin of 7-8% on a topline of Rs24,000-26,000 crore for the year ended March 2012. In 2010-11, the company’s revenues stood at Rs17,879 crore.

Suzlon on Monday told the stock exchanges that its board has approved raising up to Rs5,000 crore through equity and/or debt instruments.

Shilpa Krishnan, Sumit Kishore, Deepika Belani of JP Morgan in a note called the numbers “strong results in a traditionally weak quarter.”

The street welcomed the company’s performance with the scrip rising 4.86% in intraday on the Bombay Stock Exchange on Monday to Rs54.95 before closing at Rs54.15.

Suzlon returned to profitability in the fourth quarter of last year after eight consecutive quarters in the red. The stock has fallen 88% from its all-time high of Rs464 in January 2008. The Sensex has in the same period shed 12.26% to 18,314 points.

Of the 34,000 mw installed globally in 2010, Suzlon accounted for 8.5% and its share of the orders announced between January and June rose to 14-15%, according to Banerjee. Annual wind power installations are expected to touch 64,000 mw in 2015, according to a MAKE Consulting report referenced in Suzlon’s first-quarter earnings presentation.

The company’s consolidated order book stood at 4,739 mw (valued at Rs29,291 crore), a growth of over 33% over June 2010.

The JP Morgan trio said half of Suzlon’s 1,000 mw order for Caparo Energy is deliverable this fiscal. “A delay in the supply of the Caparo order or delayed pick-up in domestic inflows is a risk to estimates,” added the report, which had a neutral call on the stock.
Bharat Parekh, analyst with Bank of America-Merrill Lynch, on the other hand, had a buy call based on a “structural turnaround”.
“Suzlon’s back-to-basics strategy to survive weakness in the USA market paid off,” Parekh said in the note.

While Suzlon’s backlog in India more than doubled, the backlog in Brazil grew by 96%.

Suzlon’s competition in India has intensified lately with newer players like Spanish company Gamesa Corporacion Tecnologica SA and Siemens AG augmenting their capacity in India. Among the others in the fray are Vestas India, Leitner Shriram Marketing (LSML) and Enercon India.

Talking of Suzlon’s plan to repay its consolidated debt of Rs10,544 crore, Banerjee said the principal repayment, on which there is a moratorium now, due in 2012-13 is Rs150 crore. Suzlon paid about Rs950 crore as interest in 2010-11.

“We see no problem in meeting our repayment obligations with our cash flows,” he added.

The company, in its attempt to pare down its debt, last week said that it would sell its remaining 26.06% in Belgian gerarbox maker Hansen Transmissions International at Rs830 crore to ZF Friedrichshafen AG. In November 2009, Suzlon raised $370 million, or Rs1,700 crore, when it sold 35% in the company to institutional buyers. It had earlier in January 2009 sold 10% in Hansen to investment firm Ecofin.

Suzlon had bought Hansen Transmissions in 2006 for about $565 million.

“Part of the proceeds will be used to buy the rest of the stake in REpower,” Banerjee said. Suzlon in July announced it would spend €63 million through its subsidiary AE-Rotor Holding BV to acquire the 4.84% it does not own in Germany’s REpower Systems AG, which accounts for 55% of Suzlon’s consolidated earnings.

Suzlon is betting big on its newer turbines to drive growth in the coming years.

Banerjee stated that the company recently launched its class-III turbine, in addition to an improved class-II turbine.

“The trial run is on. We should begin commercial production in October,” he said. Class-I turbines are for sites with an average wind speed of more than 8.5 metres per second (m/sec). Class-II is for wind speeds of 7.5-8.5 m/sec, class-III for 4.5-7.5 m/sec and class-IV for less than 4.5 m/sec.