Edelweiss: Annual Report Analysis - Suzlon Energy

Margins dip on rising material cost and quality management expenses

n  Suzlon Energy’s (Suzlon) revenues dipped 20.9% to INR 206.2 bn in FY10 from INR 260.8 bn in FY09. EBIDTA margins slipped to 5.1% in FY10 from 10.7% in FY09, primarily owing to rise in raw material prices and high quality management expenses.

n  Expenses related to high quality management continue to be an overhang; increased from INR 9.7 bn (3.8% of revenues) in FY09 to INR 10.1 bn (4.9% of revenues) in FY10.

n  On standalone basis, revenues halved to INR 34.9 bn in FY10. The company incurred cash losses during the year.

Restructuring, Hansen stake sale, fresh issues offer respite to stretched cash flows

n  During the year, Suzlon (standalone) had delayed repayment of its financial liabilities amounting to INR 10.8 bn. However, as at FY10 end, all delays had been rectified.

n  The company, entered a debt consolidation and refinance arrangement with a consortium of banks and FIs. Also, loan of INR 38.4 bn raised by foreign subsidiaries for Hansen and RE Power acquisition has been refinanced by raising fresh loans of USD 465 mn and partly through Hansen stake sale.

n  Consultancy charges of INR 2.6 bn (30.6% of PBT) had been incurred on account of the above refinancing arrangements that have been deferred to be amortised over the tenure of the respective facilities.

n  FCCB due in June 2012 and October 2012 has been restructured, and a net gain of USD of INR 2.5 bn has been recognised. The company has also incurred an expense of INR 1.3 on restructuring of other loans. Net gains of INR 1.2 bn have been recognised as exceptional income.

n  Suzlon disposed 35.2% stake in Hansen Transmission International (Hansen), reducing its holding to 26.1%; Hansen is classified as an associate (against a subsidiary earlier). Residual investment in Hansen is stated at INR 10 bn and profit on sale of part stake aggregating INR 2.5 bn is disclosed as an exceptional item.

n  In FY10, Suzlon issued ZCCB of USD 90.0 mn (due in 2014). The conversion makes economic sense at INR 121.3.

n  In FY10, the company raised USD 108.0 mn (INR 5.2 bn) through issuance of 14.6 mn GDRs representing 58.4 mn equity shares at a price of INR 89.6 per equity share.

n  Cash conversion cycle has increased to 109 days in FY10 (FY09: 79 days), primarily on account of increase in inventory days and receivable days, partly offset by rise in payable days.

n  Debtor days increased to 75 in FY10 (FY09: 60) primarily on account of extended deferred credit of INR 10.4 bn given to a US based sticky debtor at FY09 end. 

n  Cash flow statement shows net debt of INR 3.8 bn, however, loan book has dipped to INR 126.7 bn from INR 148.7 bn, primarily owing to exchange gains and exclusion of debt in the books of Hansen. Average borrowing cost increased to 8.8% in FY10 (FY09: 7.6%).