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Suzlon Energy------------------------------------------------------------------------ Maintain NEUTRAL
3Q below estimates; domestic recovery dampened by weak international sales
● Suzlon’s reported PAT loss of Rs2.5 bn was substantially below
our estimates. With 9M adjusted losses amounting to Rs13 bn,
our full-year forecasts for FY11 are at risk.
● However, management has made a commendable effort by
increasing orderbook to 2.5 GW (from 1.5 GW). This includes a
1 GW order from Caparo Energy, which is not yet fully financially
closed. Current delivery schedules give visibility of 700 MW sales in
4Q FY11 and 1400 MW for FY12. (FY12 CS estimates 2200 MW).
● While we are building in margin improvement in FY12 given
management’s focus on reducing other expenses, rising
commodity prices/interest rates are key challenges that Suzlon
will have to grapple with.
● Suzlon may have to raise funding, in our view, (equity or debt) to
repay FCCBs due in CY12/CY13. Displacing FCCBs with debt
implies increase in interest outgo while conversion to equity will
imply significant dilution. While we build recovery in financials,
ROCE remains below WACC. Maintain NEUTRAL with a target
price of Rs49.
Orderbook maths
Suzlon currently has 1624 MW order backlog in India, of which 500
MW of the Caparo energy order is for delivery in Mar ‘13. Of the
Vedanta order, 50 MW is for delivery by Mar ‘11 and 100 MW by
Sep ‘11. For the Techno electric order, 100 MW is for delivery in
June ‘11 and 100 MW by Dec ‘11. Of the international orderbook of
954 MW, 220 MW is for delivery in 4Q and rest in FY11 – assuming
that there are no further delays in delivery schedules. Management
hence expects 700 MW to be sold in FY11 and 1400 MW in FY12.
Net debt remains high at Rs101 bn and is up QoQ. The decline YoY is
because of conversion of promoter loan of Rs11.75 bn into equity
through a rights issue. Net working capital requirements (Wind group
ex. Repower) have increased to Rs52 bn from Rs49 bn, largely to
support higher sales in the Dec quarter.
Cash generation insufficient to repay FCCBs
Based on consensus estimates, it is apparent that Suzlon will find it
difficult to repay FCCBs – however, management believes that
internal cash generation and working capital proceeds should help
them bridge the gap. Our calculations suggest that US$550 mn worth
redemptions are due in CY12. In order to repay these FCCBs, Suzlon
has to either raise equity funding or raise more debt. Debt funding
would imply a sharp spike in interest outflow through P&L given that
the US$211 mn and US$121 mn face value bonds are zero coupon
bonds. The other option Suzlon has is to restructure FCCBs again and
bring down the conversion price. Note that these FCCBs amount to
237 mn shares, in case of conversion at current conversion price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Suzlon Energy------------------------------------------------------------------------ Maintain NEUTRAL
3Q below estimates; domestic recovery dampened by weak international sales
● Suzlon’s reported PAT loss of Rs2.5 bn was substantially below
our estimates. With 9M adjusted losses amounting to Rs13 bn,
our full-year forecasts for FY11 are at risk.
● However, management has made a commendable effort by
increasing orderbook to 2.5 GW (from 1.5 GW). This includes a
1 GW order from Caparo Energy, which is not yet fully financially
closed. Current delivery schedules give visibility of 700 MW sales in
4Q FY11 and 1400 MW for FY12. (FY12 CS estimates 2200 MW).
● While we are building in margin improvement in FY12 given
management’s focus on reducing other expenses, rising
commodity prices/interest rates are key challenges that Suzlon
will have to grapple with.
● Suzlon may have to raise funding, in our view, (equity or debt) to
repay FCCBs due in CY12/CY13. Displacing FCCBs with debt
implies increase in interest outgo while conversion to equity will
imply significant dilution. While we build recovery in financials,
ROCE remains below WACC. Maintain NEUTRAL with a target
price of Rs49.
Orderbook maths
Suzlon currently has 1624 MW order backlog in India, of which 500
MW of the Caparo energy order is for delivery in Mar ‘13. Of the
Vedanta order, 50 MW is for delivery by Mar ‘11 and 100 MW by
Sep ‘11. For the Techno electric order, 100 MW is for delivery in
June ‘11 and 100 MW by Dec ‘11. Of the international orderbook of
954 MW, 220 MW is for delivery in 4Q and rest in FY11 – assuming
that there are no further delays in delivery schedules. Management
hence expects 700 MW to be sold in FY11 and 1400 MW in FY12.
Net debt remains high at Rs101 bn and is up QoQ. The decline YoY is
because of conversion of promoter loan of Rs11.75 bn into equity
through a rights issue. Net working capital requirements (Wind group
ex. Repower) have increased to Rs52 bn from Rs49 bn, largely to
support higher sales in the Dec quarter.
Cash generation insufficient to repay FCCBs
Based on consensus estimates, it is apparent that Suzlon will find it
difficult to repay FCCBs – however, management believes that
internal cash generation and working capital proceeds should help
them bridge the gap. Our calculations suggest that US$550 mn worth
redemptions are due in CY12. In order to repay these FCCBs, Suzlon
has to either raise equity funding or raise more debt. Debt funding
would imply a sharp spike in interest outflow through P&L given that
the US$211 mn and US$121 mn face value bonds are zero coupon
bonds. The other option Suzlon has is to restructure FCCBs again and
bring down the conversion price. Note that these FCCBs amount to
237 mn shares, in case of conversion at current conversion price.
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