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Suzlon----------------------------------------------------------------------------------- Maintain NEUTRAL
Forex gains and accounting change prop an otherwise extremely disappointing 4Q
● Suzlon’s 4Q adjusted PAT of Rs1.0 bn was significantly below
estimates (over Rs3 bn) and disappointing. The reported PAT
included: 1) forex gains of Rs2.2 bn, 2) sudden change in accounting
policy at Repower that overstated PAT in 4Q by Rs1.1 bn and sales
by Rs9.7 bn, 3) taxes lower by Rs0.55 bn due to recognition of
deferred tax assets (auditors have expressed their reservations).
● 4Q wind group sales of 492 MW were below management’s
expectation of over 700 MW sales (as highlighted in the 3Q call).
Order inflows were only 144 MW. Repower executed only 851
MW in FY11. Guidance for FY12 points at EPS similar to that of
consensus and hence an irrelevant datapoint.
● Given an extremely weak quarter and continued stress on balance
sheet (debt remains unchanged), steep valuations of the stock
could be questioned. We intend to review our earnings model to
factor in the changes in accounting norms at Repower and to
account for the dilution on new FCCBs.
Accounting policy change surprising
The notes to results highlights that until the December quarter, sales
at Repower (95% subsidiary of Suzlon) were adjusted to align them to
the group’s accounting policy but a detailed exercise by Suzlon’s
management suggested that it might be appropriate to treat revenue
recognition differently at Repower and Suzlon, given the difference in
the nature of customisation of contracts/clauses at Repower and
Suzlon. This overstated the March quarter revenues substantially –
revenue overstated by Rs9.7 bn and PAT at Repower overstated by
Rs1.1 bn. Management’s explanation on the key drivers behind this
change in accounting policy is awaited.
Auditor qualification (comments)
We note that there were auditor comments with regards to: 1) taking
credit of deferred tax asset, 2) non-provision of premium on
redemption of FCCBs (Rs5.7 bn) and 3) non provision of IDC’s worth
Rs0.64 bn with regards to levy by TNEB.
Guidance equates to consensus EPS
Suzlon’s management has guided for Rs240-260 bn of consolidated
sales with EBIT margins at 7-8%. This amounts to EPS of Rs3.0 (at
the mid-point of guidance), in line with the street’s estimates. Given
the short cycle nature of the business and an order booking policy that
does not require even a financial closure of the project to get
completed, we see risk to such guidance as delivery schedules could
continue to get postponed, impacting numbers. Suzlon’s management
in its 3Q conference call had indicated India sales at over 700 MW;
however, actual sales came in at only 492 MW, which highlights the
difficulty in predicting sales for even a quarter ahead.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Suzlon----------------------------------------------------------------------------------- Maintain NEUTRAL
Forex gains and accounting change prop an otherwise extremely disappointing 4Q
● Suzlon’s 4Q adjusted PAT of Rs1.0 bn was significantly below
estimates (over Rs3 bn) and disappointing. The reported PAT
included: 1) forex gains of Rs2.2 bn, 2) sudden change in accounting
policy at Repower that overstated PAT in 4Q by Rs1.1 bn and sales
by Rs9.7 bn, 3) taxes lower by Rs0.55 bn due to recognition of
deferred tax assets (auditors have expressed their reservations).
● 4Q wind group sales of 492 MW were below management’s
expectation of over 700 MW sales (as highlighted in the 3Q call).
Order inflows were only 144 MW. Repower executed only 851
MW in FY11. Guidance for FY12 points at EPS similar to that of
consensus and hence an irrelevant datapoint.
● Given an extremely weak quarter and continued stress on balance
sheet (debt remains unchanged), steep valuations of the stock
could be questioned. We intend to review our earnings model to
factor in the changes in accounting norms at Repower and to
account for the dilution on new FCCBs.
Accounting policy change surprising
The notes to results highlights that until the December quarter, sales
at Repower (95% subsidiary of Suzlon) were adjusted to align them to
the group’s accounting policy but a detailed exercise by Suzlon’s
management suggested that it might be appropriate to treat revenue
recognition differently at Repower and Suzlon, given the difference in
the nature of customisation of contracts/clauses at Repower and
Suzlon. This overstated the March quarter revenues substantially –
revenue overstated by Rs9.7 bn and PAT at Repower overstated by
Rs1.1 bn. Management’s explanation on the key drivers behind this
change in accounting policy is awaited.
Auditor qualification (comments)
We note that there were auditor comments with regards to: 1) taking
credit of deferred tax asset, 2) non-provision of premium on
redemption of FCCBs (Rs5.7 bn) and 3) non provision of IDC’s worth
Rs0.64 bn with regards to levy by TNEB.
Guidance equates to consensus EPS
Suzlon’s management has guided for Rs240-260 bn of consolidated
sales with EBIT margins at 7-8%. This amounts to EPS of Rs3.0 (at
the mid-point of guidance), in line with the street’s estimates. Given
the short cycle nature of the business and an order booking policy that
does not require even a financial closure of the project to get
completed, we see risk to such guidance as delivery schedules could
continue to get postponed, impacting numbers. Suzlon’s management
in its 3Q conference call had indicated India sales at over 700 MW;
however, actual sales came in at only 492 MW, which highlights the
difficulty in predicting sales for even a quarter ahead.
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