Suzlon Energy: Positive on sales, inflows; but still high debt, working capital cause concern: Kotak Sec,

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Suzlon Energy (SUEL)
Industrials
Positive on sales, inflows; but still high debt, working capital cause concern. Suzlon
reported strong wind business sales of 421 MW and revenues of Rs26.7 bn, broadly in
line); though higher other expenses and interest cost led to a net loss of Rs2.36 bn,
higher loss versus our estimate of a loss of Rs383 mn. Inflows of 432 MW (entirely from
domestic) surprised positively. However, balance sheet remains strained with high
working capital (up Rs4.8 bn from end-FY2011) and debt (up Rs11.7 bn). Retain REDUCE.
Strong sales, in line with estimates; however, high interest expense leads to net loss
Suzlon reported strong 2QFY12 wind business sales of 421 MW, a strong growth of 17% over
2QFY11 sales of 360 MW and marginally lower than our estimate of 450 MW. Suzlon reported
2QFY12 wind business revenues of Rs26.7 bn, up 22% yoy (in line with our estimate of Rs27 bn).
However, higher other expenses led to lower-than-expected EBITDA margin of 5.1% versus our
estimate of 9.5%. Suzlon also reported higher-than-expected interest cost at Rs2.96 bn, up almost
50% yoy and 25% sequentially. Higher-than-expected other expenses and interest cost led to a
net loss of Rs2.36 bn in 2QFY12, a much higher loss versus our estimate of a loss of Rs383 mn.
432 MW inflows (entirely domestic) surprise positively; retains FY2012E guidance
Suzlon reported strong 2QFY12 inflows of 432 MW, versus weak inflows in the past two quarters.
The inflows surprised positively against low announcements made in 2QFY12. The inflows were
entirely driven by the domestic market with zero inflows from international markets. We build in
execution of 2,075 MW in FY2012E for Suzlon’s wind business led by 1,724 MW in domestic and
350 MW for international market. Suzlon has retained its FY2012E consolidated revenue guidance
of Rs240-260 bn (Rs95 bn recorded in 1HFY12) and EBIT margin of 7-8% (6.3% margin in 1H).
Balance sheet remains stretched with high working capital and debt levels
Suzlon reported high wind business net working capital of about Rs41.7 bn, an increase of about
Rs4.8 bn versus FY2011-end levels. Furthermore, the company also reported higher gross external
debt of Rs124 bn, about Rs11.7 bn higher than end-FY2011 levels. Rs5 bn of the increase in debt
levels was attributed to currency translation on recent Rupee depreciation.
Revise estimates; retain target price of Rs40/share and reiterate REDUCE rating
W revise our estimates to Rs1.9 and Rs3.8 for FY2012E and FY2013E on (1) aligning assumptions to
1H trend (higher domestic and lower international sales, higher employee, other and interest
expenses), (2) increased sales estimates for REpower and (3) higher EUR-INR conversion rate benefit.
We retain REDUCE (TP: Rs40) as (1) we wait for data points pointing to sustainable business upside,
(2) high debt and working capital levels cause concern.


Strong sales, in line with estimates; however, high interest expense leads to net
loss
Suzlon reported strong 2QFY12 wind business sales of 421 MW, a strong growth of 17%
over 2QFY11 sales of 360 MW and marginally lower than our estimate of 450 MW. Suzlon
reported 2QFY12 wind business revenues of Rs26.7 bn, up 22% yoy (in line with our
estimate of Rs27 bn). However, higher other expenses led to lower-than-expected EBITDA
margin of 5.1% versus our estimate of 9.5%. Other expenses at Rs5.3 bn increased to
about 20% of sales versus 15.8% of sales in 1QFY12 (other expenses increased in absolute
terms as well, up 30% qoq). Suzlon also reported higher-than-expected interest cost at
Rs2.96 bn, up almost 50% yoy and 25% sequentially (likely on higher debt levels). Higherthan-
expected other expenses and interest cost led to a net loss of Rs2.36 bn for the quarter,
a much higher loss versus our estimate of a loss of Rs383 mn.
For the half year ending September 30, 2011, Suzlon reported wind business revenues of
Rs52.7 bn, up 45% yoy on sales of 858 MW (versus 568 MW of sales in 1HFY11). The
company recorded 1HFY12 EBITDA margin of 8.4% versus a loss of 7.9% in 1HFY11.
However, high interest costs led to a net loss of Rs2.1 bn in 1HFY12.