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Sept-q shows Suzlon’s cash flow vulnerability to small volume slip-ups.
The company reported a loss, as against our expectation of a sustained
turnaround. Notwithstanding recent stock underperformance, we think
concerns on shortfall in operating cashflow to meet debt obligations,
would constrain stock performance going forward
Sep-q sales volumes below estimate, resulting in a loss. Suzlon reported a
Sep-q consolidated loss of Rs829M (adj for forex losses, Hansen stake sale
vs. our profit estimate of Rs931M). The wind business reported an adj. loss
of Rs1.7B, as against our turnaround expectation. Volume slip-up caused
the miss - 420MW vs our estimate of 495MW, 1Q 437MW. Barring 25MW
sold in China, there were no international sales or fresh orders. Gross profit
margins at Rs24.3/MW were up 18% yoy due to higher realizations.
Suzlon’s shift to domestic market visible. YTD, Suzlon reported 670MW
of inflows down 33% yoy. 95% of the new orders and 82% of YTD sales
have been in India. YTD Suzlon has achieved 38% of our sales estimate for
FY12, with India largely on track with 44% of FY12E of 1.6GW achieved.
But international sales estimate of 650MW remains at risk.
REPower had a relatively better quarter. REpower reported PAT of
Rs1.03B vs. 1QFY12 PAT of Rs0.8B and 2QFY11 loss of ~Rs310M.
Similar to last quarter, REPower benefited from FX gain on translation of
COGS in 2Q as well. With a $4.1B OB, REPower has good revenue
visibility with inflows picking up in Europe and Developed Markets.
FY12 guidance maintained: Suzlon has maintained its consol FY12
guidance of Rs240-260B sales (JPMe of Rs227bn, 2H asking rate Rs133B
+115% yoy) and EBIT margin of 7-8% (JPMe 6.6%, 2H asking rate Rs9.9B
i.e. 7.4% mgn). Notwithstanding the slippage in 2Q, we think Suzlon is
banking on making up lost volumes in 2H.
Leverage and its costs increase. Consol Net D/E increased to 1.7x as of
Sep-11 compared to 1.4x at the end of FY11 as acquisition loans (possibly
for acquisition of balance stake in REPower) and FCCBs (given the recent
$175M issue) increase. In the Sep-q interest costs were up 34% yoy and
20% qoq, and 1H expenses are now tracking ahead of our estimate for
FY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sept-q shows Suzlon’s cash flow vulnerability to small volume slip-ups.
The company reported a loss, as against our expectation of a sustained
turnaround. Notwithstanding recent stock underperformance, we think
concerns on shortfall in operating cashflow to meet debt obligations,
would constrain stock performance going forward
Sep-q sales volumes below estimate, resulting in a loss. Suzlon reported a
Sep-q consolidated loss of Rs829M (adj for forex losses, Hansen stake sale
vs. our profit estimate of Rs931M). The wind business reported an adj. loss
of Rs1.7B, as against our turnaround expectation. Volume slip-up caused
the miss - 420MW vs our estimate of 495MW, 1Q 437MW. Barring 25MW
sold in China, there were no international sales or fresh orders. Gross profit
margins at Rs24.3/MW were up 18% yoy due to higher realizations.
Suzlon’s shift to domestic market visible. YTD, Suzlon reported 670MW
of inflows down 33% yoy. 95% of the new orders and 82% of YTD sales
have been in India. YTD Suzlon has achieved 38% of our sales estimate for
FY12, with India largely on track with 44% of FY12E of 1.6GW achieved.
But international sales estimate of 650MW remains at risk.
REPower had a relatively better quarter. REpower reported PAT of
Rs1.03B vs. 1QFY12 PAT of Rs0.8B and 2QFY11 loss of ~Rs310M.
Similar to last quarter, REPower benefited from FX gain on translation of
COGS in 2Q as well. With a $4.1B OB, REPower has good revenue
visibility with inflows picking up in Europe and Developed Markets.
FY12 guidance maintained: Suzlon has maintained its consol FY12
guidance of Rs240-260B sales (JPMe of Rs227bn, 2H asking rate Rs133B
+115% yoy) and EBIT margin of 7-8% (JPMe 6.6%, 2H asking rate Rs9.9B
i.e. 7.4% mgn). Notwithstanding the slippage in 2Q, we think Suzlon is
banking on making up lost volumes in 2H.
Leverage and its costs increase. Consol Net D/E increased to 1.7x as of
Sep-11 compared to 1.4x at the end of FY11 as acquisition loans (possibly
for acquisition of balance stake in REPower) and FCCBs (given the recent
$175M issue) increase. In the Sep-q interest costs were up 34% yoy and
20% qoq, and 1H expenses are now tracking ahead of our estimate for
FY12.
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