Neutral rating on Suzlon as ops revival in sight

Suzlon has a consolidated order book of $7.5 billion, which roughly includes $1.7 billion and $5.8 billion orders with Suzlon and Repower, respectively. Sanctions of additional working capital facilities of R1,800 crore, will help the revival of operations at Suzlon (ex REpower), which came to a standstill post the foreign currency convertible bonds (FCCB) default in October 2012.

We expect restructuring of FCCB?s to conclude in this quarter, with a likely 5-year rollover for bonds due in 2012 and 2014.

Suzlon (ex REpower) has cut its employee headcount by over 2,000 y-o-y and also managed to achieve c20% reduction in fixed opex during Q4 FY13 on a quarterly run-rate basis.

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We expect slower ramp up in operations at Suzlon (exREpower) and now expect volume sales during FY14 to be below the level required to breakeven. We expect REpower FY14 revenues to fall y-o-y on due to decline in the US wind market. For FY14, we now forecast a loss of R1,340 crore against consensus of cR500 crore loss. For FY15, we expect a net profit of R310 crore against consensus of R250 crore.

We upgrade our rating to neutral from underweight.

HSBC