Windy days again: 'Overweight' ratings on Suzlon Energy shares, says HSBC

Jun 16 2014, 09:29 IST
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SummaryReprieve from default; focus on offshore wind market to help margins

FY14 concludes with signs of recovery: After seven quarters of consecutive losses, Ebitda and Ebit were positive in Q4FY14, reflecting early signs of a turnaround. Also, in May 2014 Suzlon Energy Ltd announced it had reached an agreement with foreign currency convertible bond (FCCB) holders on the bond restructuring. The restructuring is likely to conclude in two months, enabling the company to be technically out of default.

Improving performance: During FY14, Suzlon (ex-Senvion) sold 723MW of wind turbines compared with 251MW in the previous year. As a result, the groups revenue rose 8% y-o-y to R205 bn, despite a 19% decline in Senvions revenue. On a consolidated basis, the company posted positive Ebitda and Ebit due to continuous cost-reduction efforts.

Significant reduction in working capital: By end-March 2014, Suzlon managed to cut its working capital to 3.6% of sales (470 basis point reduction q-o-q), reflecting a significant improvement over the past eight quarters. The company has adopted a just-in-time inventory approach to achieve these target reductions. Its outlook for working capital ratio in FY15 is 3-5% of sales.

Senvions margins expand: Senvion continues to be profitable with a FY14 Ebitda margin of 8.1% and Ebit margin of 5.6%. Ebitda jumped 25% year-on-year despite a revenue decline of 19%. This improvement in margins is due to the focus on high-margin markets, business restructuring and effective working capital management. Looking forward, the focus on the offshore wind market should help the company further improve its realisation and margins.

FCCB restructuring agreed: In May, Suzlon announced that that it had reached an agreement with the FCCB holders on bond restructuring, contingent to approval from the RBI. The new restructured bonds will have a maturity period of five years and one day from the date of issue, and are payable in FY19-20. The conversion price of bonds is fixed at R15.46, which is 10% above the regulatory floor price.

No significant repayments in next two-to-three years: Suzlons gross debt as of end-March '14 stands at R170 bn. This includes R90.1bn of rupee debt and the remaining is US dollar-denominated debt. The repayment schedule for the next five years highlights that the first large repayment of R47 bn is due in FY18.


Order book continues to be strong: As of end May 2014, the companys order book was

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