Suzlon Reports Loss, Lowers Annual Guidance

Suzlon Energy has reported yet another dismal quarter in terms of financial performance. The company posted net loss of Rs 301 crore on a consolidated basis as against net profit of Rs 58 crore. After the result today, the stock lost over 7.32 per cent and closed at Rs 28.50. We see a further downside in the stock in the coming days.

The company reported 12 per cent rise in its topline to Rs 5,033 crore. Its income from the wind turbine generator business grew by 12 per cent to Rs 4,944 crore on a YOY basis. The raw material cost increased by 6.85 per cent. However, a good development to note is that the contribution of the raw materials as a percentage of sales has decreased by 343 basis points to 65.31 per cent. The foreign exchange loss was lower at Rs 45 crore in the quarter under review compared to loss of Rs 63 crore in the corresponding quarter last fiscal. As a net result of this, its EBITDA margins have improved by 220 basis points to 7 per cent in the December quarter.

Though its EBITDA margins look better than a year-ago period, one should not consider this as a true representation of its overall financial performance. The increased interest cost (Rs 357 crore in the quarter and Rs 1,012 crore for the nine-month period) has taken a huge toll on its profitability. Beside its tax expenses increased by 4.3x due to rise in its provision for deferred tax liability of Rs 121 crore. Its outstanding debt to the tune of Rs 13,357 crore is a matter of serious concern and makes its balance-sheet very weak.

Its interest cover ratio which stood at 4x in the December quarter of the last fiscal has declined to 1.96x in this quarter. The declined coverage ratio is a worrying factor at this time when the company is nearing the FCCB redemption of USD 569 million (Rs 3,021 crore). These bonds have a very steep conversion price. Besides, the redemption premium is over 140 per cent. Looking at the current market price we believe that these FCCBs would be repaid instead of conversion. With the possibility of a weak rupee we believe that there is further downside risk.

We believe that the company may have to borrow more funds or restructure its debt. Even on a stand-alone basis the company reported 18 per cent rise in its topline to Rs 1,435 crore while it has reported a net loss of Rs 314 crore. On an EBITDA level the company has reported loss of Rs 164 crore in this quarter.