Suzlon Energy: Not Out Of The Woods Yet

The shares of Suzlon Energy are back in the reckoning after the company received a 45-day extension from its bond-holders. The bonds worth USD 335 million were originally due in June 2012. The company will now be repaying these bonds on July 27, 2012. Though this seems like god-send relief for the company, we believe the worst is not yet over. The company is seen selling its assets and thus it will be very interesting to see how company arranges to repay this debt that amounts to about Rs 1,880 crore. Its promoters have already pledged 89.19 per cent of their shares, which indicates a worrisome financial situation for the company.

As per the data with the stock exchanges, apart from the above-mentioned foreign currency bonds, Suzlon is also to repay USD 220 million worth of bonds in October 2012. This implies that once the company repays the June series, it will have to undergo through the same pain again for the October series. It is also due for USD 90 million worth of bonds in 2014 and USD 175 million worth of bonds in 2016. It should be noticed that all of these bonds are convertible bonds with a steep conversion price. Looking at the dismal performance of Suzlon Energy on the bourses, no bond-holder will opt for conversion in equity but would rather prefer repayment of the bonds.

By March 31, 2012 the company has reported cash of Rs 262 crore on a standalone basis and Rs 2,632 crore on a consolidated basis. Besides, due to the fallen reserves, its net worth has declined by 17 per cent on a standalone basis and by 21 per cent on a consolidated basis. Its revenues in the March quarter were down by 8 per cent to Rs 6,699 crore. Suzlon’s profitability is still weak as it has reported losses in this year as well. Even in the last quarter it reported loss of Rs 300 crore against profit of Rs 211 crore on a consolidated basis in the same quarter last fiscal. Even on a QoQ basis its losses have widened from Rs 286 crore to Rs 300 crore.

In a press release the company has made a mention about the challenging environment. Its order book is soaring but the profits have not been increasing. The company has given a guidance of Rs 27,000 crore for this fiscal. However we remain skeptical about the same.

At the current valuation the stock may look very cheap but the profits are very distant from realisation. The company has a total long term debt of Rs 7,364 crore. Suzlon paid interest of Rs 884 crore in the year FY12 which was 34 per cent higher to what it paid in FY11. This high interest burden is eating all its profits. In the current situation wherein the European countries are facing a slowdown we believe that the company may face some hurdles. In such a scenario we maintain our call to avoid the scrip.