Suzlon Posts Loss, Hanging On CDR Thread

Suzlon Energy, wind turbine maker from Pune, has again posted net loss of Rs 809 crore for the September 2012 quarter. Its topline growth came in at Rs 5,702 crore against Rs 5,071 crore in the same quarter last fiscal. The margins have been pressed after the acquisition of RE Power. The company had posted loss at the operating level in the first quarter and has again repeated the same feat.

As the company has been reporting losses in this fiscal, its net worth has eroded by 25 per cent in a standalone balance-sheet and by 34 per cent in a consolidated statement. Liquidity is now a big concern for the company as it has burnt over Rs 2,000 crore in the last six months and has also defaulted on FCCBs. Its current investments have been wiped out in the first six months of the fiscal. The company’s trade receivables are still high with no resolution of its Rs 1,000 crore receivables pending with the American company Edison International. The company said that it is hopeful of receiving the sum between February 2012 to October 2014 but the same remains uncertain.

Suzlon’s efforts to liquidate its assets have also not been very successful. The company initiated the sale of its assets in China which are yet to materialize. Its auditors have said that the realizable value of these assets is lower by Rs 119 crore than its book value. The auditors have also said that the company has not reported this figure in its consolidated balance-sheet. Besides, they have also flagged a concern over Suzlon’s ability to continue as a going concern. It has also said that the company’s survival depends upon the successful outcome of the CDR cell and its discussion with the FCCB holders. They have also said that the default on FCCBs has triggered defaults on other outstanding FCCBs and potential defaults on bank loans. These defaults may accelerate its payments on other long-term loans which could further put pressure on its financials.

Suzlon’s management currently has few solutions left such as to raise more debt, to sell their stake in the company or sell its German subsidiary RE Power. Raising more debt seems very difficult as it is currently paying interest rate of 13-14 per cent on its existing debt and because of its lower credibility of repayment lenders may ask for higher interest rates. Selling stakes would further dilute the promoters’ stakes which is already pledged. Though selling RE Power remains a practical option, the company intends to bank on RE Power and hence this is a distinct possibility.

On the business front, the first half of the fiscal has seen 40 per cent decline in wind power installations in the domestic market. U.S. and Europe, which were the main market drivers for wind energy, have slowed down significantly due to the domestic issues and any revival in the near term is not possible. Also, the sector is seeing over-capacity as solar power has become a cheaper option.

We see that the turnaround of the company is currently hanging with only the possibility of debt recast. The banks may ask Suzlon to bring the cash lying with RE Power if it goes for CDR. The banks in Germany however have put restrictions on Suzlon and hence it cannot bring home the cash. The situation of Suzlon is a mess and an indication of huge wealth destruction. It is also a lesson for the investors who do not pay enough attention to the fundamentals.