Is Suzlon a turnaround story after FY16


(Amit) #1

I was reading this article on Business Standard and like to invite views from the fellow members.

http://www.business-standard.com/article/opinion/time-to-renew-interest-in-suzlon-116060100998_1.html

Key Positive Triggers:

  1. Suzlon reduce 14% debit in FY16, Interest costs are down 42% y-o-y

  2. 40% compounded annual growth expected in Suzlon’s Ebidta over the next two years; and a 32% fall in interest cost in FY17.

  3. Risk diversification using entry into Solar

  4. Better Turbines to increase Plant Load factor

  5. No Further Equity dilution required a Operational Cash Flows could reduce further debt

  6. Focus on Hybrid where in Wind and Solar can be deployed. For ex: They did this in Rajasthan

  7. Order book is from independent power producers and not from Tax relief for investors.

  8. Better Technical Knowhow

  9. Sharper Focus on 19 countries worldwide instead of 30+ countries

  10. target to reclaim 50+% market share progressively in the medium term

http://www.livemint.com/Companies/9mCWYKkq2SqEwYbwV2luEJ/Winds-of-change-at-Suzlon-Energy.html

Tanti’s gameplan

Tanti has a three-pronged strategy for revival: introduce next-generation turbine technology; launch hybrid solutions including wind and solar energy; and bring in power storage solutions over the next three to four years.

Tanti is most excited about hybrid solutions, which he says will boost plant load factors for power producers using both wind and solar energy. “We are building our first hybrid wind and solar project in Rajasthan. We have already signed an agreement with the government for a 1.5GW project,” he said.

In its mainstay wind business, Suzlon wants to target a production capacity of 3,500-4,000MW a year. The company plans to grow capacity up to 5,000MW in the next few years

Key Risks:

The government set an ambitious target of adding 175 GW of clean energy capacity by 2022. This includes 100 GW of solar power, 60 GW of wind power and 15 MW of biomass energy.

  1. The government’s target for wind energy (60 GW) is only 60 percent of its aim for solar. Plus, 41 percent of this target has been achieved already, leaving the authorities enough space to make a concerted push for solar power.

  2. Second, the cost of equipment, most notably solar PV cells, has come down drastically compared to the wind turbines. Five years ago, producing 1 MW of solar energy would cost Rs 15 crore; now, it’s only Rs 6 crore, approximately the same as the cost of producing 1 MW of wind power.

  3. Third, the production of wind energy is at its peak during evenings and monsoons, and during both these periods, power demand is low. In comparison, solar power production is more sustained and predictable with most parts of India generally receiving at least eight hours of strong sunlight.

  4. Tariff reductions are good for the sector and additional reductions are desirable as long as they are sustainable. A good risk-return balance needs to be maintained to attract the huge capital needed to achieve India’s targets. If this balance is not adequate, fewer investors will bid, awarded projects won’t get built and/or project quality could suffer. Example: SunEdison in US.

  5. Negative net worth of Rs7,077 crore for the company as on march 31, 2016

  6. It is very difficult not only for Suzlon, but also for Inox or Gamesa to eat into each other’s market shares

  7. Promoter stake was almost 52%, and now, it is 20%.

Views Invited.

Disclosure: Invested < 3% of portfolio.

Cheers,
Amit


(vinay ambekar) #2

Even this thread has gone u-replied for over 4 days, showing investor apathy towards this stock. :slight_smile:

Such times are typically fertile for a good investment.

Discl - not invested. not yet tracking. As long as current promoter is at the helm, I dont think things could sustainably turnaround for this terrible company in a wonderful industry.


(ASHISH) #3

yes it can be good turn around story after 1) Reduction of debt because of sell of overseas German business (2) also there is high investment by Dilip Sanghai and group whereby company in better cash position on working capital side
if stock remain above 15-16 range then FCCB will be likely to convert into Shares and with increase in market share upto 50 % company can once again become leader in field and achieve earlier levels/ this is my view


(KAMAL GARG) #4

Looks to be promising stock as of now as claimed by the Chairman. If they are able to reduce debt substantially and give a CAGR growth of 40% in EBIDTA in the next 2 years coupled with 32% fall in interest cost, it would be just fantastic.
Looks that the bad days are over for Suzlon.
Looks promising from current level.


(Augustine Jos) #5

Very interesting developments for the sector - govt has released new policy draft on scheme for setting up 1000 MW wind capacity for non-windy states via solar like competitive bidding (e-reverse auction) . Also, govt has release draft on wind-solar hybrid policy which incentivizes hybridization of existing/ new plants, these new policy initiatives should boost demand for wind/ hybrid.

http://mnre.gov.in/file-manager/UserFiles/Draft-Wind-1000MW-Guidelines.pdf
http://mnre.gov.in/file-manager/UserFiles/Draft-Wind-Solar-Hybrid-Policy.pdf

I’m Invested.


#6

Solar energy is becoming a viable option due to cost reduction


(Amit) #7

Yes, Solar Energy is a viable option But I think Hybrid is more popular where customers would need to install Solar + Wind. Suzlon is currently working on such projects with various clients and there lies its inherent strength.


(casambhav) #8

Any details on the Investor/Analyst meet which was held yesterday, if anyone here has attented


(gadakalpeshk) #9

Suzlon Analyst Meet Takeaways:

1. Mission 2022:

  • Revenue growth of 14% CAGR (increase revenue 2x)
  • Increase margin by over 5% from 55%
  • Debt to be Zero
  • Working Capital to be reduced to 10% from 15% currently
  • 20% reduction in levelised cost of equipment
  • To not acquire any new asset
  1. Suzlon will target to achieve 20 GW installations from 15 GW in next five years.

3. Advantage Suzlon:

  • It is the lowest cost producer in the World.

4. Improved Realisation

  • New machines have better realisation. It has improved to Rs 6.43cr/MW vs Rs 6.14cr/MW
  • The focus in on Cash Flow and margin over revenue/volume growth

5. Monetising Assets/Business

  • The company could look at monetising Service business and SE Forge.
  • The Service business is at Rs 1474 crs
  • International business of SEforge is expected to provide strong growth.

6. Breakeven Levels

  • 450MW @ EBITDA Levels
  • 900MW @ Cash Levels
  • 1100MW @ PAT Levels

7. Other highlights

  • 280 MW solar EPC orders procured at Rs 5.38 per kWh involves only 12% Equity investment,post involvement of private equity player CLP.
  • The company is looking at Hybrid model of Wind and Solar instead of Wind OR Solar.
  • The company is comfortably placed regarding it Debt and repayment schedule.
  • SE Forge has low breakeven @ capacity utilisation of 20%

(PKumar) #10

Hi Vinay, just curious to know what negatives do you think for the current promoter ? From high level view, he seems to be making some right moves esp regarding the selling of Senvion - the German Subsidiary who led to a debt trap and focussing on Indian market only. Given the technical knowhow obtained from Senvion (which Suzlon is still allowed to use without any licences even after the sell-off), this should be a differentiator.
Thanks

Disc: Have been holding position in Suzlon for a year, so views may be biased


(vinay ambekar) #11

Hi - I am really talking of long time back. Not tracking it hence I am not updated on recent developments.

I had met Tulsi Tanti during my tenure in ICICI Bank. There were lot of positives then (around 2005-06) like sunrise sector, good growth, oil price was high so renewables were talk of the town. But going by what the company has gone through since then, the management has seriously messed up. Debt funded large acquisitions without proper due diligence (Hansen, RE Power) which was the flavour then (Tata-Corus, Birla-Novelis etc. also happened around same time) was a disaster. They had to incur loss due to failure of wind power generators later. Interest cost was killing as the projected revenues did not work out. Final nail in coffin was the 2008-09 crisis. I believe they had gone into CDR somewhere in 2013 (I had left ICICI long back).

These things do not inspire confidence in my for investment. One may play for a bounce here and there, but I believe that the sector is structurally sound, but the company hasnt been able to capitalise on it. Not sure if they have learnt from their mistakes, and if they have, then company could do really well.


(nehago) #12

Hi fellow boarders. This is mu first post on Forum. Would like to mention here that Suzlon used to be a great company and as discussed earlier miscalculated acquisitions , that too on borrowed funds led to the disaster that is present day Suzlon. Nevertheless, I would like to give the management a second chance at building the company almost from zero levels ( financially) once again. My reasons are :

  1. It is one of the best placed companies in the Wind Power sector so far as the capacities are concerned.

  2. The company has already turned around in the last few quarters and the direction towards coming into PAT is almost positive now.

  3. The low interest regime expected ahead shall benefit the company to a great extent.

  4. Tulsi Tanti is a genuinely honest businessman. Decisions go wrong in many businesses ( e.g Corus-Tata Steel and Aditya Birla - Novelis ) ,but that does not mean that Tanti is incapable of leading the company.

  5. Fund infusion by Sun Pharma Group adds to the investor’s confidence.

    The latest presentation by the company has laid down a definite progress plan from now upto 2022. On e needs to be patient to buy and keep the shares for 6 years. I think that the bottom has been formed and the risk to reward ratio is really very very attractive here.
    Disc… Am invested


(kums17) #13

Suzlon Chaiman said following

  • Hopes to exit a process of corporate debt restructuring by March 2017.
  • They will be the fastest company to come out of CDR,"
  • Expects its cash balance to exceed its debt in five years as it increases operating capacity and cuts its interest payments.
  • Plans to add 15 gigawatts of wind and solar energy capacity over the next five years to its current asset base of 9.5 gigawatts,
  • Company had acquired enough land to undertake projects. Land acquisition is among the major challenges faced by renewable energy companies.
  • Suzlon will also not look for any overseas acquisition.
  • Company will grow in the overseas market but through exports of our wind turbines,"

All this indicates some positive development when seen with previous analysis in the thread

Disclaimer - Invested


(g1) #14

Q1 results are out.
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=7e742b19-0ad2-48bb-87fd-63e1717ac8f0

Though there is a loss reported for the quater, the order book stands at 1K+ MW for the year and solar orders stand at 500+MW. This looks good to me.

They also have sufficient working capital now to execute all the orders as from the presentation with the results.

Finally looks like a turn around story indeed.

Disc: Invested small quantity.

Regards
Jeevan


(krrish seth) #15

Hi, the renewable sector is poised to grow specially when the present regime is taking many initiative and target to achiece 175GB in 2022. As per latest analyst meet of suzlon the company has also a Vision 2022 as mentioned previous post.

Suzlon is moving from deep underwater to underwater…

Suzlon earns revenue through sale of Wind Turbine Generator (WTGs) and wind power systems. It generates service income from installation, operation and maintenance revenue and through project execution. Suzlon estimates to breakeven at EBITDA level at 450 MW of sales. For 9MFY16, with sales of 688 MW Suzlon posted positive EBITDA. Since past 3 years, Suzlon Energy has been struggling with its high debt to equity ratio. Not only Suzlon Energy has to repay its mammoth outstanding debt, it also has to manage negative shareholders fund. Shareholder’s fund turns negative when accumulated losses exceed profits transferred to reserves over life of the company.

It has restructured its debt and issued Foreign Currency Convertible Bonds (FCCBs) to ease its debt burden over period of next 5 years. In Last months, it repaid 5% Apr 2016 FCCB series in cash along with applicable 8.7% redemption premium. These bonds were paid in cash as stock price traded on exchange was much lower than pre-determined conversion price of Rs. 15.46 per share (with a fixed rate of exchange on conversion of Rs 60.225 to U.S.$1.00). Still, the Company has debt of Rs. 9,800 crores to be payable.

Suzlon Energy has installed capacity base of 3,600 MW per annum for manufacturing wind turbine generator. Currently, it is not planning to incur any capital expenditure. Suzlon follows Make-to-Order model for manufacturing
Wind Turbine generator. It starts manufacturing after receipt of order. As a result, it does not have to face inventory issue, but has large unutilized production capacity. Unutilized production base indicates that Suzlon would be in
better position to take advantage of growing industry demand for WTG.

Suzlon Energy has wide spectrum of products to offer. Its product portfolio ranges from 600 kW to 2.1 MW wind turbines. Its newly launched product S97 120 meter and S-111 has larger rotors to harness 20% higher wind energy (compare to its S9X product) from low wind sites. Suzlon has tested prototype product S97_120 meter in Gujarat and result indicates 35% higher PLF over the 12-months period.

Suzlon Energy has land bank in 8 states, viz Rajasthan, Gujarat, Maharashtra, Madhya Pradesh, Andhra Pradesh, Tamil Nadu, Karnataka and Kerala that will also be helpful. The company is also changing its strategy alongwith the trend as the world is slowly moving from wind to solar or hybrid as the cost per unit of solar energy is reduced drastically in the last few years.

Disc: Have been holding small position in Suzlon from last 01 month, so views may be biased


(Aman Jain) #16

Seems fianlly out of the woods. Great quarter. Company in its presentation is saying h1 is generally 1/3 of overall yearly business, hence the remaining year should be absolute fantastic!! Hope the same should be the case for next year too. I will be getting on the concall on Tuesday and am looking forward to management commentary.


(krrish seth) #17

Q2 suzlon

PAT 237.6cr
income up 57.4%
EBITDA 619cr
margin 22.5%

improvement in all


(Ashusharma) #18

Can anybody shed light on the fact that rise in inventories and trade receivable is substantial, whether it is creative accounting to increase sales


(Mehnazfatima) #19

Just to prove the adage that love is blind…I have fallen in love with the yuckest of them all - SUZLON…one which has disappointed us all since last 6 years…Discl: as of now watching the stock very keenly and may start buying once it crosses 15…


(Mehnazfatima) #20