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Suzlon Energy: Order backlog to power growth

According to reports, Suzlon Energy’s financial performance for FY12 is bound to take investors by surprise. Not only has Suzlon managed to meet its revised revenue growth guidance for the year, but has also showcased operational efficiency.

The company’s operating profit (Ebitda) for the year shot up by 74% YoY, resulting in a rise of over 270 basis points in its operating margins vis-a-vis FY11. This is, by far, a much better performance by the company in the past three years. But investors would do well not to be swayed.
That is because Suzlon, during the year which just concluded, has chosen not to align the revenue recognition policy of its major international subsidiary  REpower with its own, citing more appropriate presentation of financial statements.

Given this arrangement, its consolidated revenue and net profit for the year are higher by 1,000 crore and 100 crore respectively. Had it not been for this accounting adjustment, the year-on-year growth in its  Ebitda would have been negative instead.

Given this accounting adjustment, the company could post a net turnover of over 21,000 crore for FY12, thereby meeting its revised guidance, issued after the Q3 results. Going forward, the company has guided for a top line of 27,000 crore- 28,000 crore for FY13, backed by a robust order backlog of 41,500 crore.

This is, by far, the highest order backlog reported by the company, giving it reasonable revenue visibility in the near-term. As Suzlon’s balance sheet continues to be debt-laden, (approximately 11,000 crore – consolidated figure – at the end of March 2012, interest costs will continue to burden its financials for some more time. For the time being, however, a bigger concern for the company is to redeem its FCCBs.

Suzlon is already in the process of seeking an extension of 45 days from bondholders for its FCCBs maturing on June 12.

Notwithstanding its claims of actively pursuing various fund- raising options such as debt, high-yield bonds, equity and sale of non-core assets to meet this obligation, investors and bondholders will be anxiously waiting to see whether it will eventually manage to fulfill its commitment.

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