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Suzlon Energy: Orders cheer despite headwinds in Europe

According to reports, while the Suzlon stock may appear to be a good buy, investors should be cautious till the company meets its FCCB obligations.

Indian wind turbine manufacturer Suzlon Energy has been in troubled waters for quite some time now. First, it was the defective blade issue that hurt the company’s credibility apart from compensation that had to be paid to its international customers.

And now, that the company has regained some of its faded glory in the international arena, huge debt on its books with an immediate obligation to repay of a part of its FCCBs has become a noose around its neck.

Suzlon Energy is a leading manufacturer and supplier of wind turbines. Having acquired German wind turbine manufacturer REpower’s business in the recent past, the company now has a strong presence in the international market, especially in Europe. However, the acquisition has also significantly pushed up debt on its books.

If Suzlon has any thing to cheer about today, it is probably its order book position. Notwithstanding the global economic slump, especially in Europe, which is a major market for the company, Suzlon Energy’s order backlog as at March 2012 stood at a healthy Rs 41,500 crore.

This is nearly double its net revenue of over Rs 21,000 crore for FY12. The company’s top line of over Rs21,000 crore for the year 2012 is an increase of 18% over the previous year.

It has also reported a healthy increase in its operating profits for the year as compared to the previous two years resulting in a significant improvement in its operating margins from 2% to over 5%.

Given the healthy order backlog, the company has guided for a revenue growth of 33% and an operating margin of about 6% for FY13.

However, notwithstanding this improved operational efficiency, Suzlon has posted a net loss for the third consecutive year with high interest cost eating into most of its operating margins.

Its interest cost as a percentage to sales has steadily increased from less than 4% in FY08 and FY09 to close to 8% in FY12.

The huge pile of debt on its books is thus a major concern for Suzlon. And the concern is expected to grow with the company planning to raise additional debt to meet its FCCB obligations due in the next few days.

With the company’s balancesheet heavily leveraged, the stock markets have already discounted the stock, which trades at near all-time lows.

Suzlon’s stock has lost more than 200% of its value in the past one year and it currently trades at around Rs17 against over Rs 55 until a year ago.

While this may appear to make the stock a juicy grab, we advise caution, especially till the time the company meets its FCCB obligations.

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