Suzlon Energy order flow strong, should you buy the stock?
Wind turbine maker Suzlon Energy and its subsidiaries have announced 1-2 order wins almost every week in recent months. On Monday it signed an MOU with Andhra Pradesh government to develop wind energy in the state totaling 3,000 mega watt between 2012-16. Despite the strong order flows, the stock has continued its march downward.
January 16, 2012 / 22:36 IST
Moneycontrol Bureau
Wind turbine maker Suzlon Energy and its subsidiaries have announced 1-2 order wins almost every week in recent months. On Monday it signed an MOU with Andhra Pradesh government to develop wind energy in the state totaling 3,000 mega watt between 2012-16. Despite the strong order flows, the stock has continued its march downward.Here's a list of orders Suzlon has announced since beginning of December:*Dec 07: South Africa ministry nod for 135 mw Cookhouse wind energy project.
*Dec 12: Arm REpower's 35 mw deals to supply turbines in England.
*Dec 20: REpower's 20.5 mw deal to supply Sixpenny Wood Wind farm in UK.
*Jan 03: North American arm Suzlon Wind Energy Corp's 120 mw deal to supply turbines in Western United States.
*Jan 06: Repower's 22mw deal to supply 11 turbines to a project in Portugal.
*Jan 11: Suzlon's Brazilian unit's deal to set up, operate and maintain a 24 mw wind power project.
*Jan 12: REpower's 150 mw deal to supply a project in Oklahoma, US.
*Jan 13: REpower's 20.5 mw order to supply turbines to Bradwell wind farm in UK. That apart, Suzlon said it also won 166mw worth orders in India between Oct 22-Dec 22."Since the second quarter results on 22 October, Suzlon has announced orders of 840 mw. Given our expectations of 700-750 mw sales during third quarter (October-December 2011), and using the current order run rate, we expect an order book of around 5 gw by the Q3 result announcement on Feb 1," Charanjit Singh and Giuseppe Jacobelli of HSBC Global Research said in a report last week.This is only second time since 2008 that the consolidated order book has jumped to 5 gw level, the analysts said. Yet, investors don't seem to be excited much. Suzlon shares are down 3.2% since the end of November and the stock price has halved since the end of March 2011.Analysts say more than the order flow, investors are worried about balance sheet issues, rising debt in particular, plus the added concern of redeeming FCCBs (foreign currency convertible bonds). The recent depreciation of rupee against the US dollar is also increasing pressure on Suzlon's already strained financial position. "Suzlon remains highly leveraged and with loan repayments of Rs 3,700 crore due in fiscal 2013, including FCCB payments, cash flow visibility is required," said HSBC's Singh and Jacobelli.Suzlon share, which has traded around Rs 20 in recent weeks, is at nearly 70% discount to the conversion price of FCCBs. It also has high debt (over Rs 10,000 crore as of September 2011-end).
"Depreciating Rupee trend likely to magnify FCCB liability of the company; further renegotiation of FCCB conversion price seems unlikely," Ruchir Khare of Kotak Securities said in a 10th Jan report.Further, Khare said pricing pressure exists across the value chain, from suppliers to project management companies, amid globally intensifying competition, especially from Chinese players. In India, international rivals like GE and Gamesa are trying to gain market share, posing threat to Suzlon's dominant position here, he added.The HSBC analysts said they remain cautious given the lack of clarity on further renegotiation of the FCCB conversion price and timing of the Rs 10 billion payment from Edison Wind due in two years among other issues.HSBC has a "neutral" rating on Suzlon, while Kotak recommends "reduce." Both have Rs 20 target price on the stock.At 14:30 hrs, Suzlon shares were at Rs 22.45 on NSE, unchanged from previous close.Nachiket Kelkar
nachiket.kelkar@network18online.com Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
