Antique stock broking bullish on Suzlon Energy

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Below is a verbatim transcript of his interview with CNBC-TV18's Udayan Mukherjee. Also watch the accompanying video.

Q: What do you make of this Suzlon move and should it be construed as materially positive?

A: I think it is positive for Suzlon, because if you look into the RE asset, that is one of the best win power assets in the world as of now. If you look into the orderbook to the trailing sales, they have an order book of closer to 2.5 to 3 years which is the highest in the industry.

Across the world, companies like Vestas, Gamessa, Suzlon and other players do not have order book more than a year, precisely they have less than a year may be. But because of RE asset and if you look at the last 3-4 years history, its EBIT margins have been improving from 3% odd presently at 6.5% odd.

So, RE is a very important asset for Suzlon and the squeeze out process important from the perspective that RE is a balance sheet if you look liquid cash out of order of Euro 320 million. There is a debt on books of minimal rates of the order of USD 50 million. So, I think that’s the synergy the company has been talking for the last 2-3 years in terms of both on technology and leverage. We will play out once this happens.

Q: How significantly would it alleviate Suzlon’s current problems of leverage once they have access to the euro 320 million and the RE Power balance sheet?

A: From Suzlon’s perspective, they have gross data of closer to Rs 10,000 crore. RE is debt free. So, precisely in FY13, some period in FY12 and FY13 and FY14 is where the repayment for Suzlon starts. So, if there is any issue in terms of Suzlon, we expect Suzlon to break even in FY12.

In FY13, there could be earnings from Suzlon Wind and RE Power will help it in making any repayment for that matter. But I feel that given the domestic demand in India in the Wind Turbine business, Suzlon’s balance sheet is likely also improve going forward.

Q: So what do you do with the stock at 5,350? So you have buy on that?

A: We have a buy on Suzlon and we have a target price of Rs 69 and of which closer to Rs 36 is from RE Power and if you look into the after the squeeze-out process, the stock has gone up from euro 120-125 to euro 140-145, because euro 142 was the squeeze out price that Suzlon Energy has promised to give. I think primarily on account of RE Power and may be Rs 3 odd from Hansen, so our overall target or Sum-of-the-part (SOTP) for the stock is Rs 69.

Q: Did you take a look at Crompton Greaves after the disappointment in the results and would you buy it at the current level of Rs 180 odd?

A: On Crompton results, I think it was slightly shocking from the perspective that numbers and the guidance were bad. So, if you look into 8-10% as EBITDA margin, compared to 13-13.5% a year back, it was a real surprise element and basically what it means that the Indian Power Systems market, there was a huge competition that is increasing every quarter for that matter. So, all the players in the space might see a significant competition.

Secondly, on the consumer products the growth was significantly down from 20-25% consistently to 2% odd. So, before actually deciding what to do with the stock at these levels, one of these segments needs to have a look into Q2 numbers.

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