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FCCB Payments, Balance Sheet Worries Haunt Suzlon Energy

  • Suzlon reported a 12% rise in revenue to Rs. 4,985 crore in the December quarter.Suzlon Energy Ltd reported an impressive order inflow in the December quarter, but weakness in operations, a cut in guidance and an increasingly stressed balance sheet have disappointed investors. The stock, which has been underperforming the market by a huge margin, lost a further 2% after the results.Suzlon reported a 12% rise in revenue to Rs. 4,985 crore in the December quarter. However, after three consecutive quarters of profits, it reported a net loss of Rs. 286.5 crore. The culprit was Suzlon Wind, or the company’s Indian operations, which reported a loss of Rs. 400 crore. Unlike in the September quarter, the company didn’t benefit from any one-off income. The Rs. 350 crore interest payment it makes every quarter meant that whatever little operating profit it made was overwhelmed.
  • Volumes were also lower “due to an extended monsoon in India, grid infrastructure delays in China, and a procedural delay in closing our new working capital facilities”, the company said. The key dampener here was that Suzlon cut its revenue outlook for the year. To be sure, the management has predicted 40% revenue growth in the next fiscal year, but the balance sheet and looming foreign currency convertible bond (FCCB) payments remain an overhang.
  • Net debt at the end of the December quarter stood at Rs. 12,072 crore, above the Rs. 11,056 crore a quarter ago. Suzlon’s debt has been inching up slightly over the past four quarters mainly due to an increase in working capital and translation loss on long-term currency loans. The company’s net working capital position has increased to 92 days (on a four-quarter trailing basis) compared with 87 days at the end of September.Note, that the company has bonds worth $390 million, or Rs. 1,946 crore, that are maturing this calendar year starting June. At the current price, it looks increasingly difficult for Suzlon to convert these bonds into equity and the company will have to pay bondholders.
  • According to KRChoksey Institutional Equities, the repayment options that have been considered by the management include Rs. 124 crore from operating cash flow, Rs. 496 crore from sales of assets, Rs. 993 crore from receivable owed by US firm Edison Mission and Rs. 496 crore of cash. But the receivables part will become clear only by March. And unless the firm ramps up execution and brings down working capital days, it could face a liquidity crunch.So, even though the outlook for demand seems to be picking up, especially in the key US region, investors are unlikely to get excited because of concerns about Suzlon’s high leverage.

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