Suzlon Group is among the world’s leading renewable energy solutions provider that is revolutionising and redefining the way sustainable energy sources are harnessed across the world. Present in 18 countries across Asia, Australia, Europe, Africa and the Americas, Suzlon is powering a greener tomorrow with its strong competencies in renewable energy systems. Suzlon’s extensive range of robust and reliable products backed by its cutting-edge R&D and more than two decades of expertise are designed to ensure optimum performance, higher yields and maximum return on investment for the customers.
The above paragraph which you readed was extracted from the Suzlon Website. In India, Suzlon Energy is the leading player in providing Renewable energy solutions, specially in Wind Energy. With over 11 GW of Installed wind capacity in nation, Suzlon accounts for nearly one-third of Country’s total wind installations.
After getting incorporated in 1995, Suzlon Energy saw a great start and grew rapidly between 1995–2005. After getting listed on the exchanges in around 2005, company started enjoying a great status and Goodwill among investors which helped it to raise funds with more ease. Period of 2005–2015 again proved to be very positive for the company. It was a time when company had entered in the list of 1GW+ installed WTG capacity.
Around 2015, Dilip Shanghvi (SunPharma Owner) had also become one of the major shareholders of the company by Infusing almost Rs 2,000 crore in the company through his Family Investment Account, Dilip Shanghvi & Associates (DSA). This was a result of the great future prospects of company.
All in all, period of 1995–2015 was that time when Suzlon was creating history and its Shares were also counted among the top picks from Power sector for long-term. Despite of Financial risk which it was carrying, it was a attractive choice for long-term play in Renewable Energy. But in last few quarters, story of Suzlon stock has took a major hit.
Like today, volatility in operating margins, sales numbers and net losses for the shareholders of the company was not a big deal at all. Company had also used Debt many of times to fuel the Growth. In fact, company also entered Solar Power business in 2016 which is expected to strengthen the portfolio of company in future. Order Book of the company is also healthy and seems to be growing further more in upcoming quarters and years. So, what is the problem?
As we all know, investors tries to pick only those companies which either generates regular profits or heading towards a turnaround stage. A company which is generating only losses do not attracts investors to invest in the company unless there is some special thing in it. Many market participants were in the hope to see a big turnaround in the Suzlon soon. Something like this even took place in 2017 when Suzlon started generating profits on the back of record revenue Growth. But it not lasted for a long time!
After Government introduced a new auction regime in the sector, Wind Turbine manufacturers witness a big hit on Growth. This auction regime also leaded to lower rates for using Wind Energy for the customers. But for companies like Suzlon, it is a good chance to achieve more organic growth as the demand for wind Energy in market will rise significantly. It will help the well setup companies to narrow their losses from lower wind energy rates.
To bring further demand in the Renewable energy market, Government has also set a target to achieve 227GW of energy through Renewable Sources by 2022. Currently, the installed capacity of India stand around 75GW which means, in next 4 years, Renewable Energy sector should witness a growth of 152GW or more.
Coming back to the topic, let’s continue figuring out possible reasons for the decline in the shares of Suzlon.
Over past few years, company had used mostly Debt to fuel its growth targets. No doubt it really helped company a lot to achieve new capacity addition targets in shorter time. But despite of this, company still had to face losses and losses due to its own reasons, which increased the pressure of taken loans on the books. In fact, it has been seen many times Company had no other option and thus, had to convert loans into equity, so that it can avoid any default on the payments.
News Report of 2013
News Report of 2015
Keeping in mind the great growth potential of company and market outlook, lenders also accepted proposals several times to convert their loans into the equity shares. This only resulted in more and more risk of supply in Market in case lenders step back from holding their shares. And the same took place when Company turned into profitable and provided a good level for the lenders to take exit. The issue of supply in open market rose further more when company again turned into loss after Government intervention in the Sector. Pledged shares of Promoters has also contributed a lot to the supply coming from financial institutions.
If the company is showing negative book value but is generating positive cash flow OR generating negative cash Flow but in the books, book value of company is positive, then the situation could be surely taken as less negative because company will have option or can plan proper strategy to utilise assets and lower its unnecessary Cash Expenses. But in case of Suzlon, the picture is different. Company is neither generating profits nor have any positive book value.
However, Management is very confident and expect some good recovery in Wind Energy Sector in 2019. By 2022, Government wants to have 227GW of installed capacity of Renewable Energy. From this, Management of Suzlon is expecting to get opportunity of 10–12GW expansion every year for the Industry.
News Report, Moneycontrol
Also, top Management of company has already given the reason for sharp decline in revenue and profitability of company to the recent change from feed-in-tariff to the Competitive Bidding regime.
News Report, Moneycontrol
Management has also clarified that they are also aware from possible Debt problems which may arise in short term. For this, Company is planning to raise between Rs 4000–5000 crore through its Operation and Maintenance Business, which is also considered as a ‘Cash Cow’ for the company. The raised amount will be used to meet obligations of 2019.
Management has tried to assure its investors about growth potential and strength of the company in market. But what with its shareholders who suffered heavy losses in past few quarters. From 52 week highs of Rs 17 , stock is now trading around Rs 5.30, equivalent to 70 percent down.
First of all, before taking any investment or Exit decision on this stock, one should take a look at the below given points…
- In case, company fails to continue paying all interests and debt in time, it may become a case of NCLT. If it really referred to NCLT under Bankruptcy code, then share price of Suzlon will slide upto Rs 2.
- We shouldn’t believe 100 percent on any management or person when we are considering to make some investments in their business. No one is absolute right when considering business or stock market investment. Means if Management is confident and saying that company will see recovery from FY20, then don’t think it will definitely happen. How Management would be able to stabilise the business after replacing feed-in-tariff to the Competitive Bidding regime, will determine when the company will saw recovery in Revenue/sales.
- In case growth returns in sector with new opportunities and Suzlon successfully grab all those opportunities, then it is possible to see company coming in the Profitability situation again.
- Suzlon is doing a great business and has build a good image in market which will help it in future. Future of company is also bright if we ignores any financial risk. Therefore, lenders has also favored Management and company most of the times. The signal for this can be taken from previous accepted offers of Equity Conversion.
It is true that Suzlon Energy is available at a good price only due to its financial risk. But if we take a look at their operational business only, then it really looks very attractive and a good long term play. But for this, management will have to handle Suzlon Energy with a great care and more focus on meeting all the necessary financial needs, which is possible.
Taking current market condition into account where Institutional investors have now become more concerned after number of episodes like IL&FS, Gitanjali Gems etc took place in 2018, it is possible to see Suzlon stock sliding upto Rs 4. But yes, at current levels also, it is a High risk – High Reward Potential stock. What management expects if achieved sincerely by 2019 or 2020, then it is also possible to see Suzlon Energy trading back again around Rs 15–20.
At present, I am holding Punjlloyd and Jaypee Infratech as my turnaround story bets. Therefore, I wouldn’t try now to enter in any new Company which have been or could be referred to NCLT, like Suzlon.
But yes, if you can wait 2–3 years more and have some confidence on Suzlon’s Management and its story, than you may choose to continue holding your shares of company. But if you can’t wait, then I would suggest investors to take exit once it reaches Rs 7.50–8 in next 3 months.
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