With losses piling up, it could be a while before the wind energy player gets back on its feet.
Suzlon’s consolidated losses of close to Rs 430 crore in the June 2009 quarter as against a profit of Rs 240 crore in the corresponding period of the previous year are worrying because they are the result of poor sales volumes, both in domestic and international markets. Volumes at 123 Mw are down 64 per cent year-on-year (ex-REpower) and perhaps the lowest in a quarter in the last four years.
Moreover, the 66 per cent drop in international business after the robust performance in the March 2009 quarter comes as a disappointment even though market conditions are undoubtedly challenging. Unfortunately, for the company, it has been adding capacity over the past couple of years and that has driven up fixed costs. As a result, Suzlon barely managed to stay profitable even at the operating level and the operating profit margin (OPM) came off from over 17 per cent in the June 2008 quarter to under 0.5 per cent in the June 2009 quarter.
Since the outflow on interest more than doubled to Rs 313 crore, losses were inevitable. The bad news is that the outlook in the near term isn’t too bright. The management says things will be rough for the next three months given the oversupply of wind turbines in an already weak global market. While orders may come through, prices fetched by turbines remains to be seen in a weak market, feel industry watchers. However, business should pick up in the domestic market — it’s possible that prospective customers delayed purchases as they waited for clarity on depreciation norms for wind energy investments in the Union Budget.
Nevertheless, it’s Suzlon’s Belgian subsidiary Hansen, which has indicated that revenues this year could be flat due to the operating environment, that’s the biggest cause of concern. Suzlon managed to raise $202 million, just in the nick of time it would appear, through a combination of GDRs and FCCBs. Together the issues will result in an equity dilution of less than 7 per cent. Despite this, most analysts have downgraded earnings estimates for the current year and targets for the stock price are around Rs 70-80 compared to the current price of Rs 96.
