Buy Suzlon?

Suzlon Energy has seen its stock price rise by over 200% from its all times lows, as the Indian stock market has rallied strongly with the appointment of the new government which has a majority in parliament. Suzlon too has seen some operational improvement after reducing debt, through sale of assets such as wind farms and its Chinese manufacturing operations. The company plans to list its German subsidiary for $1 billion as well, which would help to further reduce its debt. The company’s operational performance also seems to be improving after it reported an operating profit in the last quarter. The company is still loss making after the massive supply glut led to a crash in the wind turbine prices globally. Most of the WTG stocks have seen a massive beating with most of the big companies such as Vestas and Gamesa in the red. Only conglomerates such as GE and Siemens have done well during this period.

Suzlon also won a 100 MW order in India from ReNew Power. The company has been making the right noises as it has been reducing costs after tough 3-4 years. We had earlier written that Suzlon might be a falling knife, rather than a fallen angel. But now we think that the company deserves a second look, given that a turnaround seems to be in place though there is a long way to go.

The stock is not a good buy at present, but when it goes down after the rally in junk securities, investors might want to give it a second look. The company’s stock looks pretty bad fundamentally, with a negative book value and over Rs. 15,000 crore in debt. The company has not seen a profit in a long time and its sales have actually fallen in the last 3 years. However its German subsidiary is the jewel in its crown, similar to JLR for Tata Motors. The stock at Rs. 34 is way too highly priced given the current state of affairs of Suzlon, but investors may want to give it a look at Rs. 20 price levels.

Suzlon is looking at options in the “international capital and debt markets,” to reduce its dependence on high-cost Indian loans, including an initial public offering of its Senvion SE unit, said Kirti Vagadia, group head of finance. Suzlon would keep majority control of Senvion, whose valuation may get a boost from the demand recovery, he said. Suzlon, which caused India’s biggest convertible bond default in 2012, is leading gains in global wind-energy stocks on expectations a five-year extension from bondholders and a new, pro-clean energy Indian government will push it toward recovery. The Pune-based company’s shares more than doubled this year, compared with a median 32 percent gain among its global peers, according to data compiled by Bloomberg Industries.

Source – Bloomberg