Suzlon to sell Senvion

Suzlon which is one of the world’s largest manufacturers of wind turbines, is looking to get out of its monstrous debt liability by selling its German wind turbine subsidiary Senvion. Suzlon has been going through a rough time in the last 4-5 years as wind turbine prices fell sharply, with the large increase in capacity by Chinese companies such as Goldwind, Sinovel, Ming Yang etc. Though the industry has recovered somewhat with stability in prices and demand, Suzlon is still weighed down by its huge Rs 10,000 crore debt burden. The company has already run afoul of its commitments with the consortium of banks providing it debt relief, by way of increasing the loan tenure and providing it more working capital. Though Suzlon’s losses have reduced and its order book has increased, the company is still in the red.

Suzlon plans to sell its Senvion subsidiary for around Rs 7000 crores or Euro 1 billion. This will allow Suzlon some breathing space, though it will sharply reduce both its topline and bottom-line. The company has already sold of its other assets such as wind farms and Hansen Transmission subsidiary. Now the only thing left is its crown jewel. Senvion has been performing well and also has good technology. It has been responsible for bringing respectability to Suzlon’s operational and financial performance in recent times.

Suzlon will be taking a loss at it bought the company for nearly 1.5 billion euros. This happened at the peak of the financial valuations during 2008, when it went into an overdrive of acquisitions. Since then the company has been facing issues with its large debt burden and industry downturn. Even now the company is facing issues, as the bankers may not assent to its asset sales. Suzlon is trying hard to recover as the new government plans to aggressively deploy wind and solar farms in India. Suzlon even announced that they would set up giant gigawatt scale wind and solar farms in its home state of Gujarat during the recent Vibrant Gujarat summit. However, with such severe funding crunch, the company will have a tough time climbing out of the morass it finds itself in. The stock is trading at a low double digit level, after climbing sharply last year on hopes of recovery. The stock is now back to its lows as the debt burden still hangs heavily over the stock. May be a buy for an adventurous investor.