I had written about Suzlon Energy's business recovery about six months back (click here for that post), when the company had received it's CDR approval & steps were already under implementation. At that time Suzlon's Market Cap was around Rs.2650 crores. Over the last 6 months, there have been many positive developments for the stock markets, the most important being the formation of the new Government. This alone has helped most indices to rally about 20-25%. Suzlon's Market Cap has surged to about Rs.6200 crores currently, a rise of over 130%. The share price has more than doubled, while it's Equity base has already expanded by about 10%, reasons for which I had mentioned in the previous report.
Now let's look at Suzlon's performance progress. The following charts show the Quarterly progress on a T-T-M basis:
As can be seen from the charts, Suzlon has posted smart recovery over the last 2 quarters. On a Y-o-Y basis, Total Income has imcreased by 17%, EBITDA has turned positive at about Rs.300 crores compared to loss of Rs.1250 crores a year ago and even the Net Loss is down 35% at Rs.3200 crores from Rs.4900 crores a year ago. Apart from the operating performance, one other positive development is that Suzlon's FCCB holders agreed for fresh issue of Bonds to compensate for earlier dues with a further 5 years maturity window. With this development behind it, now the company completely focus on it's operations & asset monetisation.
Coming to expectation of numbers by the fiscal end, Suzlon's strong Order Book of over Rs.42,000 crores gives a lot of confidence. I am expecting Suzlon to end FY'2015 with a Total Income of around Rs.25,000 crores, which is about 20% higher than FY'2014. EBITDA should come in around Rs.1800-2000 crores, translating into an EBITDA margin of about 7-8%. Net Loss should be sharply lower at about Rs.500-800 crores. One big cost for Suzlon is the Interest Cost. Suzlon's valuations will surge when the company shows signs of reduction in Interest Cost. With improved EBITDA & Cash flows, I am expecting Suzlon to start repaying some of it's debt by Q4 of this fiscal, not in the next 2 quarters. There have also been reports of Suzlon looking at selling upto 25% of it's German subsidiary, which frankly I am not in favour of. That stake sale might bring in about Rs.2000-2500 crores, which will bring down the company's debt by about 15%. But I would be more happy if the company focuses on repaying it's debt gradually via operational cash flows.
On the valuations, Suzlon's market cap which stands at about Rs.6200 crores now, had touched over Rs.9000 crores at one point in the last 3 months, when the stock price had crossed the Rs.35 mark. I think Suzlon is at fair valuations currently. If Suzlon's performance over the coming quarters continues on the lines that I am expecting to, then we could see Suzlon's market cap to increase to about Rs.10,000 crores by March'2015. Remember that this market cap increase also includes increase in the company's Equity Capital. From the current price of about Rs.23/-, Suzlon's share price could increase to little over Rs.30/- over the next 3 quarters, which means one can expect returns of about 30-40% from current levels.
Now let's look at Suzlon's performance progress. The following charts show the Quarterly progress on a T-T-M basis:
Coming to expectation of numbers by the fiscal end, Suzlon's strong Order Book of over Rs.42,000 crores gives a lot of confidence. I am expecting Suzlon to end FY'2015 with a Total Income of around Rs.25,000 crores, which is about 20% higher than FY'2014. EBITDA should come in around Rs.1800-2000 crores, translating into an EBITDA margin of about 7-8%. Net Loss should be sharply lower at about Rs.500-800 crores. One big cost for Suzlon is the Interest Cost. Suzlon's valuations will surge when the company shows signs of reduction in Interest Cost. With improved EBITDA & Cash flows, I am expecting Suzlon to start repaying some of it's debt by Q4 of this fiscal, not in the next 2 quarters. There have also been reports of Suzlon looking at selling upto 25% of it's German subsidiary, which frankly I am not in favour of. That stake sale might bring in about Rs.2000-2500 crores, which will bring down the company's debt by about 15%. But I would be more happy if the company focuses on repaying it's debt gradually via operational cash flows.
On the valuations, Suzlon's market cap which stands at about Rs.6200 crores now, had touched over Rs.9000 crores at one point in the last 3 months, when the stock price had crossed the Rs.35 mark. I think Suzlon is at fair valuations currently. If Suzlon's performance over the coming quarters continues on the lines that I am expecting to, then we could see Suzlon's market cap to increase to about Rs.10,000 crores by March'2015. Remember that this market cap increase also includes increase in the company's Equity Capital. From the current price of about Rs.23/-, Suzlon's share price could increase to little over Rs.30/- over the next 3 quarters, which means one can expect returns of about 30-40% from current levels.
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