Suzlon Energy vs Inox Wind - Trailing-Twelve-Months comparison!!

Suzlon Energy Ltd.'s sale of Senvion AG got concluded in the last week of April'2015. Hence there was some impact of the German subsidiary on Suzlon's numbers for Q1-FY'16. From Q1-FY'16 onwards, it's now completed 4 full quarters of Suzlon's own performance. Hence now we can start comparing Suzlon's numbers with Inox Wind Ltd., which is a smaller & much younger player in the Wind Energy business in India. Frankly, I had never had a proper look of the numbers from Inox Wind Ltd until the day I was writing a post on Suzlon Energy about 3 months ago. (Click here for that post) After a quick glimpse of Inox Wind's numbers that day, I have studied the numbers better & tried to analyse the company's business performance properly. And I have become a fan of Inox Wind Ltd. I have been closely following the company's share price movement since then and have also included it in my portfolio with reasonably weightage.

Now let me present you the comparison of Trailing-Twelve-Months numbers of Suzlon Energy & Inox Wind:

The Financial Numbers presented here are for the 12-months period from July'15 to June'16. The Market Cap numbers are arrived at by using closing share prices of 20th Sept'16 alongwith the Equity Capital figures for June'16 result. While Inox Wind's Equity Capital is not expected to change any time soon, Suzlon's Equity Base could expand soon from the current level of 502 crore shares to potentially about 599 crore shares, as and when the remaining FCCBs also get converted into shares. Hence the effective fully-diluted Market Cap of Suzlon Energy is potentially nearly 18-20% higher than the number I have mentioned in the table alongside.

As we can see, Inox Wind's Total Income is just under 50% of Suzlon Energy's Total Income. How this percentage number moves in the coming quarters will tell us which one of the two is growing faster. Coming to the EBITDA numbers, Inox Wind's EBITDA is a whopping nearly 75% of Suzlon Energy's EBITDA number. This clearly means Inox Wind is currently enjoying very superior EBITDA margins when compared to Suzlon Energy. We can certainly give some space to Suzlon Energy here as it is still in the midst of a business revival & hence is expected to see a substantial improvement in it's EBITDA margins in the coming quarters. We can certainly expect to see the Inox-to-Suzlon EBITDA comparison percentage coming down to about 65% in the coming 2-3 quarters. I will certainly be disappointed with Suzlon's performance if this does not happen.

Coming to the Interest Cost comparison, it's a no-brainer. Inox Wind's Interest Cost is less than 10% of Suzlon Energy's Interest Cost. On one hand Inox Wind's Net Debt was very low until 2 or 3 quarters ago as the company had enough Equity Capital and Cash Profits to fund it's operations. The Net Debt has now risen to about Rs.1500-1600 crores over the last couple of quarters primarily due to huge capacity expansion undertaken & higher working capital requirements. On the other hand, Suzlon Energy continues to have some bit of Debt hangover from it's past. Even though the 12-months Interest Cost for Suzlon has already dropped by close to half, it still has more work to do in order to bring it down to reasonable levels. The company will need improved Cash Profits to take care of it's expansion requirements on one side as well as paring down it's debt on the other side. Taking the 12-months Interest Cost well below the Rs.1000 crores mark will remain a challenge for Suzlon Energy, atleast in the coming few quarters. Thanks to this Interest Cost factor, Inox Wind will continue to enjoy substantially superior Cash Profit & Net Profit margins in the coming few years.

Suzlon continues to be PBDT Negative currently, but is expected to be in the positive in the next 1 or 2 quarters. But Suzlon might take much longer time to come close to matching Inox Wind's PBDT numbers, maybe even 2 years. Coming to Market Cap comparison, Inox Wind's market value is just about 56% of Suzlon's (non-diluted) figure. This is despite the fact that Inox Wind is already posting healthy profits, while Suzlon continues to be Loss making. Higher Market Value being awarded to Suzlon then suggests that the market expects Suzlon's Financial performance numbers to improve substantially in the coming quarters. It will be interesting to see if this expectation turns out to be true or the market changes it's opinion in the coming months and we see a substantially stronger increase in market value of Inox Wind in comparison to that of Suzlon Energy. Let's wait & watch. My bet is on Inox Wind to get re-rated upwards in the coming months/quarters, while Suzlon continues to linger within a 10-20% range from current levels.

Gitanjali Gems Ltd. - What the numbers are saying so far...

Before I talk about the recent Financial performance numbers of Gitanjali Gems Ltd, I would like to show you two of it's stock price charts:

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One showing Gitanjali's stock price movement over the last 5 years and the other showing the movement over the last 1 year. The chart alongside is the 5-years chart. First we can see that Gitanjali's stock price shot up from just under Rs.300 before the end of June'2012 to over Rs.600 by the start of March'13. After spending a few months around that level, Gitanjali's stock saw massive selling and non-stop Lower Circuits for over a month, which resulted in the stock losing around 90% of it's value. If I remember correctly, the reason being said was that some broker was involved in price-rigging of the stock earlier. The price did attempt a mild recovery, when the price did hit 3-digits a few months later, but it was shortlived as the company's business was affected due to Govt's Gold-import restrictions in 2014-15.

Click to enlarge

This chart here is the last 1-year's chart. After spending most of it's time in the Rs.35 to 45 range, the company's stock is finally attempting a break-out, post announcement of Q1-FY'17 results. In order to analyse if this break-out is sustainable or not and if it has any legs, we need to check the company's recent financial performance very closely.

I have prepared charts representing Trailing-Twelve-Months figures for Gitanjali Gems Ltd.'s Total Income, EBITDA, Interest Cost and Interest/EBITDA %, from the period ending June'13 to the period ending June'16. This will help us understand the company's performance trajectory over the last 3 years. Have a look at the following Trailing-Twelve-Month charts:

As we can see, Gitanjali Gems Ltd's Consolidated T-T-M Total Income was on a sharp downswing between June'13 to Sept'14. But in the seven quarterly results since Dec'14 quarter, Gitanjali Gems Ltd. has managed to post a Y-o-Y Growth of over 24% in six of those quarters. This splendid recovery in business volumes has helped the company bring back it's T-T-M Total Income figure very close to the Rs.15,000 crores mark and looks like it will be attempting to hit an all time high in the coming 2-3 quarters.

Surprisingly though, Gitanjali's EBITDA has not kept pace with increase in it's Total Income. From the charts we can see that the company's T-T-M EBITDA peaked out during the March'15 quarter, then remained stable for a couple of more quarters, and then dropped suddenly during Dec'15 quarter and has continued to slide to a smaller extent till June'16. Most probably the volatility in Gitanjali's EBITDA has something to do with the sharp drop in Gold prices during 2015. Now that international Gold prices have recovered about 20% from the lows hit last year, the EBITDA margin of the company seems to be coming back to normal levels. Historically, Gitanjali Gems Ltd. has enjoyed EBITDA margins in the range of 5-6%. For the T-T-M period ended June'16, the company's EBITDA margin stands at 5.9%. Hence it is certainly back to normal range now. Hopefully the EBITDA will stop sliding now and move in tandem with the company's Total Income growth. Let's keep an eye on that.

During the period when the Govt had put restrictions on Gold imports, Gitanjali Gems faced a crisis-like situation with it's Debt burden, including client payments and working capital requirements. This had led to Gitanjali Gems' T-T-M Interest cost shoot up from lows of around Rs.400 crores in June'13 to highs of around Rs.900 crores by Dec'14. But the company's promoter/management certainly deserves some praise in the way they handled the situation and have now come out of it with improving financial profile of the company. As we can see, the T-T-M Interest Cost is already on a decline over the last 3 quarters. I am expecting the T-T-M Interest Cost figure drop to & then stabilise around the Rs.500 crores mark over the next few quarters. On a T-T-M basis, Gitanjali's Interest Cost as a percentage of it's EBITDA is now at around 75%, which is the lowest level in the last 10 quarters. This is now helping the company post stronger Net Profit numbers. Going forward we can expect this figure to drop further to around 60% level.

At a time when the company's share price was ruling below Rs.40 levels over the last 12-18 months, the company's promoters and few other investors infused more funds into the company via Convertible warrants at a price of close to Rs.63 per share. On one hand this Equity infusion into the company gave confidence to the Bankers, on the other hand these investors got to increase their stake in the company at a reasonably attractive valuations, especially considering the longer terms fundamentals of the company. The company's Equity Capital has already expanded from about Rs.98 crores to about Rs.108 crores over the last 3 quarters, and is set to expand to around Rs.119 crores soon. Even considering the expanded Equity Capital, Gitanjali Gems Ltd currently commands a Market Cap of just about Rs.700 crores at the current price of around Rs.60 per share. At this level, it is available at just about 3.5 times Gitanjali's T-T-M Cash Profit and at less than 2 times 1-year forward Cash Profit of the company. I think it does make a strong case for Investors to consider having a small exposure to Gitanjali Gems with a 1-3 years view.