Suzlon Energy Ltd

Suzlon Energy is one of the stocks that has really been mauled by the bears. The CMP (as on Thursday, April 2, 2009) of Rs. 50.75 (fv of Rs 2)is still attractive given the IPO price of the share of Rs. 510 (fv Rs 10). That's the price side.

Now the good and the bad news.

The bad, first. Net profit has consistently deteriorated this year (88.0 cr,16.9 cr,-390.9 cr) owing to the mark to market losses in forex forward/option contracts. The debt, as usual, and the perks that come with it. Suzlon had taken loans of around Rs. 7000 crores to fund the stake buy in REPower. Now that debt, would need refinancing as the prospects of that debt being repaid by the reserves look bleak, as with every other company. Refinancing is difficult in these trying times. There has also been a lot of negative speculation surrounding this company, and the company has also clarified a huge part of it. The clarification is available here. Suzlon had raised $300 million via the FCCB route. The conversion price stood at Rs. 1800 per share. These bonds mature in 2012. There is also a possibilty of a buy back of these bonds, which would be trading at discounts at the moment. What could also happen is the conversion of these bonds into shares, resulting into dilution of the share capital. The company, in its results notes, has stated that:

"
The Company has treated the Zero Coupon Convertible Bonds as monetary liability and accordingly restated the liability based on the exchange rate prevailing as at the end of the respective quarter. The amount of restatement for the quarter and nine months ended December 31, 2008 aggregated Rs.91.75 crores and Rs.434.50 crores respectively.

On June 11, 2007 and October 10, 2007, the Company made an issue of USD 300 Million (Rs.1,223.70 crores) and USD 200 Million (Rs.786.20 crores) Zero Coupon Convertible Bonds due 2012, respectively convertible into equity shares. The initial conversion price is fixed at Rs 359.68 per share and Rs.371.55 per share respectively (Face Value of Rs.2 per share) and the same is subject to adjustment in certain circumstances.
"

Suzlon was going to go ahead with its $500 mil ADR offering, but there is speculation rife that the move is on hold.

The good news is that it enjoys near monopoly in India, and the prospects of sustainable growth in the renewable energy sector are beautiful. Nations are looking at other non polluting sources of energy amidst cries for global warming, and wind energy presents a nice alternative. The strategic alliances of Suzlon are in place in many markets- NZ/Aus, Europe, United States etc. The company has recently entered the Sri Lankan market, and has a burgeoning order book. As on Mar 08, the company had declared reserves of Rs. 7791.7 crores. I am waiting for its results for the year that has just passed...

...with fingers crossed...