Friday, January 23, 2015

Stay away from Suzlon for next 1-1.5 years.

Suzlon, A classic case of why you need to be a Bond Holder.

Due to the the FCCB and loan pressure, Suzlon was forced to sell of Senvion Aquisition that they made. Even after all the goodies being presented in the article below, the Suzlon stock will remain around Rs 15 for around 1-2 year, until all the foreign currency convertible bonds valued at Rs 3,000 crore (Rs 30 billion) is converted into equity next year.

Stay away from Suzlon for next 1-1.5 years.


Suzlon group chairman Tulsi Tanti outlined the company’s plans and debt-reduction strategy in a conference call from Davos.

Edited excerpts:

How will the deal help reduce Suzlon’s debt? When will the company turn profitable?

Suzlon has a total debt of Rs 16,500 crore (Rs 165 billion).

We are raising about Rs 7,200 crore (Rs 72 billion) through sale of Senvion.

About Rs 6,000 crore (Rs 60 billion) will be used to repay loans and Rs 1,200 crore (Rs 12 billion) will go to fund operations.

We have issued foreign currency convertible bonds valued at Rs 3,000 crore (Rs 30 billion) and we hope this will be converted into equity next year.

The balance Rs 7,500 crore (Rs 75 billion) debt includes low interest dollar denominated debt worth Rs 4,000 crore and Rs 3,500-crore (Rs 35-billion) worth working capital loans.

There will be no principal payments till 2019.

By the next financial year, our interest costs will reduce 50 per cent to Rs 800 crore or Rs 8 billion (from Rs 1,600 crore or Rs 16 billion now).

Suzlon will be making profit in the next financial year.

Our interest cost will reduce, sales volume will go up.

Our break-even level has come down and we expect the cost structure to improve further.

The deal valuation is in line with current market estimates.

This is a European asset and I believe we got a reasonable valuation.

We are happy with it. When we acquired Senvion, one Euro was equal to Rs 60; now it is Rs 72.

There is an appreciation of 20 per cent in the exchange rate.

We purchased Senvion for 1.4 billion Euros and now we get about 1.1 billion Euros (1 billion Euro in cash sale, an additional 50 million Euros based on the company meeting certain performance criteria and technology for offshore wind farms valued at about 650 million Euros).

I do not see it as a major loss for the company.

What will be the key focus area of Suzlon now?

Our focus will be on India, the US and other emerging markets including China, Brazil, South Africa, Turkey and Mexico.

We will focus on all high growth markets and there will be no restriction on us to enter any other markets.

The Indian government wants to add 10,000 MW of wind capacity each year.

We have not been able to tap opportunities earlier because of liquidity crunch and now we will be able to address it.

We have 2500 customers in India and abroad and we will address their requirements and grow our market share.

The deal helps us to strengthen our balance sheet. It is a win win for us. We have manufacturing and project execution capabilities and we are confident we will be able to deliver without making much capital expenditure.

Will Suzlon sell its non-core assets. The company also has plans for solar business?

We planning to put plants in Rajasthan, Andhra Pradesh and will sell some of the production capacity which is not very useful.

We have developed competencies in renewable energy and we want to leverage it for solar business.

We will introduce hybrid solar-wind projects.

Courtesy:  http://m.rediff.com/business/report/interview-revealed-how-suzlon-chairman-plans-to-turn-the-company-around/20150123.htm