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Suzlon: Some breeze, finally

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The order win by Suzlon’s subsidiary, REpower, to deliver 954 Mw of wind-power equipment is its largest ever onshore deal.

Suzlon EnergyEnergy’s share price, which slipped from a high of Rs 145.80 in June 2009 to a low of Rs 55 in early November on account of poor results, delay in debt restructuring and lower order guidance, has gained 16 per cent in the last few days on the back of a mega order win. While the news flow at the counter has been positive in the last one month, experts believe some of the key concerns are subsiding.

Among the important developments was the company’s announcement on November 27 that its 91 per cent German subsidiary, REpower, has bagged an order to deliver 954 Mw of equipment for five wind power projects in Canada. This is the largest onshore order in REpower’s history, and comes on the back of a 62 Mw of orders bagged by Suzlon in early November, which takes the total order wins to 1,000 Mw in the month.

The mega order guarantees Suzlon a minimum purchase of 748 Mw for deliveries between 2011 and 2015 and has an option for purchase of additional 206 Mw. Analysts say that as the markets are improving and access to money is becoming easier in some of the key wind-power markets, Suzlon was able to win several new projects recently.

And, should the order trend remain buoyant, it would spell good news for Suzlon. Given that the company is operating at below 50 per cent of its capacity, the orders would help it report higher revenues and bounce back to profitability.

Last month, Suzlon sold 35.22 per cent of its stake in Hansen for $370 million or Rs 1,700 crore; it now holds 26.06 per cent. Although analysts were expecting the valuations to be higher, the sale would help repay some of its net debt of Rs 12,500 crore and reduce Suzlon’s interest cost by 15 per cent in 2010-11.

Analysts believe that any positive development regarding restructuring of the remaining debt, which is expected by December, would provide further comfort. Among various terms of deal, the company is seeking a moratorium of two years for repayments of its debt.

Meanwhile, for the six months ended September 2009, Suzlon reported an 11 per cent decline in revenues and net loss of Rs 770 crore. Analysts expect the company to report sales to decline 9-10 per cent while net loss could hover between Rs 500 and 700 crore for 2009-10. They expect 2010-11 to be better, with Suzlon likely to report an EPS of Rs 4 per share. At Rs 81.10, the PE works out to 20 based on 2010-11 estimated earnings. Analysts believe that since the risk-reward equation is not favourable currently, long-term investors may consider the stock on declines.

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