Suzlon Energy : Capital headwinds

The high level of debt and urgent need for money are causes for concern.

Wind energy player Suzlon needs to rustle up an estimated Rs 1,300 crore in the next few months to be able to pay for Martifer’s 17 per cent stake in REPower. There are reports that the Pune-headquartered company is exploring sale of a part of its stake in its Belgian subsidiary, Hansen. Besides, it may place shares with a private equity fund. That apart, the 13,679-crore Suzlon hopes to lower its working capital and inventories. The company is estimated to have piled up inventories of over Rs 5,000 crore because some orders could not be executed. HSBC believes Suzlon will at best be able to recover around Rs 500 crore from better use of working capital, leaving Rs 800 crore to be raised by other means.

Also, since the company’s net debt at the end of December 2008 was close to Rs 10,000 crore, there is little room to borrow further. As for the equity option, sale of Suzlon’s shares at the current market price of around Rs 45 could dilute the equity to a fairly large extent if the company is looking to raise about Rs 700 crore, as reported.

The good news is that after a break of almost a year, orders have started flowing in. Last month saw a 113 Mw order from the Australian utility, AGL Energy, which is an encouraging sign given the instances of blade cracks in January 2008. At the end of December 2008, Suzlon had completed around 30 per cent retrofitting of the blades, having provided Rs 450 crore for the programme, which is expected to be completed by June this year.

The management believes it should be able to win orders for about 1,000 Mw across Europe, China and Australia in the next six months or so. The stock has lost 80 per cent of its value over the past year but until it completes the REPower buyout, investors will stay cautious.