You are here: Home » Opinion » Financial X-Ray
Business Standard

Suzlon: Investors should skip the open offer

Analysts believe there will be better exit options with company's prospects on mend

Hamsini Karthik  |  Mumbai 

Suzlon: Investors should skip the open offer

Open offers generally tend to bring cheer to investors, as many a times they provide a good exit from the stock or at least help set an interim bottom. However, the offer made by Dilip Shanghvi Family and Associates (DSA) to acquire 26 per cent stake in Suzlon Energy while setting a floor is not a good thing for investors to subscribe.

The offer is mandatory, according to Securities and Exchange Board of India regulations, and is consequent to the shareholder agreement between DSA and the existing promoter group led by Tulsi Tanti that saw allotment of one billion shares to DSA on May 15. For one, DSA’s entry into Suzlon itself has given investors confidence of better days for the company. The result is Suzlon is up 43 per cent year-to-date and among outperformers of 2015.

Second, the offer price of Rs 18 is about 15 per cent lower than the current market price of Suzlon (Rs 21.15). This partially explains why increases in the Suzlon’s stock price, after gaining five per cent at the start of trade on Thursday, moderated.

Suzlon: Investors should skip the open offer
Thirdly, analysts believe with prospects for Suzlon on the mend, coupled with increasing focus on renewable energy by the government and debt being brought down to manageable levels, investors should give this offer a miss, as revival plans of the company hold better promise.

With reintroduction of the accelerated depreciation and generation-based incentives, sales volumes in the first half of FY16 were 431 megawatts (Mw), up 20 per cent year-on-year. With the government scaling up its target to generate 60 gigawatts of wind power, Suzlon’s order book 1224-Mw should get a boost.

Improved offtakes and cost reduction have already helped Suzlon record five per cent growth in revenue and turn profitable in earning before interest, tax, depreciation and amortisation (Ebitda) of Rs 218 crore in first half of FY16, against a loss of Rs 180 crore in the corresponding period of 2014-15. Ebitda margins has increased sharply to 16.3 per cent in the first half of FY16, compared with 1.1 per cent in the corresponding period of the previous year. Most important, with problems of debt easing out after the sale of Senvion and capital infusion from DSA, interest cost almost halved to Rs 508 crore in the first half of FY16, against Rs 910 crore in the corresponding period of FY15.

Analysts at Nomura recommend ‘Buy’ on Suzlon with target price of Rs 38. Centrum, too, noted that Suzlon will show positive earnings and robust profits by FY18, leading to further re-rating. Given this backdrop, it is advisable that investors stay put. For those wanting to exit, secondary market sale holds better potential.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Thu, December 17 2015. 21:25 IST