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Investors eye consistency before buying Suzlon turnaround story

Investors eye consistency before buying Suzlon turnaround story


In a market eagerly looking for positive earnings surprises and turnaround stocks, Suzlon ’s return to profits in FY16 has gone unnoticed. An obvious reason for investor apathy, as this Business Standard analysis points out, could be that the bottomline was boosted by exceptional gains on reversal of goodwill impairment, and benefits from tax breaks. The stock has not participated in the recent rally and is down over 30 percent over the last one year, as investors now appear to be looking for some consistent performance before betting big on the company. Suzlon founder Tulsi Tanti expects a good year ahead, and has forecast a 30 percent growth for the industry, with Suzlon expected to grow more than that.

Fund managers and domestic investors are not biting yet, having seen too many short-lived rallies in the past. And it is a big comedown for the erstwhile darling of the stock market during the bull run of 2005-08. Many thought a re-rating was on the cards after Sun Pharma founder Dilip Shanghvi bought a 23 percent stake in Suzlon in February 2015 and increased it to 34 percent through an open offer by January this year . The stock did rally to a high of Rs 28 in August last year, but has been steadily slipping ever since. This, even as the company has been making good progress on lowering debt, winning orders, executing them and improving market share. In addition, analysts tracking the company say Suzlon will benefit from the government’s increased thrust on renewable energy.

The company said it commissioned 900 MW of wind energy projects in FY16 twice that commissioned in the previous year. “We no longer accept orders that do not match our threshold of profitability, or which are cash flow negative,” the company’s Chief Financial Officer Kirti Vagadia told Forbes in a recent interview . Some brokerages like Centrum and HSBC Global Research are bullish on Suzlon. “Suzlon’s business recovery is on track,” says the HSBC report after the company’s fourth quarter numbers. “We stay confident on Suzlon regaining market leadership during FY17, while growing EBITDA by 40 percent compounded in FY16-18,” the report says. Centrum expects tariff reduction to affect realizations this year, but feels higher volumes will compensate for the margins. “We believe that Suzlon will continue to positively surprise on execution and order inflows in FY17E and FY18E due to wider marketing network and better technology base,” says the Centrum report in February this year, adding that higher focus by the government on renewable energy will ensure incentives to continue in renewable energy market.

Anand Gupta Editor - EQ Int'l Media Network


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