Suzlon Energy Ltd: Why suddenly it is a screaming Buy?

CMP: Rs.17.05

Lenders to wind turbine maker Suzlon Energy Ltd, which last month defaulted on a $200 million convertible bond redemption, have agreed to restructure about Rs.11,000 crore of its debt, according to the media reports. The debt to be restructured is held by about 20 Indian banks, led by State Bank of India, the country’s largest lender, which had exposure to the company of about $659 million as of last month. The deal gives the world’s No. 5 wind turbine maker, which has been squeezed by a combination of debt, tight working capital and falling global demand for turbines, breathing room to fund its operations. This is great considering the key take-aways from the media reports. Let us observe why this deal is suddenly looking so attractive for the shareholders who have waited not for days but for years, to get a solid prop, to their hopes:

(i) Suzlon Ltd has a net debt, at about Rs.13, 000 crore at the group level, at the end of June, and does not apply to its overseas bonds, which was really sending alarming signals to the investor community. Its total debt is of Rs 14,600 crore.

(ii) Now, this kind of massive support from the Financial Institutions would definitely help them to regain credibility, which  has off-late unfortunately, come down to nadir. 

(iii) According to the media reports, the rupee debt, which was due in five and six years, will be restructured with a two-year moratorium on interest and principal repayment, after which the loans will be repaid over eight years at a lower rate, one of the sources said. This is a very good news as for the time being the company is relieved of interest burden, to a great extent.

(iv) According to media reports, the details which are yet to be worked out, is expected to focus on reducing interest on the loans from about 14 % now to 11 % per annum. A 300 bps, interest rate cut is huge and will definitely have a positive effect on both the top and bottomlines of the company. 

(v) Suzlon Energy Ltd had become nightmare for most of the shareholders who had invested in the scrip either at the IPO or late when the scrip was hovering around more than Rs.100, though it has an order book of 372.9 billion rupees (Rs.37, 290 Cr) as of November 9 2012. Its total income in FY12, came out to be Rs.7218.27 Cr. Thus its order book is more than 5 times its FY12 earnings, which in any case is massive. Now even if we subtract the debt of around Rs.13, 000 or say, Rs.14, 000 Cr, then also the order book is more than 3 times its FY12 earnings. Doesn't it look attractive?

(vi) Despite Tuesday’s gains of about 10%, Suzlon shares are still roughly half their year-high level in February, 2012 and about 96 % below their Rs.459.8 peak in early 2008, during boom times for the global wind energy sector.

Conclusion: Now considering the points mentioned above, it would be prudent to buy the scrip in tomorrow's morning trade before it shoots up further. I am keeping a target of Rs.32, for the scrip for the short term.

Note: This report was sent to the Paid Groups on Yesterday night. Those Paid Members who have invested today, are already making a killing. Join my Paid Service or my Brokerage House, to stay ahead of others.