Suzlon Energy Ltd: Big Moves ahead: Add the scrip in every decline
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Suzlon Energy has finally received a much-required breather as its lenders have agreed to recast its debt. The positive bais in the stock which caught up some weeks back is still very much alive and kicking.
Corporate Debt Restructuring (CDR) is a platform evolved as per the RBI guidelines to preserve viable corporates which are affected by internal and external factors. Recently, pharmaceutical company Wockhardt got a lot of attention after it successfully came back into profits from its financial troubles due to CDR. We have seen how much profit, Wockhardt Ltd gave to the shareholder within a few short time frame.
A 10-year rupee term loan of Rs 3,716 crore accompanied by two years’ moratorium period during which it will not make any principal repayment and interest payment, plus interest subvention of 300-400 points is not a joke in any sense of the term. If these are really implemented then the scrip could shoot past Rs.50, in the 6 months time frame. .
The debt restructuring will also give an extra hand by providing working capital facilities worth Rs.5,614 crore at an interest rate of 11 per cent (down from 14-15%, can you imagine??!!). This will include fund-based facilities worth Rs.2,000 crore and non fund-based facilities worth Rs.3,614 crore. Besides this, the company will also receive two five-year term loans to pay the interest on loans taken, amounting to Rs.1,635 crore. All these are too delicious for the shareholders of Suzlon Energy Ltd.
The CDR mechanism has proposed to extend the due date of all these FCCBs for the next five years by offering an indicative coupon rate of 6 per cent after which these bonds will get converted into equity instruments.
Internal Measures:
In order to cut costs, Suzlon Energy Ltd has initiated a few measures, including restructuring the business, reducing manpower, realigning the supply chain, etc. The company is also expected to sell some of its non-core assets. It has already initiated an asset sale in China but the delay in the process has put pressure on the company. Suzlon Energy’s management is also expecting to recover USD 206 million of receivables linked with its customer Edison based in USA. Besides, as per media reports, the company is also expected to sell its stake in 2015 to raise USD 500 million which will also provide some support to the company.
Mind--boggling impact of CDR Package:
Suzlon Energy will benefit from the lower interest rate of 11%, as compared to the earlier interest rate of 14-15%, which will save 300--400 basis points of interest on its loans. Besides, the two years of moratorium period will save interest payments of over Rs.3,000 crore (not a small amount by any standards), thereby improving its net margins. The management has said that it will recover Rs.1,000 crore from Edison in 2013.
But, having said that there is a hick-up here: Suzlon Energy Ltd’s windmill blades met with some serious defects, which breached the conditions set by Edison. The matter has been pending for over four years. Suzlon Energy has initiated legal action against Edison and a court judgment is expected by February 2013.
Should You Buy The Stock?
Yes, definitely when it is available at around Rs.18.70, because the entire restructuring exercise, more or less gives a positive signal, that the worst is probably over. Also, the business outlook for wind power is slowly improving as the US and Europe are coming out of the fiscal mess. Moreover, Eastern Europe, still holding plenty of promise for the industry, and will help companies like Suzlon Ltd, because of enthusiastic government support and lower production and labour costs than elsewhere on the continent.
High risk takers should invariably enter the stock, given the market’s popular philosophy of buying on rumours and selling on news.
Corporate Debt Restructuring (CDR) is a platform evolved as per the RBI guidelines to preserve viable corporates which are affected by internal and external factors. Recently, pharmaceutical company Wockhardt got a lot of attention after it successfully came back into profits from its financial troubles due to CDR. We have seen how much profit, Wockhardt Ltd gave to the shareholder within a few short time frame.
A 10-year rupee term loan of Rs 3,716 crore accompanied by two years’ moratorium period during which it will not make any principal repayment and interest payment, plus interest subvention of 300-400 points is not a joke in any sense of the term. If these are really implemented then the scrip could shoot past Rs.50, in the 6 months time frame. .
The debt restructuring will also give an extra hand by providing working capital facilities worth Rs.5,614 crore at an interest rate of 11 per cent (down from 14-15%, can you imagine??!!). This will include fund-based facilities worth Rs.2,000 crore and non fund-based facilities worth Rs.3,614 crore. Besides this, the company will also receive two five-year term loans to pay the interest on loans taken, amounting to Rs.1,635 crore. All these are too delicious for the shareholders of Suzlon Energy Ltd.
The CDR mechanism has proposed to extend the due date of all these FCCBs for the next five years by offering an indicative coupon rate of 6 per cent after which these bonds will get converted into equity instruments.
Internal Measures:
In order to cut costs, Suzlon Energy Ltd has initiated a few measures, including restructuring the business, reducing manpower, realigning the supply chain, etc. The company is also expected to sell some of its non-core assets. It has already initiated an asset sale in China but the delay in the process has put pressure on the company. Suzlon Energy’s management is also expecting to recover USD 206 million of receivables linked with its customer Edison based in USA. Besides, as per media reports, the company is also expected to sell its stake in 2015 to raise USD 500 million which will also provide some support to the company.
Mind--boggling impact of CDR Package:
Suzlon Energy will benefit from the lower interest rate of 11%, as compared to the earlier interest rate of 14-15%, which will save 300--400 basis points of interest on its loans. Besides, the two years of moratorium period will save interest payments of over Rs.3,000 crore (not a small amount by any standards), thereby improving its net margins. The management has said that it will recover Rs.1,000 crore from Edison in 2013.
But, having said that there is a hick-up here: Suzlon Energy Ltd’s windmill blades met with some serious defects, which breached the conditions set by Edison. The matter has been pending for over four years. Suzlon Energy has initiated legal action against Edison and a court judgment is expected by February 2013.
Should You Buy The Stock?
Yes, definitely when it is available at around Rs.18.70, because the entire restructuring exercise, more or less gives a positive signal, that the worst is probably over. Also, the business outlook for wind power is slowly improving as the US and Europe are coming out of the fiscal mess. Moreover, Eastern Europe, still holding plenty of promise for the industry, and will help companies like Suzlon Ltd, because of enthusiastic government support and lower production and labour costs than elsewhere on the continent.
High risk takers should invariably enter the stock, given the market’s popular philosophy of buying on rumours and selling on news.
