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Thursday, June 19, 2014

Management caselet: How Suzlon came back from the brink 
The Pune-based firm turned both Ebitda and Ebit positive after seven quarters in the three months ended 31 March 2014
Jun 10 2014: Once the darling of stock markets, wind turbine maker Suzlon Energy Ltd (Rs.27.40) fell into bad times during the global economic crisis and had been struggling ever since. Now, the debt-laden and loss-making firm is showing signs of revival. The Pune-based company turned both Ebitda (earnings before interest, tax, depreciation and amortization) and Ebit (earnings before interest and tax) positive after seven quarters in the three months ended 31 March 2014. 

The Suzlon initial public offering which opened on 23 September 2005 was oversubscribed by over 40 times, raising $340 million when it closed six days later. Shares listed at Rs.510 at the upper end of the price band, and rose to Rs.1,407.60 in six months before the stock split, turning founder Tulsi Tanti into a billionaire. 

Draining energy 
In the biggest convertible default in India, Suzlon failed to pay interest on $209 million of debt on 11 October 2012, after bondholders rejected its request for a four-month extension. There were many reasons for its fall from grace. As demand raced ahead of supply in the days before the financial crisis, Suzlon had started building wind blades without waiting for orders. However, inventory piled up as orders shrank. The Wall Street Journal reported in August 2008 that Suzlon had recalled 1,251 blades fitted on its top-of-the-line turbines sold to Edison Mission Energy, a US-based wind power firm. Edison told the US Securities and Exchange Commission that the 144ft blades had begun to split at its three sites. Suzlon spent $25 million to change the blades that had developed cracks—not a massive amount, but a setback given the context. As of March 2014, the company had a consolidated debt of Rs.15,164.27 crore. 

Fixing the firm
Suzlon launched a turnaround programme, code-named “Project Transformation”. On 24 January 2013, its 19 lenders agreed to recast Rs.9,500 crore of debt and convert the interest payable for two years into 32.1% equity. They also agreed to enhance working capital loans by Rs.1,800 crore and a 10-year deferred repayment plan. The promoters brought in equity and Suzlon sold bonds to refinance its existing loan with the help of lenders to improve cash flows. The company started making turbines only on receiving orders. 

Fixing the bonds 
After 18 months of talking to bondholders around the world, Suzlon on 3 May 2014 announced a cashless restructuring of $485 million worth of foreign currency convertible bonds for five years. These bonds will mature in 2019-20. This was the last piece in a comprehensive liability management programme at Suzlon. The company sold assets worth Rs.700 crore, cut staff to 3,200 and reduced fixed operation expenditure by 31%. It also raised volumes to 723 megawatts (MW) in 2013-14 from 251MW in the previous fiscal year, a 188% growth year-on-year. 

Back to rotations 
For the fiscal year ended 31 March, net loss narrowed to Rs.3,519.97 crore from Rs.4,723.96 crore in the previous year. Net loss for the quarter ended 31 March narrowed to Rs.603.45 crore from Rs.1,912.72 crore in the year-ago period. It also swung to an operating profit of Rs.328 crore from an operating loss of Rs.594 crore in the same period.

Courtesy: Live Mint
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