Suzlon Energy Ltd: Pure Buy

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Apart from Chatical Bullishness, the recent move  by the government  to boost exports will be positive for companies like Suzlon Energy Ltd, which are more or less in the engineering sector. This is the second round of incentives in less than six months. The sops include extension of 2 per cent interest subsidy for another year till March 2014, and additional incentives on incremental exports.

The engineering sector, which has been a laggard in exports since the global downturn, has been extended sops. “To retain this competitive edge and to boost engineering exports, certain specific sub-sectors of the engineering sector would be extended the benefit of 2 per cent interest subvention. They will receive this benefit from the last quarter of the current financial year, that is, from January 1, 2013 till March 31, 2014,” Sharma added.  Wednesday’s incentives came in the backdrop of the Annual Supplement to the Foreign Trade Policy announced on June 5. A pilot scheme of 2 per cent interest subvention for project exports through Exim Bank for countries of the SAARC region, Africa and Myanmar has also been announced. Sharma said the objective of the scheme was to boost India’s exports in these countries by providing long-term concessional credit through Exim Bank.
He said five new countries — New Zealand, Cayman Islands, Latvia, Lithuania and Bulgaria — had been added under the Focus Market Scheme, while Eritrea was added under the Special Focus Market Scheme.

Also, in a significant development, the promoters of Suzlon Energy sold 2.11 % to raise Rs.63 crore. This was part of the corporate debt restructuring (CDR) plan the company is negotiating with a consortium of banks. Lenders had asked the company’s promoters to bring in Rs.250 crore if they were to restructure the loans. The promoters would infuse the funds into the company by suitable mode at the earliest, subject to applicable law, to comply with equity infusion requirement under the CDR mechanism, said the Pune-based company in a statement. The company plans to use these funds for business operations and debt reduction, it said. Following the stake sale, the promoters’ holding in the company has come down to 50.65 % but still above  50%.  Suzlon has a debt of over Rs.13,000 crore including Foreign Currency Convertible Bonds (FCCB) obligations. A major portion of debt was accumulated to acquire Germany's REpower Systems and Belgium-based gearbox maker Hansen Transmissions. Last year, Suzlon sold its stake in Hansen to ease its debt burden, but it provided little relief as interest cost continued to rise. State Bank of India which is estimated to have an exposure of Rs.3,500 crore in Suzlon Energy Ltd, had suggested merging Suzlon Energy Ltd’s German subsidiary REpower with the group to improve profitability.

Thus, this proves that the good days area ahead of Suzlon Energy Ltd, as the debt restructuring is going on in full swing, with a consortium of banks agreeing to give around 300--400 bps, interest rate waiver, which when translated into rupee gains, come around few hundred crores. 
Now, Suzlon Energy Ltd at Rs.17.60, is a pure BUY for a price target of Rs.22-23.