Saturday, January 21, 2012

SUZLON ENERGY -- BUY







A  BUY recommendation on Suzlon Energy  at this point of time may  raise the eyebrows of many of my readers.But I feels the risk reward ratio warrants a re-look on this wind power major in current situation.Suzlon was a shining star in Indian stock market till 2008.Then the company decided to take over a German Wind power company RE Power mainly to acquire the latest technology and designing capabilities owned by that company. There were many blade cracking issues at that time against Suzlon and the latest technology was inevitable to tide over these problems.As per the German laws technology transfer is not permitted if the company is not a 100 % Subsidiary. So suzlon forced to buyout the 100 % stake in RE Power which stretched the balance sheet of Suzlon with higher debt .On the other side ,company's business went through a tough time mainly because of the western recession which started in 2008.Whenever the recession starts cost of conventional energy sources like crude ,coal ..etc nose-dives and non conventional sources become less attractive. Such a situation created problems not only for Suzlon but  all non conventional energy related firms.Suzlon posted losses in 2009-2011 period and even the existence of the company became a big question mark.Series of these incidents bring down the share price of this once considered blue chip from Rs.415 to just Rs.17/- ( after adjusted FV split)  in this January. In order to tide over the difficult situation company even sold its acquired stake in Hansen transmission ..etc .
                                                                          Now Suzlon is left with a debt of around Rs.11000 - 12000 Cr including the FCCB re payment liabilities.No doubt it is a real concern .But we should not ignore the positives as well and also the crash of its share price during this period due to these negatives.After a sharp crash in energy prices during the recessionary period , now it again started to move up with a vengeance .Coal and crude prices moved sharply even only with small signs of recovery in US economy .In 2007-08, the cost of one unit of power from wind energy was Rs. 5,compared to Rs. 2 to Rs. 2.75 for coal.Today, the cost of wind power has come down to between Rs. 3.25 and Rs. 3.5, while the price of power from coal has increased to Rs. 3 to Rs. 3.10.This situation is expected to continue  in favor of wind power in coming years.This is  one of the biggest positive for the entire industry and such a situation will surely increase the order flow to Suzlon which is considered as one of the word's low cost producer of wind turbines.Considering the policy paralysis in power sector ,no doubt India will face severe power shortage in coming years which may open up big opportunities for companies like Suzlon. The recently introduced wind turbine  S9X which is designed for low wind area is receiving very good response from the customers. After many many years , now company is reporting good order flow on a consolidated basis and it crossed 5 GW for the first time after 2008 . This increases the visibility of cash flows and it is expected to post a profit of Rs 450- 500 Cr in current year and Rs.700 Cr in next year on a consolidated basis.This cash flow along with their plans to sell some non core assets and cash reserve of about Rs.1700 cr with RE power and about Rs.1000 Cr receivables from its debtors are expected to help the company to tide over the debt trap.Company management also expressed their confidence to reduce debt equity ratio in coming years.Regarding the selling of 2 % promoter stake in November ,Mr Tulsi R Tanti MD of Suzlon categorically cleared that the selling was a one-off event and will not repeat in future.Even after the selling still promoters are holding about 52 % stake in the company.Out of this 52 % stake about 94 % is pledged .But it is a point to note that 90 % of these shares are pledged as a secondary security and chances are very rare to come this shares in to market even if there is a fall in its share prices.All together I strongly feels that the worst is over for Suzlon and company will be able to repay its debt if something worst is not happening in Western economies again .Company's share price is expected to re-rate with the full year results and  repayment of first installment which will happen in June of this year.An early improvement of European economies will surely help Suzlon a lot to capture the past glory.If the management can keep the promises of their decision to not sell the shares in open market again -  at current market price of Rs.24 / - the risk reward ratio is positive for an investment.

Disc :I have vested interest in Suzlon


37 comments :

  1. what is your expectation on it and how long r u willing to hold on it ?

    ReplyDelete
  2. Willing to hold till price exceeds value

    ReplyDelete
  3. What a research...splendid!!! Analysis from every angle.

    Impressive!!! rajesh sir.

    Thanks,
    Mahesh

    ReplyDelete
  4. What's your view on these stocks
    Jindal Poly Films
    SRF
    Repro India
    Ajanta Pharma
    Indo Rama Synthetics
    BGR Energy
    Onmobile Global

    ReplyDelete
  5. Wauh! you took me for a surprise. Suzlon!!
    I am under big loss in this counter. Now will average it.

    Also post your comments(if any)on Mercator . This is also beaten down counter.Looks like they are concentrating more on coal business these months.

    ReplyDelete
  6. very good analysis.
    sir we are going to invest in small lots.
    sir any update in paushak growth story...

    ReplyDelete
  7. Hi Valupick,
    r u tracking any delisting candidates??

    Honeywell technicals, as per my analysis, giving hint of soon delisting announcement??

    ReplyDelete
  8. Valueji
    excellent write up, but if you can address the foll querrie would help to take decision..
    1. AS you said you will hold till it crosses value, so what would be the fair value?
    2. The promoters have dubious reputation. If you have attended their meeting you would know that.. so management is a big big question as they are not reliable.
    3. any idea of how much profit they made during their glory days and how much was the debt?

    Sorry for putting this questions but was wondering if these can be an issue..

    Thanks

    ReplyDelete
  9. Sir,What is your take on Avanti Feeds after Q3 Results?

    ReplyDelete
  10. Dear VPji,
    Don"t you feel that this is a very high risk one?
    Considering their debt, pledging of shares, selling promoter's stake and past performance? I feel the stock has lost it's fuel and energy. The only positive note is the future is for solar!Mutual funds have a good holding.
    It is heard that FIIs are going to enter in this if some positive signs are shown.I feel that if it can cross 40 then FIIs may venture into it. Awaiting for your comments.

    Neeraj Sharma.

    ReplyDelete
  11. Dear GS

    Positive on BGR and Onmobile ,but only for long term

    ReplyDelete
  12. Dear kuheli

    Not meant for trading purpose

    ReplyDelete
  13. Dear Deepak Kumar Prasad

    Not tracking Mercator lines, so not in a position to comment

    ReplyDelete
  14. Dear sameer

    Not tracking Honeywell

    ReplyDelete
  15. Dear Neeraj Sharma.

    Rs.25 is the price of all these negatives.

    ReplyDelete
  16. Value sir
    You responded to everyone's querry but missed mine :(
    Sirji little blessings (in form of reply)from you will help..

    Thanks in advance

    ReplyDelete
  17. Dear value pick,
    very are you avoiding giving comments on avati feeds which was recommended by only.
    KSK

    ReplyDelete
  18. What is your call on Avanti Feeds after Q3 Results?

    The stock is going in lower circuit every day since,please reply.

    Ajay Shah.

    ReplyDelete
  19. Hi Valuepick Sir,

    Your View on Pioneer INvestcorp at CMP? is it a buy>?

    ReplyDelete
  20. Dear Rishant
    Not purposefully avoiding reply to anyone.But trying to avoid repeating questions and giving preference to people with some identity ( giving less preference for 'Anonymous')

    ReplyDelete
  21. Dear KSK

    Not avoiding comments on Avanti Feed.I think it is already a closed call. Buy @ Rs.68 and sell at Rs.134/-

    see the below link :

    http://value-picks.blogspot.com/2011/10/avanti-feeds-book-profit.html

    ReplyDelete
  22. Dear Ajay Shah

    Since aquaculture having some seasonality , we can't say the latest result is bad for Avanti.

    ReplyDelete
  23. Dear AMS
    Pioneer Investcorp is one of the better cos from this sector,but the sector is expected to take some long time to re-rate.

    ReplyDelete
  24. I Personally feel Suzlon to be a sinking ship ... Its not a good idea to invest in sinking ships expecting them to turn around ...

    2012 will be a better bull year and every stock may rise, but its not a good reason to buy bad companies ...

    ReplyDelete
  25. I am sorry I cannot believe your statement at face value about Suzlon in particular and doubt your credentials. You state that the wind power cost has come down from Rs.5 to Rs.3.25/unit. As you may well be aware, the selling price still remains at Rs.6 crore/MW and there is no major change during the last 3 years. Which means that the performance of the same wind turbine has increased tremendously to bring down the cost of power from Rs.5 to Rs.3.25 which is a very significant increase in the output of wind turbine.

    Kindly specify at least two customers, name of wind park and location of a few turbines of Suzlon which has increased its output during the last 3 years so that the cost of power is today Rs.3.25/unit approx as stated by you. Nor is there such a report in the wind market that the technology of wind turbines have increased substantially so as to bring down the cost of power in a significant manner during the last 3 years. Till I receive such concrete information, I feel this statement of yours is extremely misleading and grossly incorrect. Awaiting your immediate response with details. Regards.

    ReplyDelete
  26. Dear Anonymous

    You have freedom to believe it or not .Figures are based on the report of one of the well known Business publication Forbes Magazine .For read the full report , check with the below link :

    http://www.forbes.com/2011/11/21/forbes-india-reviving-suzlon-tulsi-tanti.html


    I have nothing to get by telling lies to my readers who are supporting me for the past many years.

    ReplyDelete
    Replies
    1. Now suzlon is at 19
      What is your prediction till feb 13 end?

      Delete
  27. Hi
    Thanks for the reply, does that mean you are negative to neutral on others OR you do not track them??

    ReplyDelete
  28. Dear VP
    I am planning to invest at this present level but recently i came across on web that this scrip is banned. Even today i saw on nee website
    Securities in Ban For Trade Date 03-October-2012
    1 SUZLON
    2 WELCORP

    would like to know is it only for traders? because i want to invest....... Since i am new investor pls give ur view.

    ReplyDelete
    Replies
    1. Ban period is applicable only for F&O segment.

      Delete
  29. Dear VP
    Appreciate your view on Suzlon, as it seems they are making efforts to merge Repower (Senvion) with itself, further they are disposing Assets to reduce debt,
    - is it a good time to aacumulate more
    - what is your target price
    Br/Ferns

    ReplyDelete
  30. Hi Valujeji,

    Hope my queries get answer this time. What is your current view on Suzlon.Can I hold for 1 year the stick that I bought @23?

    ReplyDelete
    Replies
    1. Any views on Suzlon Valueji?

      Delete
  31. suzlon energy fails still after 3 yrs of recomm.

    ReplyDelete
    Replies
    1. Not only Suzlon, lot of other stocks failed.If you believe the success percentage is less than 50 % , please avoid acting on my stock suggestions.

      Delete

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