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Upside for Suzlon Energy shares rests on budget, net profit

LiveMint logoLiveMint 15-06-2014 Krishna Merchant

There has been a sudden and strange increase in investor interest in Suzlon Energy Ltd.

In this month’s 10 trading sessions, Suzlon shares have risen by nearly 50%, hitting the upper end of the circuit limit on seven occasions.

In the previous two trading sessions, with no buyers available, its shares had hit the lower end of the circuit filter.

The trebling in the value of the company’s shares in the past three months seems to be a bit too much.

This is not to say that things haven’t improved at all at the company. There are early signs of a turnaround and an increased possibility of asset sales, which will help bring down the company’s debt.

After seven consecutive quarters of losses, Suzlon reported an operating profit in the quarter ended 31 March.

Interest costs increased by 18.7% and remained high at around `578 crore. As a result, Suzlon clocked a net loss of `603 crore in the quarter.

The management said the company was looking at turning profitable at the net profit level in one or two quarters, primarily on the back of higher revenue.

Suzlon is also targeting asset sales of `1,000 crore this fiscal year, after selling non-core assets worth `700 crore in the last fiscal year.

Suzlon has an order book backlog of `46,000 crore and is planning to execute at least half of them this fiscal year.

Execution is expected to improve after the Union government introduced a generation-based incentive scheme for accessing low-cost finance and also after the company adopted the approach of “just-in-time” orders.

Consolidated net sales rose 54% from a year ago to `6,581 crore in the March quarter.

Last month, Suzlon had averted a default by inking a deal with its bond holders for a cashless restructuring of $485 million of foreign currency convertible bonds for five years.

Net debt at the end of 2013-14 stood at `14,423 crore.

Investors should note that much of the improvement in terms of profitability and debt reduction already seem to be discounted in the Suzlon stock.

To be sure, the management’s expectations of a sustained increase in revenue are hugely dependent on macroeconomic factors.

Unless there are some surprises in the Union budget and Suzlon is able to report a net profit, upside for the stock may be capped.

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