Suzlon Energy's Q1FY20 results (Underperformer) - Delay in debt restructuring
Q1FY20 result highlights
- Indian wind industry has faced multiple headwinds in last two years a) the abrupt end to the auction regime b) the teething issues with auction regime c) delays in transmission evacuation d) delays in land allocation in Gujarat. As a result, the Indian wind Industry has shrunk from 5.5GW in FY17 to 1.5GW in FY19 (FY18 as 1.8GW). Despite various headwinds, Suzlon commissioned 529MW in FY19, a market share of 39%. However, Suzlon needs to have an execution of upwards of >1.1GW at current leverage to sustain itself
- During the quarter, Suzlon defaulted on its FCCB’s. Moreover, the Andhra Pradesh state government has decided to cancel its power purchase agreement (PPA) of 700MW with Axis Energy Ventures (Suzlon was the original equipment manufacturer (OEM)), thus raising potential cancellation risk of its 700MW orders
- As a result, Suzlon reported execution of mere 19MW and Sales came at Rs8.4bn (est of Rs8.9bn – mostly from O&M services). As a result, Suzlon adjusted losses in Q1FY20 was Rs3.4bn (vs est of loss of Rs3.4bn)
- Order book is strong at 2.2GW at end of June 2019 (included framework order of 700MW). However, delay in execution and resolution of debt issues will lead to cancellation of its orders.
- Suzlon has been in negotiations with lenders for potential resolutions, Lenders have entered into inter-creditor agreement on 7 June 2019. Given the likely delay in resolution plan and its contours, assessing the residual value for minority shareholders is difficult
Key negatives: Delay in asset monetisation and resolution plan
Impact on financials: Downgrade our earnings estimates for FY20E/FY21E to a loss of Rs13bn/Rs3bn
Valuations & view
Suzlon’s efforts to resolve its liquidity situation through asset monetisation/equity infusion have been delayed. We believe the delay will continue to impact Suzlon’s financials, despite the company’s large order book and our favourable outlook for the industry over the next two years. As a result, we expect execution to suffer in FY20 and FY21. We maintain Underperformer, given the delay in resolution plan, difficulty in assessing residual value for shareholder and uncertainty in resolution timeline.​
Suzlon Energy is a wind power company based in India. Co. is engaged in the provision of efficient and customized wind power solutions and services. Co. operates across the wind energy supply chain, manufacturing Wind Turbine Generators (600kW to 2.1MW capacity wind turbines) and its components. Co. maintains operations across the Americas, Asia, Australia and Europe and has a fully integrated supply chain with manufacturing facilities in three continents. Co. maintains a presence in 21 countries: Australia, Belgium, Brazil, Canada, China, Denmark, Germany, Greece, India, Italy, New Zealand, Nicaragua, Portugal, Romania, Spain, Sri Lanka, The Netherlands, Turkey, Ukraine, U.K. and the U.S.A.
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