SUZLON
PRICE: RS.73 RECOMMENDATION: REDUCE
TARGET PRICE: RS.65 FY11E P/E: 23X
Suzlon announces sale of 35% stake in subsidiary Hansen Transmission to
financial investors
Deal priced at the lower end of the recent trading range of Hansen.
Cash infusion could provide temporary reprieve, critical issue remains of
building order backlog.
Maintain Reduce with price target intact at Rs 65
Key Highlights
n Suzlon has announced that its wholly owned subsidiary AE Rotor Holding BV
have completed a secondary placement of 35% stake of the company in
Hansen Transmission to financial investors. The deal has been done at a price of
GBP 95 pence, thus valuing the entire deal at GBP 224 mn (USD 370 mn). Following
the part stake sale, the shareholding of Suzlon in Hansen stands reduced
to 26.1%.
n Deal valued at the lower end of the recent trading range of Hansen, indicating
possible lack of interest among of buyers at higher prices.
n The deal proceeds would be to the tune of Rs 17.3 bn, which would be mainly
utilized for meeting debt repayment obligations. The proceeds from the sale
along with further Rupee debt to be raised from domestic banks should enable
the company to meet its repayment obligations of acquisition loans taken for
Hansen and Repower.
n As of H1 FY10, the company had a gross debt of Rs 134.8 bn. Thus the proceeds
from the stake sale should form 13% of the gross debt of the company.
Short-term respite in our view as medium-term outlook remains
contingent on the company building order backlog
n Order book stands at 1489 MW, which is down 41% yoy. The company has
downgraded guidance for order booking in the current year. As against this,
the company has over the years upgraded its capacity to 5700 MW. As a result,
the significant underutilization of capacity and higher overheads and interest
charges has severely impaired the profitability of the company.
Commentary on CY2010 outlook by Vestas (Leading supplier
of wind turbine):
Expects to report flat revenues in CY10. Cites longer processing
time resulting in delayed conversion of orders. Headwind for
Suzlon
n Vestas is the premier supplier of wind energy systems. It expects to report flat
revenues in CY10 and has also maintained lower EBIT margin guidance of 10-
12%. The revenue range reflects the uncertainty caused by the credit crisis in
the short term while the slowing profitability improvement is due to the fact
that Vestas in the near term will have a certain excess capacity. In general,
Vestas expects that prices and conditions should likely remain largely unchanged
in 2010. At the moment, the US market is characterised by excess capacity,
which is resulting in unattractive realizations. The order intake during
2009 was lower than expectations due to longer processing times.
