Should you be Investing in Stock Market's Favourite Stock: Suzlon!!!

 

Suzlon has been one of the most market favourite stocks recently. The reason is that it has been showing signs of recovery or a powerful comeback. The wind energy company has been non-performing since its ATH of Rs. 350 in 2009. With a low of Rs. 1.7 in March 2020, the company is now trading at Rs. 40. The stock has been gaining momentum at the bourses and has also shown signs of healing in its balance sheet. Let’s deep dive into what exactly happened and how are the fundamentals turning out to be in the recent times to see if the stock prices will recover or not.

What is Suzlon’s business: Founded by Tulsi Tanti, who was also known as the windman of India, Suzlon started its operations in India and quickly expanded its footprint globally. Recognizing the potential of wind energy as a sustainable alternative to conventional energy sources, the company ventured into manufacturing wind turbines. Over the years, Suzlon has diversified its portfolio, offering a range of wind energy solutions, from wind turbine generators to complete wind farm projects. Today the company has a presence in 17 countries across Asia, Australia, Europe, Africa and the Americas.

Why did Suzlon’s Price Tumble: Troubles at Suzlon started brewing after it acquired German wind turbine manufacturer, RePower, in 2007 for ₹7,300 crore. The acquisition was partly financed by a debt of ₹4,000 crore. The initial plan was to utilize RePower’s approximately 300 million Euros of free cash to repay the Indian debt. However, a hurdle emerged when German banks, citing certain regulations or rules, refused to allow the funds to be transferred out of Germany. The company still weathered through and was raking in the benefits of globalisation. By FY09, the company had achieved remarkable success, boasting ₹26,000 crore in revenues and ₹1,600 crore in net profit, ranking among the top six global onshore turbine manufacturers. However, during the turbulent financial period of 2008-2009, Suzlon faced damaging allegations regarding cracks in turbine blades within some of its U.S. wind farms. Furthermore, the company’s balance sheet was weighed down by costly acquisitions, particularly RE Power. These factors led to a substantial decline in revenues, dropping to ₹9,500 crore in FY16 and plummeting further to ₹3,000 crore in FY20, accompanied by substantial losses exceeding ₹2,600 crore. Suzlon found itself restructuring its debt on five occasions during this challenging period. Its market capitalization tumbled from ₹68,000 crore in 2010 to a mere ₹8,000 crore. It also had to sell RE Power in 2015 for a billion Euros.

Fundamental Deep Dive:

P&L: The company’s revenue bottomed out in March, 2020 at 3000 cr after which the revenue has been growing but is still not as good as 2015 levels. Plus there is still volatility in the revenue numbers (in March 2023 revenue was 5970 cr which was 6581 cr in March, 2022). Coming to the PAT numbers, the volatility increases even more. The company mad a loss of 166 crores in March, 2022 even with the highest revenue in last 3 years. PAT in March, 2023 was 2900 cr which is a positive for the company. But looking at quarterly numbers of FY24, the Yearly PAT will definitely be below 1000 crores. The FY24 revenues numbers are likely to be better than FY23 but not better than FY22.

Balance Sheet: The company’s equity rose from 355 crore in 2014 to 2700 crore in 2024. With such high equity, it would be very difficult for them to report a good EPS. The debt of the company is very high which is 1.7 times of its equity. Would they be able to repay their debt? They have fixed asset base of 250 crore of land, 430 crore worth of buildings & 950 crore of plant & machinery. The question arises how much revenue they can generate out of these fixed assets.

Ratios: The ROCE of the company has been increasing but there is no reported ROE of the company. Margins have been volatile over the years. The book value of the company is just Rs. 2.5 with a P/B ratio of 15. Why would an investor want to pay such a high price for a company?

Shareholding: The promoter holding has been decreasing which is not a good sign. But there was promoter pledging which has been removed since September, 2023 which is a positive sign. FIIs have increased their stake from 5.5% in March, 2022 to 19.6% in March, 2024 whereas DIIs have reduced their stake from 13.6% to 6.3% in the same period. Retail Shareholding has decreased from 65% to 61% in the same period but the no. of retail shareholders have increased 20.71 lakhs to 43.55 lakhs which is also not a good sign.

Order Book Analysis: Now, the question is why the stock price recovered till Rs. 40. One sole reason for that is the order book of the company, which stood at over 3175 megawatts by the end of Q3FY24. The Capacity at Suzlon is 4 GW but real capacity is around 3 GW (3000 MW).

Based on all these above factors, my analysis suggests that this company should definitely be avoided until and unless there is consistency in the reported numbers of the company. Investing in the company just based on order book does not make sense as the company’s execution capabilities and conversion of order book into revenue is also a big question.

What do you think about the market’s most favourite stock Suzlon? Let me know in the comments….

Happy Investing!!!!!