Fundamental Analysis of Suzlon Energy: Suzlon Energy may as well be one of the most talked about companies. An industry leader, it is not the only positive news that keeps it in the headlines. It is also heavy losses, piling debt, and whatnot. What makes it so attractive that investors want to own it despite its problems? Let us find out by performing a fundamental analysis of Suzlon Energy.
Fundamental Analysis of Suzlon Energy
In this article, we shall attempt to conduct a fundamental analysis of Suzlon Energy. We’ll start by knowing its history, business, and past troubles. At the same time, we’ll acquaint ourselves with the industry. Next, a few sections cover the messy financials of the company with a focus on data points pointing to a recovery. A summary concludes the article in the end.
Company Overview
Suzlon Energy traces its origins to 1994 when Tulsi R Tanti, an engineering graduate purchased two wind turbines to fulfill the energy needs of his family’s textile business. Sensing a business opportunity, one year later, he started Suzlon to provide complete wind energy solutions.
Over the years the company has emerged as one of the most vertically integrated wind turbine manufacturers globally. It has a presence in 17 nations across the globe.
Suzlon primarily manufactures and sells wind turbine generators (including project execution and sale/sub-lease of land), forging and foundry components, and provides operation & maintenance activities.
As for the share of the different revenue streams, the sale of wind turbine generators generated 67% of the sales in FY22. This was followed by the operation and maintenance services division’s contribution of 28%. The sale of components generated Rs 477 crore or 7% of the total revenue.
Having been there for so long, Suzlon must be a wind energy behemoth by now. It was once among the top 5 wind turbine manufacturers globally but things didn’t turn out as planned.
Read ahead to find out.
Huge Losses and Debt Resolution of Suzlon Energy
Despite being a pioneer in the wind energy industry, it has not been a smooth journey for the company and Tulsi Tanti. The business ran into financial troubles as it incurred more and more debt to finance its operations and acquisitions. Most of this debt was acquired before the global financial crisis hit in 2008.
Post-2008, the losses kept mounting pushing the company to bankruptcy. On multiple occasions, its debt resolution plans fell apart due to a valuation mismatch.
The management sold off its non-core assets a few times in the past to pare its debt.
In addition to this, as part of its debt restructuring, in the present fiscal year, Rural Electrification Corporation (REC) and IREDA acquired and refinanced Rs 3,000 crore of debt. The management believes the new financiers have a background in the power industry and are better equipped to understand the business operations.
Along with this, a 16-bank consortium led by the State Bank of India took over a 5% stake in Suzlon Energy for the balance of Rs 3,500 defaulted loans.
Furthermore, the company recently raised Rs 1,200 crore through a rights issue which was oversubscribed by 1.8 times, highlighting the renewed faith of the investors in the company.
With all these developments, it appears that Suzlon has put behind its financial troubles and is off to a fresh start.
So far we have read about the history, business, and struggles of the company as part of our fundamental analysis of Suzlon Energy. In the next section, we take a look at the wind energy industry landscape.
Industry Overview
The demand for wind turbine generators is directly dependent on the growth of the wind energy industry. In this section, we’ll get acquainted with the global wind energy market and then the Indian wind energy market.
Global Wind Energy Market
As per the data from Global Wind Energy Council, wind energy is estimated to account for 24% of the total electricity generated globally by 2030. For this to happen, the sector has to grow 4 times from the present levels.
In the calendar year 2021, 93.6GW of wind power capacity was installed worldwide taking the total capacity to 837 GW, a 12.4% increase. China, the USA, Brazil, Vietnam, and the UK were the top five countries leading the capacity installations.
As for industry growth, the wind energy industry has grown at a CAGR of 12% in terms of installed capacity over the previous 5 years.
Indian Wind Energy Market
India is one of the largest energy markets worldwide. Wind energy at 40.3 GW accounted for 10% of the total installed wind power in India. The sector is projected to reach 140 GW by 2030 to fulfill growing energy demand which is expected to double by then.
The cumulative installed capacity grew by 2.8% over the last year. As for the outlook, the National Institute of Wind Energy (NIWE) has identified over 302 GW of onshore wind sites and 695.5 of onshore sites at 100 and 120-meter hub heights respectively.
As for resource distribution, Gujarat, Tamil Nadu, Karnataka, Maharashtra, and Rajasthan lead in terms of operational wind capacity.
Overall, the renewable wind energy sector is well poised for strong growth. This translates into a multitude of opportunities for companies in the sector.
Suzlon Energy – Financials
Revenue & Net Profit
The revenue and net profit of Suzlon Energy have been volatile over the past few years. In FY20, it registered a whopping net loss of Rs 2,684 crore.
However, the financials of the wind turbine manufacturer have gotten much better in the last two years. For instance, it reported a net profit of Rs 104 crore in FY21. In the recent year, FY22, it clocked a nominal profit before tax of Rs 40 lakh. Thus, we can come to terms with the fact that Suzlon’s turnaround has come.
The table below shows the operating revenue and the net profit/loss of the turbine manufacturer for the previous five years.
| Fiscal Year | Operating revenue (Rs Cr) | Net profit/loss (Rs Cr) |
| 2022 | 6,581 | -177 |
| 2021 | 3,345 | 104 |
| 2020 | 2,973 | -2,684 |
| 2019 | 5,025 | -1,537 |
| 2018 | 8,334 | -384 |
We read above that Suzlon was overleveraged. Its heavy financial costs engulfed the company. But leverage is not only to be blamed. Read more on this in the next section on profit margins.
Profit Margins: Net & Operating
Like the top line and bottom line, the operating margins of Suzlon have been unstable. For a manufacturing company, it clocked low operating profit margins of around 9-10% in the best three of its five fiscals.
In addition, the high-interest costs further negatively pulled down the net profit margin.
The table below highlights the grim operating profit margin and net profit margin of Suzlon Energy over the past five years.
| Fiscal Year | OPM (%) | NPM (%) |
| 2022 | 9.90 | -2.52 |
| 2021 | 8.84 | 2.99 |
| 2020 | -42.07 | -90.53 |
| 2019 | -5.98 | -30.47 |
| 2018 | 9.12 | -4.79 |
However, it is not as bad as it looks. After the debt reduction, the interest expenses declined 53.5% to Rs 735 crore in FY22 from Rs 1,581 crore in FY18. With the restructuring and capital raise, the finance cost will come down further.
Return Ratios: RoE & RoCE
We can not gain much insight from the analysis of the return ratios of the company as part of the fundamental analysis of Suzlon Energy.
Its return on capital figures is negative because of the negative net worth of the company. As for the return on equity, it is undiscerning because of a very narrow equity base. Overall, the growth in revenue and improvement in liquidity has translated into better return ratios in the last two years.
| Fiscal Year | RoE | RoCE |
| 2022 | 23.45 | -4.84 |
| 2021 | 10.01 | -11.47 |
| 2020 | NA | NA |
| 2019 | NA | NA |
| 2018 | NA | NA |
The data before FY20 is not conclusive because of huge losses and high debt resulting in skewed negative net worth of the company.
Debt/Equity & Interest Service Coverage
Over the past few years, the management of Suzlon has somewhat managed to steer the company away from insolvency and consequent liquidation. For instance, non-current liabilities came down to Rs 2,842 crore for the quarter ending September 2022 from Rs 7,921 crore in FY18.
The debt-to-equity ratio of the stock doesn’t convey this change because of a concurrent reduction in the equity base due to mounting losses. Additionally, the negative figures for debt/equity denote the negative net worth of Suzlon.
Despite this, a glimmer does appear with the interest coverage ratio, although small, turning positive in FY22 and FY21.
The table below shows the debt-to-equity ratio and interest coverage ratio of Suzlon Energy over the past five years.
| Fiscal Year | Debt / Equity | Interest Coverage |
| 2022 | -1.79 | 0.90 |
| 2021 | -2.02 | 0.29 |
| 2020 | -1.19 | -0.99 |
| 2019 | -1.36 | -0.30 |
| 2018 | -1.71 | 0.75 |
^The figure is positive because the interest expense for FY18 was much more than the EBIT resulting in a positive numerator for the calculation of the interest coverage ratio.
Suzlon Energy – Key Metrics
We are almost at the end of our fundamental analysis of Suzlon Energy. Let us take a quick look at the key metrics of the stock.
| CMP | ₹9.80 | Market Cap (Cr.) | ₹11,600 |
| EPS | ₹2.06 | Stock P/E | 4.76 |
| ROCE | -4.84% | ROE | 23.5% |
| Face Value | ₹2.0 | Book Value | -₹0.25 |
| Promoter Holding | 14.5% | Price to Book Value | NA |
| Debt to Equity | -1.79 | Dividend Yield | NA |
| Net Profit Margin | -2.52% | Operating Profit Margin | 9.90% |
In Conclusion
In our fundamental analysis of Suzlon Energy, we found how the turnaround of the company has come. Overall, in the near future, the focus of the management will be on securing orders and their timely delivery with an added emphasis on keeping costs low. It just has to keep doing what it is doing.
In your opinion, does the present price incorporate the future earnings already? Or is Suzlon undervalued from a turnaround standpoint? How about you let us know your thoughts in the comments below?
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