Suzlon Energy Equity Research

Date of Research – 21 January 2016

Price – Rs. 18.60

About the Company

Suzlon Energy Limited (“Suzlon” or the “Company”) is an India-based vertically integrated wind power company which was set up in the year 1995. The Company along with its subsidiaries is in the business of selling and installing wind turbine generators (WTGs). it delivers end-to-end wind power solutions including assembling, installation to commissioning. The company manufactures blades, generators, panels, and towers and state-of-the-art large or offshore turbines, in-house and through its subsidiary. The Suzlon Group consists of Suzlon Energy Limited and its 78 subsidiaries (13 Indian and 65 international) and is present in 33 countries across six continents.

India currently has over 17,000 MW of wind power capacity, and nearly half of this has been built by the Suzlon Group, making Suzlon India’s largest wind turbine manufacturer for 10 consecutive years. It recently announced crossing 8,000 MW of cumulative installations in India, underlining the strong momentum in India’s fast growing wind energy market. This cumulative power generation capacity has the potential to light up four million homes annually.

In terms of market share, Suzlon is the fifth largest wind turbine manufacturer by cumulative installed capacity worldwide, with 20,000 MW of installations in 32 countries, delivering uptime levels above the industry average of 97%.

Key Financial Figures

Consolidated(Rs. Cr)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations18,913.5320,402.8619,954.449,562.56 12,714.37 
Expenses20,210.0220,543.9519,638.708,593.98 10,214.98  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)(1,296.49)(141.09)315.74968.58 2,499.39
Depreciation740.47776.88808.77403.26 392.21  
Finance Costs1,854.852,069.962,064.691,226.12 1,287.59
Other income152.1671.4853.3065.54 88.82  
Exceptional items642.98487.306,311.66(1,064.13) – 
PBT(4,382.63)(3,403.75)(8,816.08)468.87 908.41  
Tax349.32144.43317.28(10.97) 11.70  
Extraordinary items– – 
PAT (before Minority Interest and share of Associates)(4,731.95)(3,548.18)(9,133.36)479.84 896.71  
Profit/ (loss) attributable to Minority Interest(7.99)(28.21)24.33(2.75) 8.99  
Share of profit / (loss) of Associates– 48.25  
Consolidated Profit / (Loss) for the year(4,723.96)(3,519.97)(9,157.69)482.59 839.47  

Profitability Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Operating Profit Margin Ratio(6.85)(0.69)1.5810.13 19.66
Net Profit Margin Ratio(25.02)(17.39)(45.77)5.02 7.05 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016 
Share Capital355.47355.47497.63741.541,004.10 
Preference shares issued by subsidiary5.945.945.945.943.44
Share application money pending allotment581.67162.021,800.00– 
Reserves & Surplus4,825.37(35.06)(1,041.48)(9,863.84)(8,086.87) 
Employee stock options grants(9,863.84)
Net worth (shareholders funds)5,180.84908.02(375.89)(7,316.36)(7,079.33) 
Minority Interest82.7878.1158.3563.613.19 
Long term borrowings7,364.7210,857.6611,640.9210,786.589,226.28 
Current liabilities19,129.3916,250.6317,844.3717,157.647,381.18 
Other long term liabilities and provisions402.77353.98354.71391.09422.56 
Deferred Tax Liabilities463.55558.50792.33648.8912.64 
Total Liabilities32,629.9929,006.9030,314.7921,731.459,966.52 


Application of Funds / Assets(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016 
Fixed Assets12,602.0912,381.9513,947.936,199.541,925.42 
Noncurrent Investments33.2735.693.7215.2244.80 
Current assets18,473.3214,690.8915,470.1914,684.887,006.93 
Long term advances and other noncurrent assets1,318.601,888.43838.67831.81989.37 
Deferred foreign currency fluctuation asset108.80– 
Deferred Tax Assets9.9454.28– 
Total assets32,536.0829,006.9030,314.7921,731.459,966.52 

Efficiency Analysis

ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016 
ROE / RONW(9.24)(520.25)(6.78) 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations (Rs. Cr.)18,913.5320,402.8619,954.449,562.56 12,714.37 
Growth (%)(11.45)7.87 %(2.20 %)(52.08 %) 32.96 % 
PAT (Rs. Cr.)(4,731.95)(3,548.18)(9,133.36)479.84 896.71  
Growth (%)105.25 % 86.88 % 
Earnings Per Share – Basic (Rs. )(26.58)(15.71)(30.49)1.01 1.67 
Earning Per Share – Diluted (Rs. )(26.58)(15.71)(30.49)0.95 1.57 
Price to Earnings(9.41)14.8912.42  

Dividend History

The Company has not declared any dividend over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Suzlon’s average current ratio over the last 5 financial years has been 0.95 times which indicates that the Company is reasonably placed to pay for its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Suzlon operates with very high level of debt and is not placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Since Suzlon operates with very high level of debt, its average interest coverage ratio over the last 5 financial years has been 0.24 times which indicates that the Company may find difficulty in meeting its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Suzlon reported a promoter holding of 20.57 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 29.93 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.