Why Isn’t Suzlon’s Share Price Reviving?In this article:
- About the company
- Suzlon share price – Out of winds or winds in sails?
- Suzlon’s trajectory after 2008 crisis
- Suzlon’s financial outlook
- Suzlon’s current shareholding pattern
- Signs of revival and risks involved
Suzlon Energy: Out of wind or wind in the sails?Suzlon energy is a curious case of two opposites – – Bulls and Bears. Formerly Suzlon share price was at the peak of Indian business landscape. However, the story of this wind power giant is a great academic case study. In the past one year, Suzlon share price has registered a slight turnaround as the company has reduced debt and is expecting renewed demand ahead. But in the past year the company’s sales growth has reduced by 25%. This is even though India’s total wind capacity has grown by 4% in FY 2020.So what happened to Suzlon share price? Why did the stock plummet from Rs 459 to Rs 7.10? What went wrong with Suzlon share price?. The fall in Suzlon share price points towards over ambitious promoters who dared to chew more than they could digest. Suzlon’s share price took a turn for worse when promoters started to ignore Indian markets in order to acquire international markets. This move provided ample opportunities to competitor companies like Gamesa, GE, Enercon and Vestas to snatch away domestic market share from Suzlon.
Suzlon’s trajectory after 2008 crisisSuzlon energy was also caught on a completely wrong foot during the financial crisis of 2008. When Lehman Brothers collapsed, order flow from two of the biggest energy markets of the world – Europe and the US stopped completely. Suzlon share price decline started as credit flow almost stopped. This led to shutting down of its blade making factory in Pipestone, Minnesota.In the next year, the company’s net profit had fallen by 335% despite achieving 100% top line growth (Y-O-Y). It even registered a loss for six straight years starting from FY10 to FY15. Servicing its debt became a major problem for the company.Suzlon Energy Ltd. acquired 66% stake in RE Power from its French rival Areva. The move was considered to be a masterstroke but Suzlon Energy couldn’t deliver. In order to restructure its debt, the company decided to sell off its most priced asset – RE Power (operating under the name of Senvion) in 2015. This move reduced its debt to Rs Rs.17,323.23 crores. Due to this move, Suzlon’s share price showed a little recovery by making a high of Rs.21 in 2015. But it did not sustain for long.Post-acquisition, interest cost kept ballooning and the company missed out on exploiting huge growth potential offered by India. It also missed out on other emerging markets due to high debt on its books and liquidity shortage.You can find out how Suzlon Energy started and became one of the biggest wind energy companies in the world and largest in Asia.How taking too much debt on the balance sheet hampered company and what other factors led to it’s fall. CA Paras Matalia digs deeper in to Suzlon and shares his views on whether you should hold or exit from this company.Now that you know the history of Suzlon share price, let us understand the future of Suzlon share price. For this, let’s study key financial aspects of the company.
Financial and Business Outlook on Suzlon Share Price
- Cash flow conversion
- Highly cyclical industry
- Below average growth rate
Current Shareholding PatternEven though domestic institutional investors (DII) own 17% of Suzlon Energy Ltd shares, it does not indicate a positive outlook. Investors should not misinterpret this information. They should know that this investment by public sector units (PSUs) is a factor of debt converted into equity. Hence, this holding can be called as a forceful one.
- Supply chain risk – Fluctuation in prices of underlying materials like steel, copper etc, is a big risk for Suzlon and may impact Suzlon share price negatively.
- Execution struggles – Suzlon and wind industry as a whole has been struggling to execute projects. This is due to the delay in land approvals, central and state level auctions, project lifecycle risks etc. Timely execution of project is important as it is a capital-intensive business.
- Covid19 risk: The pandemic has introduced a new array of risks like interest rate risk, credit risk, foreign exchange risk that Suzlon is already trying to mitigate.