Suzlon Energy's burgeoning order book does not appear to be translating into sales at a pace required to drive earnings. For the quarter ended December 2010, consolidated sales declined 21 per cent over a year go to Rs 4,433 crore.

The company also closed the quarter with losses for the fourth consecutive time. Group order book though, at close to Rs 32,000 crore, quadrupled over the year ago.

While the order book is suggestive of a strong revival in the wind energy industry, any delays/deferment in execution could severely hamper revenue growth. That the additional bulky orders have come from only a few clients heightens the risk.

Reasons for lower sales

Lower sales clocked by the foreign subsidiary REpower besides inclusion of Hansen Transmission's sales in the year-ago numbers was the key reason for decline in consolidated sales. However the parent too, managed only 2.2 per cent increase in turnover despite 14 per cent higher volumes.

Clearly the company has not been able to garner higher realisations. Sales per MW marginally declined from Rs 5.6 crore in the September quarter to an average Rs 5.4 crore per MW in the December quarter. EBITDA too declined by 19 per cent. Net losses at Rs 253 crore, was exacerbated by forex translation losses of Rs 73 crore.

Suzlon may improve its realisations after a couple of quarters when it executes its more recent Indian orders. The recent Rs 5,800-crore order from Caparo Energy India, for instance, may fetch higher realisations, if the total order value is anything to go by.

Besides, the Indian market has been attracting new players into the sector, what with the Government making renewable energy tariffs more attractive. Multiple revenue models such as the preferential tariff model which ensures fixed pre-tax return on equity of 19-24 per cent may well attract even conservative investors.

Indian wind-market boom

Suzlon has clearly benefitted from the above, given the bulk orders from the likes of the Vedanta Group. Fresh domestic orders of 1,255 MW are almost double the orders outstanding last quarter. South America was another key market that awarded business to the wind equipment major.

However, the US continued to remain an elusive market with no fresh orders. More worryingly, 246 MW of US orders (10 per cent of the parent's total orders) outstanding at the beginning of the quarter remained unchanged as of February 2011, suggesting lack of execution. While Suzlon may benefit from the massive Indian orders, lack of utilisation of its American unit may cost dearly in terms of fixed expenses.

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