The stock of Suzlon Energy rose to a month-high of ₹24.65 on the NSE on Friday as analysts now feel that the worst may be over for the company. Rating major CARE’s upgradation of Suzlon’s proposed commercial paper to investment grade (from default) lifted sentiments further for the stock.
Healthy trading volume According to an analyst from a Mumbai-based firm, “what is heartening is the rise on Friday accompanied by healthy trading volumes. For the first time in nearly two months, Suzlon Energy shares clocked a volume in excess of eight crore shares on the NSE,” he added.
According to Nomura, Suzlon has restructured its balance sheet since its debt default in 2012 and its operations are just now being revived. “We believe Suzlon has the potential to regain its market leadership in due course on its inherent strength in the Indian market and strong customer relationships,” it said. Bhalchandra Shinde of Centrum Broking in a report said the company’s remarkably scripted balance sheet turnaround, its proven expertise and large network, especially in the ‘accelerated depreciation markets’, and an increasingly favourable environment for its business, all bode well for further re-rating.
FCCB pressure to ease According to a technical analyst, “With divestment in Senvion and the likely impending FCCB conversion, total debt will get reduced considerably.
“Equity infusion by Dilip Sanghavi & Associates will materially improve Suzlon’s working capital position, leading to robust execution and improved margins through operating leverage,” he said. “The longer-term business potential and operational improvement can easily offset the near-term pressure due to FCCB conversion,” he added.
But Nomura, which has a target price of ₹38 for Suzlon, also has a word of caution for investors. “Suzlon has to prove its credentials all over again. While this may mean significant upside from current levels for Suzlon, it also comes with a risk that the turnaround might be delayed and not so easy after all.”
‘Investment grade’ rating CARE has assigned investment grade credit rating (BBB—) to Suzlon for its outstanding bank facilities and to the proposed commercial paper instrument. CARE has assigned an A3 rating for non-fund-based working capital limits worth ₹5,622 crore and also for the proposed commercial paper worth ₹1,000 crore.