Suzlon Energy stock sizzles on stake-sale talk

After reaching an all-time low of ₹2.75 (for a ₹2 share) on February 5, the price of the Suzlon share has started moving up sharply. On Friday, it closed at ₹6 on the NSE, which was 4.35 per cent higher than the previous close.

The trigger appears to have been a rumour that the global wind major, Vestas, is in talks to buy the shares of the principal shareholders of Suzlon — the promoter Tulsi Tanti and Dilip Shanghvi. In response, the company issued a statement on February 22 that it would not comment on speculative news. The share price has marched on regardless.

However, in a chat with BusinessLine on February 21, the company’s Group CEO, JP Chalasani, confirmed that the company was indeed not far from making an announcement on monetising some of its assets, which would rake in funds to pay off its debts.

But even apart from that, Chalasani stressed that the company was looking at a very strong 2019-20, given the handsome orders on hand and the resolution of certain issues that have been holding up implementation of projects in the last couple of years.

“I can blindly tell you that next year will be better. The question is, how much better,” he said.

In the nine months to December 2018, the company made a net loss of ₹1,254 crore compared with a net profit of ₹97 crore in the corresponding period last year.

Chalasani explained that Suzlon being a highly vertically integrated company — it makes most of its turbines in-house, outsourcing very little — the overheads are typically high. Being vertically integrated helps when the volumes are good, but is bad when the volumes are down.

Auctions

In the successive rounds of capacity auctions, Suzlon has won orders worth 1,740 MW — 16 per cent of the market — of which all but 250 MW is yet to be constructed. This did not happen, first, because of certain regulatory issues, then due to transmission capacity constraints, and finally because the Government of Gujarat held back allocation of land.

Now, most of these issues have been resolved. Therefore, execution of projects in the next financial year will be brisk, Chalasani said.

Tariff woes

There is, for sure, pressure on the margins, due to wind energy tariffs falling to about ₹2.84 a kWhr from the comfortable levels of more than ₹4.16 a kWhr, when tariffs used to be fixed by electricity regulators and were not market-determined.

There are two ways to mitigate margin pressure — one, by higher volumes, and second, by increasing product efficiency. The latter helps produce more electricity. Volumes will be better next year. As for efficiency, Suzlon sold its S-111 machines in the first two rounds of wind capacity auctions, 452-MW worth, conducted by the government company, SECI.

The machines offered in the next rounds are the better S-120. Going forward, the company is introducing S-128 and later S-140. The numbers indicate the diameter of the circle described by a blade; the more the diameter the bigger the circle and therefore better the ability to catch winds and produce more electricity.

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