Professional Documents
Culture Documents
Suzlon Analysis
Suzlon Analysis
Vision
Philosophy
Shareholding Pattern
The shareholding pattern of the Company as on March 31, 2009 is noted below:
A primary component of Suzlon Energy’s income arise from sale of Wind Turbine
generator and allied activities including sale/ sub-lease of land, infrastructure development
income, sale of gear boxes and sale of foundry and forging components.
Particulars of Production:
Suzlon believes in being a holistic supplier of Wind energy. As a result it has added a series
of ‘End-to-End Solution’ designed for the Indian Market. These solutions are spread across
the following stages:-
Economic Growth: The relationship between economic growth and wind energy segment
can be given by:-
Demand for electricity depended on the economic growth of India and countries, such as
USA and China that are huge market. As a result any economic downturn in these
economies will have an adverse impact on Suzlon’s business and financials.
Cost Competitiveness: The demand for wind power plants is dependent on the cost of
wind-generated electricity compared to electricity generated from other sources of energy.
Hence, limited cost and supplies of oil, coal and other fossil fuels are key factors in
determining the effectiveness of wind power.
Interest Rates: Wind farm project require higher upfront capital investment per kWh of
energy produced when compared to fossil fuel-based power plants. As a result condition
and availability of financing availed for wind power project significantly affects the
business, financial condition and results of operations. Higher interest rates increase the
cost of investment, making investment in wind energy less attractive.
− Investment in wind power projects is considered to be riskier.
− The refinancing of wind power project is done at a higher rate.
− Project funding has taken a hit due to non availabltiy of credit in the wake of
financial crisis
Local Sentiments: Local communities have at times opposed the construction of wind
power projects due to concerns about:-
− Aesthetic unappealing
− Impact on flora, due to killing of birds
In some countries there are legislations pertaining to height of WTG and minimum distance
between the power plant and urban area. Any further restrains can reduce the growth
prospects of wind power industry.
Other Factors: The competition in the global wind energy market is governed by
performance of WTGs, reliability, product quality, technology, price, and the scope and
quality of services, including O&M services, and training offered to customers.
If competitor’s come together through joint ventures and other cooperative agreement, that
can have impact the leadership position of Suzlon.
Growing competition can either result in the reduction of the market share of the firms or
reduction in margins, if the firm plans to reduce its prices.
− Bargaining Power of Buyers – Low Since it’s a relatively new sector still
in the development stage of the life cycle so there can be number of cases
where supplier governs the terms when compared to the buyers.
− The Threat of Substitute Product – Low Since wind power is one of the
cheapest sources of energy so the threat of substitutes is relatively low.
− The Threat of New Entrants – Medium Since it’s a capital intensive
industry so only major players can afford enter the market either
individually or in the form of JVs.
− Indian Wind Energy Growing at an average annual rate of 34% for the past
three years, as compared to 28% for rest of the world.
− Tamil Nadu boasts highest installation level of over 4304.5 MW. Suzlon’s
largest turbine of 2 MW is installed in Tamil Nadu. Domestic growth
prospects for Suzlon also depends on gross potential of different states
Status of Suzlon
Share of Suzlon in annual addition of 1250 MW in Indian Market from Jan 2008-09
8%
23%
Suzlon
Vestas
Others
69%
− India has adopted liberal foreign investment which can lead to higher
investment in wind energy segment.
− Lack of grid especially in remote areas which has potential for generation of
wind energy can be an issue of concern
Oversupply to stay till 2013 despite 15% demand CAGR in next 5 years
Source: BTM Consultancy
Strengths of Suzlon
Weaknesses
− Suzlon is dependent on external supply or raw materials, such as steel, glass
fibre etc. In the past it has faced interruptions in the supply of raw material.
− Suzlon is also exposed to foreign exchange risk, owing to its indulgence in
international trade.
− Suzlon’s expansion into markets outside India has exposed it to operational
risk
− Company is also vulnerable to stringent land acquisition norms for
establishing wind farms
Business strategies
Suzlon’s business strategies are primarily focused on:-
− Negotiation with Suppliers- In the past Suzlon has been hit on grounds of
rising raw material prices and quality of raw material being supplied to the
firm. Furthermore, since Suzlon imports most of its raw material so it
exposes the company to foreign exchange fluctuations. To dilute the
repercussions of such fluctuations, company aims to enter into stringent
negotiations with the suppliers. By doing so it aims to achieve a promising
bargaining position in terms of discounts. Any discounts on grounds of raw
material can result in reduction of cost of goods sold which can increase the
operational efficiency and improve the earnings of the firm
− Tapping New Markets- Given the acquisition of RE power, now Suzlon can
leverage its expertise in off-shore wind energy generation. It will help the
firm to increase its share in Europe
(Common Size) Balance Sheet of Suzlon Energy Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
LIABILITIES
Trend Analysis of Balance Sheet Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
LIABILITIES
Share Capital 100% 150% 143% 148% 195%
Reserves 100% 346% 471% 914% 850%
Defered tax liability (50%) 0 0 0 0 0
Networth (Gross) 100% 304% 399% 747% 708%
Less:
a)DTA (Net After 100% DTL, if any) 100% 210% 257% 339% 635%
b)Miscellaneous Expenses
Networth (Net) 100% 306% 404% 760% 666%
Loan Funds (80% of Long Term) 100% 162% 135% 1931% 3241%
Defered tax liability (50%) 0 0 0 0 0
Loan Funds 100% 162% 135% 1931% 3241%
Current liabilities & Provision
(a)100% of Loan funds due within 1 year 100% 77% 460% 484% 1809%
b)20% of Loan Funds 100% 162% 135% 1931% 3241%
c)Sundry Creditors 100% 162% 209% 368% 624%
(d)Provisions 100% 214% 210% 338% 199%
Current liabilities & Provision 100% 153% 265% 423% 866%
TOTAL 100% 225% 324% 645% 876%
Application Of Funds
Net Fixed Asset 100.00% 184.49% 242.38% 319.60% 344.11%
Tangible Asset 100.00% 216.78% 275.87% 369.77% 382.85%
Intangible Asset 100.00% 39.19% 91.70% 93.82% 169.77%
Capitlal Work In progress 100.00% 425.26% 517.07% 750.92% 1600.50%
Investments 100.00% 232.31% 639.04% 3904.04% 5656.54%
Current Investments 0.00% 0.00% 0.00% 0.00% 0.00%
Long Term Investment 100.00% 232.31% 639.04% 3904.04% 5656.54%
Loans & Advances: Non operational Items 100.00% 290.16% 792.54% 995.62% 3027.99%
Current Assets, Loans & Advances
Cash & Bank Balance 100.00% 358.55% 398.40% 992.63% 240.82%
Inevntories 100.00% 223.31% 278.06% 299.89% 279.75%
Sudry Debtors 100.00% 234.19% 291.39% 488.89% 701.59%
Over 6 Months 100.00% 172.01% 160.77% 590.44% 1832.32%
Others 100.00% 242.16% 310.82% 465.59% 491.69%
Loans & Advances: operational Items 100.00% 164.38% 264.96% 227.37% 313.27%
Total 100.00% 224.60% 323.46% 644.65% 875.74%
\
P&L Trend Analysis
Cash flow generated from operations 100% -254% 857% 678% 229%
Cash (outflow) due to direct taxes paid 100% 294% 338% 386% 154%
Cash (outflow) due to dividend tax paid 100% 226% 582% 0% 463%
Cash flow before extraordinary items 100% -693% 1256% 950% 261%
Cash inflow/(outflow) from extraordinary items 0% 0% 0% -6546% -52167%
Cash (outflow) due to miscellaneous expenditure 0% 0% 0% 0% 0%
Net cash inflow/(outflow) from investment activities 100% 190% 461% 1562% 1418%
Cash (outflow) due to purchase of fixed assets 100% 342% 271% 363% 411%
Cash inflow due to sale of fixed assets 100% 88% 2219% 102% 326%
Cash inflow/(outflow) due to decrease / (increase) in capital wip 0% 0% 0% 0% 0%
Cash inflow /(outflow) due to acquisition/ merger/ hiving off of cos./ units 0% 0% 0% 0% 0%
Cash (outflow) due to purchase of investments 100% 200% 617% 4819% 3137%
Cash inflow due to sale of investments 100% 160% 435% 0% 14982%
Cash inflow due to profit on redemption of shares 0% 0% 0% 0% 0%
Cash inflow/(outflow) due to loans to subs./group cos. 100% 711% -1879% 760% 7359%
Cash inflow/(outflow) due to loans to other cos. 100% 2% 191% 327% 26%
Cash inflow due to interest received 100% 131% 315% 445% 602%
Cash inflow due to dividend received 100% 2933% 6244% 1667% 5956%
Cash inflow/ (outflow) due to other income 0% 0% 0% 0% 0%
Cash inflow /(outflow) due to disbursements 0% 0% 0% 0% 0%
Net cash inflow/ (outflow) from financing activities 100% 499% 213% 1791% 1479%
Cash inflow due to proceeds from share issues 100% 682% 3% 1094% 51%
Cash (outflow) due to redemption/buyback of capital 0% 10000% 1500% 2% 0%
Cash inflow due to cash subsidy 0% 0% 0% 0% 0%
Cash inflow due to proceeds from total borrowings 100% 154% 491% 1216% 2192%
Cash inflow due to proceeds from long term borrowings 0% 0% 0% 0% 89000%
Cash inflow due to proceeds from short term borrowings 0% 0% 83956% 7110% 286102%
Cash (outflow) due to repayment of total borrowings 100% 362% 71% 158% 61%
Cash (outflow) due to repayment of long term liabilities 0% 0% 4932% 10942% 4196%
Cash (outflow) due to repayment of short term liabilities 0% 0% 0% 0% 0%
Cash (outflow) due to issue expenses 100% 537% 0% 650% 67%
Cash (outflow) due to interest paid 100% 133% 284% 398% 1164%
Cash (outflow) due to dividend paid 100% 211% 543% 0% 372%
Cash inflow/(outflow) due to other cash receipts/payables from financing activities 0% 0% 0% 15% 23%
Analysis
− By looking at the contribution of fixed assets in the total asset base one can
say that Suzlon has made significant investments in the asset base from a
long term perspective. Heavy investment in fixed investments may result in
better efficiency in the future. In terms of value it rose to 370% and 383%
when compared to FY-05. However, in terms of percentages there has been
a decline in the contribution of fixed assets to total asset base from 8% in
FY-05 to 3% in FY-09.
− From long term investment point of view Suzlon has remained bullish since
FY-05. Its contribution to total asset base has rose from 6% in FY-05 to
42% in FY-09.In terms of value it translates into an increase of 5656%.
However, one must note that most of these investments are illiquid.
− In terms of short term liquidity Suzlon is facing the pinch. When compared
to FY-05, there has been a severe decline in cash position from 993% in Fy-
08 to 241% in FY-09.
− The contribution of cost of goods sold to total sales has risen from 62% in
FY-05 to 70%-09. This increase in cost of goods sold has result primarily
due to rising prices of raw materials. Though the contribution of raw
material to total sales has remained somewhat stable around 62% in FY-05
to 64% in Fy-09 but in terms of value it has increased to 389%. Rising raw
material costs has a significant impact on the firms earnings. Hence, steps
should be taken to bolster the supply chain and reduce vulnerability to rising
raw material prices.
− The Y-o-Y increase in total assets is more than the Y-o-Y increase in Sales,
indicating that the increase in assets has not resulted in a similar increase in
sales
− PAT witnessed a healthy trend till FY-08 when it increased to 392% with
respect to FY-05. However, it declined to -130% with respect to FY-05. It
primarily resulted due to a global financial crisis and tight liquidity
positions.
− Net cash flows from operating activites have faced a negative trend in Fy-06
and Fy-09. This primarily occurred due to increase in inventories and
decrease in payable in FY-06 and increase in inventory levels in FY-09
which can be attributed to lack of demand.
− There has not been a stable trend with respect to contribution of total profits
to total inflows. Hence Y-o-Y based rising profits did not necessary
contribute to positive net cash inflows. For instance, though with a positive
net profit of 902 crore in Fy-06, the firm reported negative cash inflow of
401 crore.
− Net cash inflows from investing activities have been primarily negative
which resulted from acquisition of fixed assets and purchase on investments
− As far as the financing activities are concerned there has been a positive
cash flow, primarily resulting from proceeds of shares and borrowings. High
amount of borrowing will result in future cash outflows in terms of interest
payments and installments. There has been a rising trend in cash outflows
with respect to interest payments.
− Net cash flows have witnessed a fluctuating trend. However, given the
negative cash inflow of 663 crore is a matter of concern. This figure is in
excess of highest cash flow of 524 Crore that was ever reported by Suzlon.
Ratios
Suzlon Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
Liquidity
Current Ratio 2.065368 3.3393359 2.1372013 1.8824772 0.931725
Quick Ratio 0.9977736 1.7943006 1.0896937 1.2299635 0.6280656
Cash Ratio 0.1151066 0.2986236 0.1648921 0.2574868 0.0269087
Activity
Inventory Turnover Ratio 3.4577259 3.2801111 2.9558744 3.361136 3.540848
RM Turnover Ratio 4.0600751 3.5986013 6.4028624 7.3798639 4.8542872
Recievables (Debtors) Ratio 3.6624 3.3895793 3.0460332 2.6124229 1.7929936
Average Collection Period 99.661424 107.68298 119.82798 139.71704 203.57016
Payables (creditors) Turnover Ratio 4.3441 5.0413995 4.8694039 4.5546489 3.9197354
Average Payment Period 84.022007 72.40053 74.95784 80.1379 93.118531
-
Working Capital Ratio 3.073973 1.8611019 2.6795235 2.9319735 7.9305667
Total Asset Turnover Ratio 1.55 1.22 1.12 0.7 0.53
Fixed Asset Turnover Ratio 14.6823 14.020177 12.734419 12.27999 9.7681593
Capital Turnover Ratio 1.8732 1.783264 1.378533 0.9411982 0.623402
Leverage
Debt Equity Ratio 0.0908635 0.0484606 0.0307221 0.2347403 0.4160697
Total Debt Ratio 0.1655042 0.07369 0.0511669 0.0256735 0.0188988
Interest Coverage Ratio 9.9853379 16.855612 11.762088 10.538413 1.7544632
Prefernce Dividend Coverage Ratio 239.38411 543.83444 707.42667 0 0
Profitability
Gross Profit Ratio 0.3757895 0.3199515 0.3253043 0.3064165 0.3003569
Operating Profit Ratio 0.2260099 0.2488266 0.2252625 0.2162714 0.1055294
Net Profit Ratio 0.1874358 0.2129388 0.1953523 0.2045693 -0.064687
Market Ratio
-
Return On equity 0.3888572 0.29097 0.2857681 0.2039363 0.0713142
-
Earnings Per Share 41.411364 28.507535 36.823102 9.4652136 3.1320267
Dividend Per Share 4.5615085 5.7086019 5.7084774 1.1699247 0
Dividend Payout Ratio 0.1101511 0.2002489 0.1550243 0.1236026 0
Price Earning Ratio NA 9.2607095 5.4419641 27.849345 NA
Earnings Yield NA 0.1079831 0.1837572 0.0359075 NA
Dividend Yield NA 0.0216235 0.0284868 0.0044383 NA
Ratio Analysis
Liquidity
− Current ratio has declined since Fy-07. It fell to .93 in Fy-09. It indicates
that the availability of current asset per rupee of current liability has
declined from 2.06 Rs in FY-05 to .93 Rs in FY-09. It indicates towards a
deteriorating short term solvency position. Hence, the firm’s ability to pay
short term creditors is declining.
− Furthermore, according to cash and quick ratio one can say that firm’s
ability to pay short term lenders and meet its current liabilities through
instruments that can be readily converted into cash has been declining. In
FY-09 the availability of quick assets for 1 Rs of current liability has
declined from 1.22 Rs to 0.62 Rs. Position with respect to availability of
cash to meet current liability has also depleted. In FY-09 for 1 Rs of liability
firm only had 0.02 Rs in the form of cash in bank and balance.
Activity
− Inventory Turnover of Suzlon has remained steady, indicating that Suzlon
has been producing which is sync with its demand. Yet an increase in RM
turnover ratio of Y-o-Y basis from Fy-06 to FY-07 indicates inefficient
utilization of raw materials. A decline RM turnover ration from 7.37 in FY-
08 to 4.85 in FY-09 points towards slack in demand
− There has been a constant decline in Debtors Ratio from 3.66 in Fy-05 to
1.79 in Fy-09.Hence; it indicates that the time lag between cash to sales has
increased. Furthermore, the collection periods have also increased from 99
days to 203 days which further points towards a tight short term liquidity
position.
− Payable ratio has been somewhat stable. Yet a decline in the payable
turnover ratio from 4.55 in FY-05 to 3.91 in FY-09 indicates that the firm
has granted liberal credit terms. Furthermore, on an average the short term
creditors are willing to wait for payments around 80 days in 2008 and 93
days in 2009.
− The working capital turnover ratio has been declining, indicating that Suzlon
is incurring high investments in working capital which is reducing the
profitability of the firm.
− One Rupee of fixed asset has generated sales worth 1.55 Rs in FY-05 and
only 0.7 Rs and 0.53Rs in Fy-08 and Fy-09. Furthermore fixed asset
turnover ratio and capital employed turnover ratio has also declined which
indicates that amount of sales made per rupee of tangible asset and capital
employed has reduced which has reduced the profitability of the firm
Leverage
− By analyzing Debt-equity ratio and total debt ratio that the ability of
shareholders funds to meet debt requirements have declined. Thereby,
reducing the safety margin of lenders
Profitability
− Gross profit ratio reduced from 0.37 in FY-05 to .30 in Fy-09. The decline
in the gross profit margin over the period of five years has resulted from
soaring raw material prices and firms inability to increase turbine prices due
to intense competition
− The operating profit has remained stable on Y-o-Y basis. However, there
was a steep reduction in the operating profit margin as the firm incurred
high amount of expenses
Market Ratio
− On Y-o-Y basis the EPS has declined, indicating that profits available to
ordinary shareholders have declined.
− Dividend payout ratio reveals that close to 88% of profits were kept by the
firm and rest were distributed
− With respect to market value the dividend and earning yield has reported a
declining trend. Yet there is significant improvement in the price being paid
by the market for each rupee of EPS.
Common Size P&L- Suzlon vs Vestas
Suzlon Vestas
Sales Turnover 100% 100%
less: 0% 0%
Cost of Goods Sold 70% 80%
less: 0% 0%
Selling and Admin Expenses 10% 3%
Miscellaneous Expenses 9% 3%
EBDIT/PBDIT 12% 14%
less:
Depreciation/Ammortisation 1% 2%
EBIT/PBIT 11% 12%
less: 0% 0%
Interest 6% 0%
EBT/PBT -7% 12%
less: 0% 0%
Tax -1% 3%
EAT/PAT -6% 8%
By analyzing P&L statements of Suzlon vis-à-vis Vestas, one can say that despite of having
high cost of goods Vestas had higher operating profits. This can be attributed to Vestas
superior efficiency in terms of reduction of selling, admin and miscellaneous expenses. On
the other hand, Suzlon’s operating profits suffered due to high selling and miscellaneous
expenses. With respect to Vestas, Suzlon has a leveraged position. This can be attributed
high interest expenditure incurred by Suzlon with respect to the cost of goods sold.
Competitive Analysis
Activity
Inventory Turnover Ratio 3.540848 11.121818
RM Turnover Ratio 4.8542872 11.659975
Total Asset Turnover Ratio 0.53 9.8082981
Fixed Asset Turnover Ratio 9.7681593 9.4821784
Capital Turnover Ratio 0.623402 3.9735564
Leverage
Debt Equity Ratio 0.4160697 0.3787243
Total Debt Ratio 0.0188988 0.5262431
Interest Coverage Ratio 1.7544632 128.77982
Profitability
Gross Profit Ratio 0.3003569 0.2393851
Operating Profit Ratio 0.1055294 0.1236188
Net Profit Ratio -0.064687 0.0843353
Market Ratio
Return On equity -0.0713142 12.055812
Earnings Per Share -3.1320267 24.110349
Liquidity:
Short term lenders are primarily concerned about the short term liquidity of an organization
which can be compared by juxtaposing current assets against current liabilities. Further
more we can also make inferences about the firms abilities to meet immediate current
liability through its cash situation via cash ratio. If we compare the quick ratio cash ratio
and current ratio we can conclude that Thermx has a better short term liquidity position.
Better short term solvency situation is sign of good financial health
Activity:
Lower turnover ratio of Suzlon can be interpreted as poor sales and therefore excess
inventory. Excess inventory can put Suzlon in a difficult situation when prices begin to fall.
Furthermore by analyzing raw material turnover ratio, total asset turnover ratio we can
conclude that Thermax is in better position to generate sales with respect to amount
invested in procurement of raw material and total asset. On the other hand, fixed asset
turnover ratio is same which indicates that the contribution of fixed asset in generation of
sales is somewhat similar. In addition, a higher capital turnover ratio of Thermax indicates
better utilization of capital employed.
In addition, Suzlon’s lower interest coverage ratio when compared to Suzlon indicates that
the company has a heavy burden of debt expense when compared to Thermax. On the other
through Thermax’s interest coverage ratio one can conclude that Thermax is generating
sufficient revenue to meet its interest expense.
Leverage:
Suzlon’s higher D/E ratio vis-à-vis Thermax indicates that Suzlon is aggressive on
borrowing and its fuelling its growth through debt. A high debt/equity indicates that Suzlon
might have to face volatile earnings on account of high interest expenses.
Suzlon has a lower total debt ratio indicating that company’s debt against asset is lower
when compared to total asset. A lower ratio has resulted on account of high amount of
fixed asset.
Profitability:
In terms of profitability, Suzlon performed well in case of gross profit ratio and operating
profit ratio. It indicates that Suzlon is in better position to meet the cost of goods sold
through sales receipts. The performance is somewhat similar in terms of operating profit.
However, Suzlon’s net profit ratio is negative which resulted due to an extraordinary
expense incurred by Suzlon to through its retrofit program.
Market Ratio
Return on equity measures how effectively the company generates profit on account of
money invested by shareholders. Thermax’s higher ROE indicates that the company is
effectively generating sales when compared to Suzlon.
In addition, Thermax’s higher EPS indicates that the company is more profitable and the
shareholders are getting higher returns per share.
Thermax Suzlon
Assets Mar ' 09 Mar ' 09
Net Fixed Assets
(a) Tangible Assets 18.69% 2.95%
(b)Intangible Assets 0.87% 0%
(c) Capital work in progress 0.78% 1.69%
Investments
(a)Current Investments 4.51%
(b)Long Term Investments 3.34% 41.90%
Loans & Advances : Non operational items 8.67% 9.95%
Current Assets, Loans & Advances 0.00%
(a)Cash & Bank Balances 15.15% 1.25%
(b)Inventories 11.84% 8.13%
(c) Sundry Debtors 24.03% 27.89%
(i) Over 6 months 3.01% 11.19%
(ii)Others 21.03% 16.83%
(d)Loans and Advances : Operational 0.31% 5.96%
(f) Other current assets 12.52% 0.00%
− Thermax has higher amount of fixed capital, indicates that most of its funds
are tied to fixed asset so as a result they are not generating much profits.
P&L Common Size Thermax Suzlon
Mar ‘ 09 March , 09
Sales(including Exice duty) 100.00% 100.00%
less: 0.00%
Raw materials consumed 61.58% 64.11%
Excise duty 3.10% 0.94%
Power+Fuel 0.53% 0.03%
Manpower Expenses 7.48% 0.06%
Other Manufacturing Expenses 3.37% 2.74%
COST OF GOODS SOLD 76.06% 69.96%
Less:
Selling and Administration Exp. 6.16% 9.57%
Misc. Expenditure 4.48% 8.55%
EBDIT/PBIT 13.30% 11.92%
less: 0.00%
Depriciation/Amortisation 0.94% 1.37%
EBIT/PBIT 12.36% 10.55%
less: 0.00%
Interest 0.10% 6.01%
EBT/PBT 12.27% -7.44%
less:
Tax 3.87% -0.98%
EAT/PAT 8.43% -6.47%
− The cost component to total sales is somewhat similar for both the firms,
indicating that the raw material costs are higher. In addition, the total share
of employee costs to total expenses is higher for Thermax when compared
to Suzlon has a higher proportion of cost of goods sold which resulted due
to high manpower and excise expenses when compared to Suzlon.
− Suzlon’s earnings have once again have been effected due to high interest
expenses and it has become negative due to incurrence of extraordinary
expense worth Rs 896.56 Crores. Thus, in terms of profitability Thermax
has emerged as a winner.
Inputs from Auditor’s report, Notes to Account, Accounting Policies and Various Schedules
− The USA along with China accounts for more than 50% of Suzlon’s wind
turbine market. Given the rampant difficulty in availability of project
funding in USA and governmental barriers in China, it is difficult to
comment to what extent Suzlon will be able to cope up with flat demand
− On account of retrofit issue to resolve the blade crack issue S88 (1.2MW)
turbine Suzlon incurred exceptional losses amounting to Rs 896 crore. One
cannot predict to what extent this retrofit program will cost Suzlon both in
terms of financials and goodwill
− In the wake of financial crisis, Suzlon incurred MTM losses worth Rs 354
crore on FE contracts hedged to cover its forex transactions in 2008-09. A
possibility of future MTM losses cannot be negated.
− Financial dailies have been repeatedly alleging that Tusli R Tanti has been
overstating the sales by adopting manipulative accounting policies. In
addition it is also alleged that he has liasoned with high net worth
individuals, under which they participate in construction of wind farms and
avail the depreciation benefits granted by state authorities to promote wind
energy.
− To enhance the confidence level among short term creditors, Suzlon must
improve its cash and bank balance by enhancing the collection pace of
receivables.
5000
4500
4000
3500
3000
Cash & Bank Balance
2500
Sudry Debtors
2000
1500
1000
500
0
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
− Short term lenders are primarily concerned about liquidity of a firm. Hence,
an analysis of net cash flows will give a true picture about the firm’s ability
to pay. Since, Suzlon is facing a liquidity crunch as its clear seen from its
cash flow status; a short term creditor might get into a difficult position
600
400
200
Net cash inflow/(outflow)
Rs Crore
0
Mar Mar Mar Mar Mar
-200
2005 2006 2007 2008 2009
-400
-600
-800
− In addition the depleting trend in quick ratio, cash ratio and current ratio is
also an issue of concern
3000
2500
2000
In Rs Crore
Share Capital
1500
Loan Funds (80% of Long
1000 Term)
500
0
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
− Furthermore, a decreasing debt equity ratio and total debt ratio raises
concerns about Suzlon’s financial viability.
− Though gross profit and operating profit ratios have been impressive but the
reducing net profit ratio is not in the interest of the investor.
Computation Of Z-score*
Calculation of X1:
Current Assets 3536.33 4554.44 6400.75 7354.43
Current Liabilities 2523.18 4658.27 7438.64 16162.53
Net Working Capital 1013.15 -103.83 -1037.89 -8808.10
Total Assets 4351.72 6257.03 12496.10 16963.27
X1 0.232815071 -0.01659413 -0.08305695 -0.51924517
Calculation of X2:
Reserves and Surplus 2519.72 3425.53 6648.27 6185.66
Total Assets 4351.72 6257.03 12496.10 16963.27
X2 0.579017032 0.547469007 0.532027593 0.364650212
Calculation of X3:
PBIT 959.59 1223.61 1497.93 765.56
Total Assets 4351.72 6257.03 12496.10 16963.27
X3 0.220508213 0.195557637 0.1198718 0.045130449
Calculation of X4:
Short Term Liabilities 1058.992 2131.03 3400.174 7893.348
Long Term Liabilities 136.768 114.08 1630.896 2737.872
Value of Debt 1195.76 2245.11 5031.07 10631.22
Share Prices 264 200.39 263.6 42.4
Total No. of Shares 0.8692 2.8753138 2.8753138 14.969344
Value of Firm 229.4688 576.1841324 757.9327177 634.7001856
Market Value of Equity -966.2912 -1668.92587 -4273.13728 -9996.51981
Book Value of Total
Liabilities 1195.76 2245.11 5031.07 10631.22
X4 -0.80809795 -0.7433604 -0.8493496 -0.94029846
Calculation of X5:
*Z-score for fiscal 2004-05 has not been calculated as till then Suzlon was not a listed firm.
450%
400%
350%
300%
250% Cost of Goods Sold
200% Sales Turnover
150%
100%
50%
0%
2004-05 2005-06 2006-07 2007-08 2008-09
400%
350%
300%
250%
EBDIT/PBDIT
200%
Sales Turnover
150%
100%
50%
0%
2004-05 2005-06 2006-07 2007-08 2008-09
Future
Future is optimistic, given the increased awareness about benefits of renewable energy and
ambitious renewable energy targets by global governments. Through its diverse presence
across geographical locations, Suzlon can leverage the global market. Although its difficult
to comment on the short term growth prospects due to lack of credit availability but long
term prospects are definitely bright.
However, given the heavy amount of leverage Suzlon most undergo capital restructuring at
the earliest
− There were episodes of non compliance of company with any matter related
to share market.
− Company has fully utilized the money raised through private placement and
public issue in the projects mention in the offer document.
− Suzlon has made detailed disclosure about accounting treatment, risk
management and related party transactions.
− Suzlon has in-depth expertise in areas of operations of its subsidiaries. There
is no deviation from its core business strength which is wind energy.
Segment Performance
− In June-09 results the profits from wind turbine generators was only Rs 2.61
crore whereas total depreciation charged by the firm was a Rs 82.53 crore
which resulted in the loss of Rs 79.92 crore. Similar trend was visible in
case of foundry and forging and it resulted in a net loss of Rs. 16.49 crore.
Whereas, gear boxes contributed to the net profit of Rs 1.23 crore