Stock Review: Suzlon Energy Ltd

 

Suzlon Energy Ltd., which was incorporated in 1995, is a global leader in the wind power industry. The company's poor performance last year can be attributed to weak demand from the US and European markets. This is mainly because the financial crisis has made it difficult for companies in the US and Europe to borrow funds for renewable-energy projects. Many companies have hence postponed their orders for wind turbines.

 

Another factor that has adversely affected the company's sales figure is the strengthening of the rupee against the dollar. With operations in 25 countries, the company is highly vulnerable to currency risk. Moreover, it is also facing growing competition from both emerging rivals in China and established engineering conglomerates such as GE and Siemens.

 

Though the company's income has grown at a compounded annual growth rate (CAGR) of 54.87 per cent from FY04-FY09, there has been a minuscule increase in income (3.22 per cent) from FY08 to FY09. From FY04 onwards the company reported a profit till FY08 but suffered a loss of `468.22 crore in FY09.

 

The debt:equity ratio has increased significantly from 0.53 times in 2004 to 1.11 times in 2009. The company's interest coverage ratio too has dropped ominously from 7.18 in FY04 to 0.67 in FY09.

 

Nevertheless, with awareness about global warming and the contribution of wind energy in mitigating this problem increasing, the wind-power industry's prospects are likely to improve. Also, the company plans to upgrade its existing turbines and add new products to its portfolio. It is also focussing on plans to bring down their costs. Further, the company plans to enter new markets where it believes it has bright prospects. If these initiatives pay off, the company may perform better in coming years. If you can hold on to your shares, the stock could see a turnaround.