Suzlon Energy's consolidated September quarter results suggest that the company may be on track to return to profits in the current fiscal after two consecutive years of losses.

Improvement in realisations, a steady stream of order flows this year and a strategic stake sale to generate cash all suggest a turnaround story.

The persisting problem in this rebuilding exercise is the foreign currency convertible bonds of over Rs 3,000 crore, partly due for repayment over the next one year. Suzlon's stock price has to at least double from here before June, failing which part of the debt has to be repaid. This would be the biggest challenge for Suzlon and it is for this reason that markets did not show much enthusiasm for the otherwise robust numbers.

Strategy pays well

Suzlon's strategy of looking inward has begun to pay off with new products such as the S9X bringing higher volume and realisations from the domestic market. Sales per MW in the domestic market improved to Rs 6.3 crore from Rs 6 crore a year ago.

This, together with higher realisations for offshore wind equipment from subsidiary Repower, ensured a jumped in group EBITDA margins to 9.4 per cent in the latest quarter from 3.6 per cent a year ago.

If commodity prices remain benign, Suzlon may see an improvement in profit margins as its new product S9X for low-wind sites and its German subsidiary's offshore equipment with advanced features is slated to fetch higher prices.

Orders from Europe

The September quarter results also belied fears of the European crisis affecting the wind market in the geography. Europe accounted for half of the 1,355 MW of orders that Suzlon and its group bagged in the quarter. The order book pattern clearly suggests that demand from REpower's key markets of Germany, France and Belgium is robust. This is a significant development as REpower's high value products would add to revenue. These currently account for 67 per cent of the Rs 32,500-crore order book.

Sound business notwithstanding, Suzlon is still left to grapple with a net debt of over Rs 11,000 crore (1.7 times its net worth). It received Rs 900 crore from the final tranche sale of its investment in gearbox maker Hansen Transmission. About half this money will be used to reduce debt and the rest used for stake-buyout in REpower.

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