Suzlon which is trying to come back on the path on profitability delivered a setback as it started the first quarter of FY17 in the red. A negative PAT (profit after tax) does not concern us significantly as we never expected a straight line path to recovery.(Refer: Suzlon: Not for the faint hearted and impatient investor) What concerned us is that Suzlon management is trying to make the Q1-FY17 performance look stronger than it is.
Issue 1: Q1 Volume is weak
“Q1 typically is 10-15% of the full year volume in India”
Q1-FY15 = 49% of full year volume
Q1-FY16= 18% of full year volume.
Now claiming that “Q1 typically is 10-15% of the full year volume in India” goes against the trend exhibited by Suzlon in pervious financial years.
It is quite clear that Q1 volumes have gone down from 221MW to 204MW and Suzlon claims Suzlon Continues Growth Trajectory. We are not sure as to how “stable Q1 volumes” are indicative of the continuation of the growth trajectory.
Even if we assume that Q1 is 10-15% of the full year volume, it would imply the FY17 volumes would range from 2,040 MW to 1,360MW. This would translate into a YoY growth outlook of FY17 to range from 20%-80%. The range is too huge inspire confidence in the forecast of the Suzlon management.
Issue 2: Outlook for the year is weak
Closing Order backlog for Q1-17 was lower than the Opening order backlog (1,205 vs 1,243). We are not sure how a reducing order book at the end of the quarter can be called a “Strong Wind Order Backlog”. Even if we include the closing order book post 30-Jun-16, an order book of 1,306 MW a meager 5% growth in the order book (1,306 vs 1,243MW) does not look very exciting.
So what ?
We still maintain that the path to recovery will not be straight and easy. We are still reasonable confident of the recovery in Suzlon. However, we don’t feel comfortable if things are sugar coated.