Suzlon: Q2-18 disappoints as expected

A weak set of numbers for Q2-18 were not a surprise given the pricing discovered in the auctions. However, the quantity and quality of disclosures made in the investor presentations was even more disappointing. The company managing to stay in the black in H2-18 by the magical appearance of a gain of Rs 455 crore on derecognition of asset and liability and release of foreign currency translation gain on account of overseas business subsidiary. We don’t understand what this non cash gain means. It seems as if this was a magic track up its sleeve held back for a poor quarter. All said and done, on paper Suzlon clocks in another profitable quarter.

We were expecting a horrible Q2-18, in terms of performance but we were shocked with the reduction of disclosures as its quarterly performance deteriorates. Early the Suzlon management used to provide information on

  1. Quarterly delivery volumes split for the wind and solar business
  2. The size and value of the order book for the wind and solar business

Unfortunately both these metrics were hidden in the Q2-18 results reporting. It makes us question the quality of the Q2-18 results. We wonder why and what is the management trying to hide.

In spite of the restricted disclosures we believe Suzlon did the best it could do in a tough environment. Suzlon has delivered 527MW and an order book of 670 MW, potentially providing revenue visibility of 1,197 MW in FY18 compared to 1,573 MW in FY19.

Suzlon appears to be gaining market share. Its market share as of H1-18 based on commissioning volume is 40% compared to a market share of 32% in FY17. While the commissioning volumes are down in H1-18 compared to FY17, market share gain in tough environment indicates competitive strength of Suzlon.

While we can analyze the quarterly results, the big picture is that 40% of the India market at current market price of INR 14.5 is available at a market cap of $1.1 billion. We are interested in Suzlon because its the leader gaining market share under difficult conditions in the fourth largest wind energy market of the world and available for nearly a billion.

 



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