Suzlon Energy Shares Rallies 275% In 6 Months, Turns Rs 1 Lakh To Rs 4 Lakh Corpus; Crisil Upgrades Rating

Leading wind turbine manufacturer, Suzlon Energy shares on Thursday, neared its 52-week high of Rs 27 per share, and climbed nearly 3% after rating agency CRISIL upgraded its ratings on the company's bank facilities. Szulon is among the star performers of 2023 so far, with exponential gains. Suzlon Energy has seen more bulls than bears in the past six months, and hence it has rallied by over 275% on BSE, this would turn out to be a nearly four-folds rise on investment of Rs 1 lakh.

Suzlon shares touched an intraday high of Rs 26.40 apiece on BSE, gaining by 2.9% so far in the day. Its market cap is nearly Rs 35,000 crore.

Suzlon shares were a little over Rs 7 six months ago, on March 28, 2023. Since then, the shares have skyrocketed by a breathtaking 274.5% to date on BSE.

If an investor had bought Suzlon shares on March 28, with a sum of Rs 1 lakh, their corpus by September 28 would have risen to a whopping Rs 3,74,468. In six months, the investment jumps 3.74 times.

From its 52-week low of Rs 6.60 per share, Suzlon shares have gained by a behemoth 300% to date.

CRISIL Ratings has upgraded its ratings on the bank facilities of Suzlon Energy to 'CRISIL BBB+/Positive/CRISIL A2' from 'CRISIL BBB-/CRISIL A3/Watch Developing'. Also, it has removed the ratings from 'Rating Watch with Developing Implications'.

Further, the rating on Rs. 4,054 crore bank loan facilities has been upgraded and removed from 'Rating Watch with Developing Implication' and also withdrawn on the company's request and receipt of a No-Dues certificate from the lender. The withdrawal is in line with CRISIL Ratings' withdrawal policy.

According to CRISIL, the rating upgrade factors in a sharp reduction in debt (paying off the entire term debt) done from the proceeds of a recent QIP aggregating Rs. 2,000 crores. The fund-based borrowings are also expected to remain nominal because of healthy cash flow generation from the O&M services business and no material debt-funded capex plans. Further, the business profile of the wind turbine business has improved as seen through lower breakeven volumes and other steps taken for further operating margin protection.

It added, "SEL has taken cost optimisation and rationalisation efforts over the past 2 to 3 years. And as a result, the wind turbine business has been able to achieve earnings before interest, depreciation, tax and amortisation (EBIDTA) of Rs 48 crore in fiscal 2023 with execution volume of 664 MW (SEL standalone, Crisil adjusted number). Additionally, the company has taken other steps for operating margin protection such as focussing on orders with better margins, receivable profile and pass-through for material cost escalation."

Also, CRISIL said, the positive outlook reflects the expectation that the profitability of SEL (consolidated) would further grow and achieve EBITDA above Rs 750 crore in fiscal 2024. This is expected to be driven by an increasing fleet base of operations and maintenance (O&M) business and positive tailwinds in the Indian wind sector leading to the expectation of an increase in execution volumes.

Here are 3 key rating drivers for Suzlon Energy by CRISIL:

1. Improved financial risk profile:

As of March 31, 2023, the company's term debt stood at Rs 1,765 crore on the back of scheduled repayments of the term loan and an additional reduction of Rs 900 crore from the rights issue in October 2022. Furthermore, the company's net worth turned positive as of March 31, 2023, on the back of refinancing (gain on derecognition of OCDs & CCPS) and a rights issue of Rs 1,200 crore in fiscal 2023.

Last month, Suzlon company approved the allotment of equity shares to Qualified Institution buyers aggregating to ~Rs 2,000 crore. The company subsequently utilized the required amount to repay its entire debt, and that significantly led to improving the financial risk profile.

Stable cash flow from the O&M services business to support overall debt servicing:

The Group has ~13.9 GW of installed fleet under O&M business as of Mar 31, 2023. While the fleet under O&M reduces with the decommissioning of WTGs, post-completion of the design life, new generators delivered and commissioned get added to the fleet every fiscal. Revenue from O&M services has been steady as this is a contractual activity over a fixed timeframe and at the contracted price.

Also, escalation in revenue is built into the contracts, ensuring stability of operating margin over a period. The Group has demonstrated stability in revenue and profitability of the O&M services business even in stressed times in the past. Stable cash flow with EBIDTA above Rs 700 crore per fiscal from the O&M services business is expected to support debt obligation.

Leading market position in the wind turbine segment and a healthy order book:

The Group has a successful track record of project execution with technical expertise, evident from the healthy market share of 30-35% in the WTG business over the past many years and also in cumulative installed capacity. The company's healthy market position should help to obtain orders in the long run. SEL's order book stood at ~1.43 GW (as of 30th Jun 23), to be executed in fiscal 2024 and fiscal 2025.

Suzlon had been dependent on customer-backed financing to execute orders in the last fiscal which had constrained growth. With the repayment of the entire term debt, the covenants placed on raising working capital lines no longer exist and the company will be able to pick up orders that it was not able to cater earlier, due to unavailability of capital.

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