It also mentions that based on the operating history of the project, the loan could mature as early as February 2013. While Suzlon now expects to receive the Edison payment in H1FY13 (April-October 2012), we feel that it might not receive the $211-million payment from Edison by June 2012, when the first FCCB repayment of $306 million is due.
We believe there are covenants on loans of REpower, the company which Suzlon acquired in 2009, that limit the free transfer of cash from it to Suzlon.
Therefore, our analysis of Suzlons cash flow suggests that it will be short by R750 crore in June 2012 for the first tranche of the FCCB payment and by R3,000 crore for FY13 in meeting all its repayment obligations.
Given the lack of visibility on REpowers debt covenants, we estimate the cash inflow from various possible options, such as sale of a wind farm, sale of a stake in other businesses/subsidiaries, dividend and advances from Repower, factoring for Edison receivables and credit facilities not utilised. Based on our analysis, we continue to see an equity dilution risk, with Suzlon likely to convert around 50% of FCCBs to equity.
At the average global peer group CY12 PE of 14.1x, the stock would be valued at R12.7, which is lower than our target price.
The catalysts for our evaluation are continuing lack of visibility on cash inflow over the next few quarters, slowdown in order inflow, full-year volumes and margins below revised guidance, news flow on increasing competition for Suzlon in the Indian market and further rupee depreciation. Our rating is underweight.