Profit from stake sale can't hide Suzlon's deeper problems

Hansen stake divestment helped Suzlon retire debt, leading to an overall debt reduction of 15%, but operating profits were down 65% for the December quarter

Suzlon Energy, the wind turbine supplier which has been reporting losses since December 2008, has unexpectedly reported a small profit of Rs14 crore for the December 2009 quarter. The profit came from its stake sale in Hansen. Suzlon sold 35.22% stake, through its subsidiary AE Rotor Holding BV, in Hansen Transmissions International NV on 24 November 2009, which mopped up $370 million.

Suzlon sold its stake in Hansen due to the volatility and challenges impacting the near-term wind power market. It currently holds a 26% stake in Hansen.

Hansen’s revenue in the December 2009 quarter fell 14% to €136.6 million in 2009 from €155.4 million in the corresponding year-ago period. The company is on a cost-cutting drive.

The group’s net  debt  has reduced   by Rs3,200 crore—from Rs13,762 crore  in  September  2009  to  Rs10,488  crore in  December  2009. Yet, the interest cost has gone up 24% to Rs289.51 crore from Rs233.85 crore in the year-ago quarter. This means that the debt reduction has happened at the fag end of the period. Debt will probably go down further. “Our rupee refinancing exercise has reached an advanced stage and we expect to achieve full closure by end-February 2010,” said Sumant Sinha , COO of Suzlon  Energy  Limited.

Despite reporting a small profit, big problems at Suzlon persist. It reported a 65% fall in operating profit to Rs276.64 crore for the December 2009 quarter. .

According to the company, the financial turmoil last year inflicted a foreign exchange loss of Rs123.97 crore. Suzlon claims to have an order book of 314.30MW as on 30 January 2010. The company registered a total income of Rs5,625.90 crore for the quarter ended December 31, 2009.

Suzlon raised Rs522.97crore on 24 July 2009 through global depository receipts (GDR) which are listed on the Luxemborg Stock Exchange. Choking under huge debts, Suzlon has desperately tried to raise funds, improve liquidity and undertake refinancing measures.

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