Suzlon Reports Unexpected Loss on Replacement Costs

By Sumit Sharma and Gaurav Singh

Jan. 30 (Bloomberg) -- Suzlon Energy Ltd., India’s biggest maker of wind-turbine generators, unexpectedly reported a loss in the third-quarter after making payments to replace faulty equipment and the value of orders declined.

The net loss, including that of units, was 589.7 million rupees ($12 million) in the three months ended Dec. 31 compared with a profit of 1.52 billion rupees a year earlier, the Ahmedabad-based company said in a statement on its Web site. The median estimate of five analysts compiled by Bloomberg was for a profit of 2.45 billion rupees.

Suzlon may face a slowdown in orders as falling oil prices make alternative energy sources less attractive and access to credit tightens due to the global recession. The company’s shares dropped 84 percent last year on concern that its equipment was faulty as some U.S. customers canceled orders after Suzlon’s blades cracked.

“Suzlon doesn’t seem to have got any big orders from June,” said Chintan Mewar, an analyst at Mumbai-based Finquest Securities Pvt.

Orders, excluding those of units, were valued at 103.87 billion rupees. That compares with 140.5 billion rupees the company reported on Oct. 31 and 171.1 billion rupees a year earlier.

Group revenue more than doubled to 68.93 billion rupees in the third quarter from 31.69 billion rupees. Suzlon expects sales growth to halve to 10 to 15 percent in the year starting April and plans to counter the decline by entering new markets.

New Markets

“Our strategy is to go to the bigger markets,” Chief Operating Officer Sumant Sinha told reporters in Mumbai. “We’re exploring markets in the Middle East, the Mediterranean and South America.”

The turbine maker has orders for 1,916 megawatts and is in “negotiations” for more than 2,000 megawatts in the U.S., Europe, China and Australia, the company said in an e-mailed statement. Suzlon got orders for 195 megawatts in the quarter and expects $1 billion of sales in the U.S. in the year to March, Sinha said.

“Things look very good in the second half, especially as the company says they are pursuing orders,” said Mewar. “We maintain our buy on Suzlon.”

Suzlon gained 5.6 percent, the most since Jan. 19, to 47.25 rupees at the close in Mumbai trading, after falling as much as 7 percent. The stock has declined 24 percent this month.

Fixing Blades

The company spent 2.33 billion rupees in the quarter on replacing and fixing faulty blades compared with 187.4 million rupees a year earlier. It provided an additional 1.71 billion rupees for the retrofit plan, which it expects to complete by June, after previously setting aside 5.9 billion rupees for possible payments to clients who may have incurred output losses due to defective blades.

Mark-to-market losses on foreign exchange contracts were 1.24 billion rupees for the group, Suzlon said.

Morgan Stanley cut its price target yesterday for Suzlon to 46.5 rupees from 52.45 rupees, saying the company may struggle to repay loans because of lower margins and fewer new orders.

Suzlon raised 5 billion rupees by selling a 10 percent stake in unit Hansen Transmissions International NV to London-based investment company Ecofin Ltd. Suzlon has an interest of 61.28 percent in Hansen after the sale.

The stake was sold after Suzlon scrapped a $368 million rights offer, citing bad market conditions. The rights offer was aimed at raising funds to buy more shares in another unit.

Overseas Share Sale

Suzlon plans to sell shares overseas instead of the rights offer, the government said in a statement today. Overseas investment in the company may be increased to 25.25 percent from the current 20.76 percent, according to the statement.

Suzlon plans to complete the purchase of additional shares in Hamburg-based unit Repower Systems AG from Portugal’s Martifer SGPS SA in May. Martifer was paid 65 million euros ($84 million) in December for some of its 22.4 percent stake in Repower. Another 30 million euros will be paid in April and 175 million euros in May, increasing Suzlon’s stake in Repower to 91 percent.

The Indian company plans to use its own funds and overseas debt to buy the stake in Repower, Sinha said. “All options” are being considered with regard to selling shares, he said.

To contact the reporters on this story: Sumit Sharma in Mumbai at sumitsharma@bloomberg.net; Gaurav Singh in New Delhi at gsingh31@bloomberg.net.