Markets
Suzlon has wind in its sails despite ‘corporate governance’ hiccups
Summary
- The wind energy company has crafted a successful turnaround marked by debt reduction and efficient working capital management
- But the market was spooked when independent director Marc Desaedeleer resigned earlier this week citing concerns over compliance and transparency
Suzlon Energy Ltd seems set to maintain its post-turnaround momentum, aided by a favourable macroeconomic environment, healthy financials, and a robust order book. This is despite concerns over ‘corporate governance’ issues following the sudden resignation of an independent director.
Shares of the wind energy company hit their 5% lower circuit limit on 10 June after Marc Desaedeleer resigned from the board due to concerns regarding compliance and transparency.
In his resignation letter dated 8 June, Desaedeleer said while he was pleased with Suzlon’s operational and financial performance, there have been several situations where “the corporate governance standards applied by the company did not meet my expectations including situations where communications lacked the level of openness and transparency I would have liked to see".
In a call on 9 June, Suzlon explained that Desaedeleer's decision was not motivated by any financial irregularities or legal violations. It added that the company would implement changes to address the issues raised by Desaedeleer.
Analysts concur that the resignation was over procedural issues and does not indicate serious corporate governance lapses.
"Given the emphatic assurance of maintaining good corporate governance from the management during the post-resignation conference call, complimented by the favourable macros, healthy financials, improving the pace of execution and still a healthy board composition, we continue to maintain our rating ‘buy’ with target price of ₹54 (based on a 30x FY26 estimated earnings per share)," JM Financial Institutional Securities said in a note.
The Street has welcomed Suzlon’s focus on debt reduction and efficient working capital management in the previous 15 months. The company has got back into shape after multiple challenges over the past decade, including the death of its founder Tulsi Tanti in 2022.
Through various debt-to-equity conversions, Suzlon has lowered its gross debt to ₹110 crore in 2023-24 from over ₹13,000 crore in FY20. It recently became net cash positive with cash reserves of ₹1,100 crore as of March, after an equity raise worth ₹2,000 crore in the second quarter of FY24 (July-September) for debt reduction.
The previous financial year proved to be a turnaround period for Suzlon, when it became net debt-free, and showcased strong execution growth of 10% to 710MW and order inflow of 3.1GW.
Suzlon has reported a strong order inflow of 402MW so far this financial year, leading to its largest-ever order book of 3.3GW. Its project pipeline also remains strong in the medium term.
Not just that, the outlook for wind industry is positive over the medium to long term, as 10GW of wind opportunity are expected to be floated over FY23-27, analysts at ICICI Securities said.
“Also, given the increasing complexity of (renewable energy) power projects... we believe wind will play a crucial role in renewable energy generation going ahead," the ICICI Securities analysts added.
To be sure, non-materialization of order pipeline and execution delays are key risks to Suzlon’s prospects.
