>Suzlon Energy – MP (INDIA INFOLINE)

· Lower earnings visibility from shrinking order book
Suzlon's order book fell by 43% since the blade cracking issue surfaced in Q4 FY08. It has been unable to bag large orders from either USA or Europe since then. As they are largest markets, non receipt of orders displays lack of customer confidence in Suzlon's products and thus raises concern over future growth. The existing order book of ~2,000 MW does not even cover Suzlon for one year. However short duration orders from India will help restrict de-growth.

· Funding REpower purchase will strain cashflow
Weak market environment will force Suzlon to 1) offload additional stake in either Hansen or Suzlon, 2) raise fresh debt or 3) contract working capital cycle. The management is already working towards contracting its working capital cycle. Any delays will result in Suzlon having to resort to bridge loans. During Q3 FY09, higher inventory and debtor days inflated its working capital cycle. We expect the company ot offload a minority stake in either Suzlon or Hansen to fund its Rs 13.5 bn REpower acquisition.

· Intergrating to overcome supply chain issues
With the commisioning of its castings and firgings unit and the acquisition of Hansen Transmission, Suzlon has become an end to end solutions provider in the wind industry. Hansen helps in filling the supply chain gap of gearboxes - which presently is a key of bottleneck. Hansen is in the process of enhancing its capacity to 14.3GW from 7.3GW FY13. It will set up capacities in China and India. Such superior level of intehgration should enable Suzlon to bid competitively and maintain margins.

To see full report: SUZLON MP