>SUZLON ENERGY LIMITED (MERRILL LYNCH)

■ Slips into red; Outlook deteriorating; Fixing debt challenge
Suzlon had a disastrous 2QFY10 with Rec. Loss of Rs3.4bn vs Rec. PAT of Rs2.6bn in 2QFY09 and 3x BofAMLe. This was led by uneconomical operations resulting from dwindling backlog -41%, client driven push back in sales - 61%YoY fall in WTG volume (ex-REpower) and 1.4x rise in interest cost. With no recovery in-sight, Suzlon is trying to fix its debt repayment obligation by refinancing US$2.4bn (68%) debt with 2 year moratorium. We are cutting our PO to Rs61 (from Rs87) to factor in EPS cut by 10-58% over FY10E-12E led by delay in delivery and longer order conclusion cycle. Maintain U/P rating. Upside risk to our rating is de-leveraging by asset sale & pick-up in US market. 2QFY10 hit by push-back of US projects & weak India

One More Disastrous Q; Recovery Illusive Yet

■ Suzlon (ex-REpower) had weak execution in 2QFY10 with -61%YoY volume.
International volume down by 70%YoY on push-back of projects in US while domestic volume hit due to poor corporate profitability. Gear box subs. also had a disappointing 2Q. However REpower’s Rs1.2bn of profit (vs Rs200mn loss in 2Q09) was the only positive. Reported Loss was Rs3.6bn on loss on CB (Fx loss of Rs207mn and Rs4.4mn gain on restructuring of CB).

■ Mgt see weak 3Q; Cut EPS 10-58% on weak 2Q & backlog
Business continuity remains our key concern for Suzlon and 41%YoY fall in 2QFY10 order book This coupled with weak market commentary by Vestas at its 2Q call and over-supply in global WTG markets, drive us to cut our Suzlon earnings by 10-58% over FY10E-12E

■ Order not enough; Debt repayment risk being post-poned
Completion of retrofitting the cracked blades in 2QFY10, should reassure clients and it could pave way for new orders. SUEL expects orders of ~1GW in FY10 to improve visibility of FY10/11E. However, we think this may not be enough to address business continuity concern as company may have to begin FY11E with order backlog of ~800MW v/s BofAMLe volumes of 2516MW in FY11E (ex-REpower). Realizing this, Suzlon is proactively aiming to fix the debt repayment challenge by asking for a 2 year moratorium in its new US$2.4bn debt refinancing plan being funded by Barclays
Capital, ICICI Bank and SBI, which is likely signed by Dec’2009, per banking sources.

To read the full report: SUZLON ENERGY