>SUZLON (INDIA INFOLINE)

■ Repricing of bonds will result into 9.8% dilution
Suzlon announced the reduction in conversion price of its US$211mn and US$121mn FCCB’s to Rs97.26/share from Rs359.68/share and Rs371.55/share respectively. The company also revised the floor price to Rs74/share for both these bonds. In addition it has agreed to pay ~US$6mn as incentive fee to the bondholders and has asked for the removal of financial covenants and waiver of any existing or prior breaches. Post conversion of these bonds, Suzlon’s equity will dilute by 9.8%. However, it will enable the company to improve its balance sheet as it could potentially reduce debt by ~Rs15bn.

■ Restructuring provides room to breathe
Suzlon recently completed refinancing its rupee facilities of ~Rs100bn. Under the restructuring, it will be allowed a two year moratorium for principal payments, thus providing interim cash
flows. The re-pricing of its FCCB’s, conversion of promoter loans into equity and sale of its remaining 26% stake in Hansen will enable it to further reduce its debt.

■ Steep correction in price makes valuations attractive, upgrade to BUY
Over the last one month, Suzlon’s market cap reduced by ~11%. We believe the current market price factors all negatives. Our estimates do not factor in this dilution but build in weak performance in FY11 – a repeat of FY10 – due to weak demand. We also reduce our gross margin estimates to reflect stiff competition. We believe Suzlon will continue to face pressure in the near term with order inflow and execution remaining muted. Revival in the global environment and a pick up in the financing activity will enable healthy growth in FY12. The recent correction in the price has made valuations attractive, hence we upgrade to BUY with a target price of Rs80/share.

To read the full report: SUZLON