Suzlon lowers profit expectation

INDIA: Delays in connecting Chinese projects to the grid could cost Suzlon $600-800 million in lost revenue for its current financial year.

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The Indian turbine maker suffered a fall in revenue and profits in the last three months of 2011 - the third quarter of its current financial year. Suzlon chief financial officer Robin Banerjee blamed the fall on three factors largely outside the company's control: an extended Monsoon season in Tamil Nadu, India's largest state in terms of wind capacity; a delay in arranging a corporate debt facility; and delays in connecting projects to the Chinese grid.

However, Banerjee said that while he expects delays in revenue caused by the first two problems to be largely recovered in the fourth quarter, the size of the losses in China and the ongoing nature of grid connection problems for projects meant this issue would have an impact on the final year results.

"The monsoon season normally ends in October but, due to its location in the south of the country, Tamil Nadu - India's most advanced state in terms of wind-energy generation - has a monsoon season that often extends into November and December, as it did in 2011," said Banerjee.

"Because of this extended monsoon, projects were delayed and customers postponed shipments from our factory. In China, grid-related issues have caused a lot of project delays. We believe the problem will continue into Q4, and we do not foresee (the lost revenue) will be made up in one quarter."

As a result Suzlon has revised down its full-year guidance for revenue in its current financial year by $600-800 million, now predicting revenues of $4.19-4.39 billion. This has fallen from the expectation that had been maintained up until Q3 that revenues would be $4.78-5.18 billion.

Suzlon is not the only turbine manufacturer to have suffered recently due to the Chinese market: Sinovel at the end of January announced it expected its annual profits to fall 50% due to lower sales volumes and falling turbine prices; Vestas, also in January, reported falling profit margins in its Chinese business.

Third-quarter revenue for Suzlon was $985.4 million, while its profit was $30.1 million. This was down on the previous quarter - the three months to 30 September - when it posted revenues of $1 billion and a profit of $47.3 million.

In addition to the Chinese grid issues and Tamil Nadu monsoon, Banerjee said a delay in arranging new corporate debt facilities also affected revenue in the last three months of 2011. Working capital facilities totalling $220 million that were expected to close during Q3 were delayed due to "uncertainty and turmoil in financial markets" and were only secured in January.

"Our company is a growing company and needs working capital to meet growing volumes," said Banerjee, explaining why a delay in the debt facility had an impact on Q3 revenues. "If you don't have enough working capital then you are not able to purchase raw material. You cannot manufacture and cannot ship, and if you don't ship then volume gets affected."

While revenues and profits were down for Suzlon Group, orders rose substantially. The firm secured 1.5GW of orders in the three months to 31 December 2011, compared with 1.35GW of orders in the previous two quarters combined.

Suzlon's group order book backlog now stands at 5,755MW.

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