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Soaring revenues and profit threats -- Suzlon financials

Foreign exchange losses relating to Suzlon's purchase of additional shares in Germany's Repower and unresolved issues with a client in South Korea have significantly affected the Indian wind turbine manufacturer's first quarter results for this year. Even so, with revenue up, operating margins significantly improved from 7.83% to 15.63%, and a strong order book, the company's quarterly report has been positively received, with its share price rising.

Revenue for the three months to the end of June was up 42% to INR 27.60 billion ($631 million) from INR 19.45 billion ($444 million) in the previous year. Net profit, meanwhile, was INR 393.8 million ($9 million), up from INR 200.3 million ($4.57 million) the previous year. The deduction of minority shareholders' profits, however, slashed the profit to INR 13.5 million ($308,205), compared with INR 188.90 million ($4.3 million) in net profit posted for the same accounting stage last year.

At the end of July, Suzlon's order book stood at 3040 MW, valued at INR 164.91 ($3.77 million), with just over 90% of that relating to international orders spanning the US (1532 MW), China (566 MW), Europe (405 MW) and Australia (268 MW). Domestic orders total just 267 MW. "We believe Suzlon's fundamentals are very strong," says the company's Tulsi Tanti. "We are poised to continue our industry beating growth. In addition, our 3000 MW capacity expansion plan is progressing on track."

The foreign exchange loss, which Tanti says is "entirely notional," relates to its use of $500 million in foreign currency conversion bonds to increase its stake in Repower to 66% and amounted to INR 1.64 billion ($37.4 million), while in South Korea sales worth INR 650 million ($14.8 million), booked in the previous quarter, were cancelled, costing Suzlon INR 110 million ($2.5 million) in net profit.

Meanwhile, the company has set aside INR 5.9 billion ($135 million) for warranty guarantees. It is currently paying for repairs to hundreds of faulty blades, mainly for projects in the United States (Windpower Monthly, April 2008). Suzlon clients hit by the problems are Edison and John Deere Wind Energy. Before the summer, Edison refused delivery of 150 turbines from the company due to the problems it had experienced.

Gearbox sales

The fortunes of Suzlon's gearbox division, Hansen Transmissions International, have no similar shadow hanging over them. From its base in Belgium, Hansen reports a surge in revenue to EUR 139 million for the three months up to the end of June, up 75% on the EUR 80 million reported for the same period in the previous year. Earnings before interest, tax, depreciation & amortisation (EBITDA) for the first quarter of its 2009 financial year came in at just under EUR 21.6 million, up 227% on EUR 6.6 million a year earlier, while its EBITDA margin is up from 8.3% last year to 15.5%.

"Revenues benefited in particular from an improvement in the supply of bearings for wind turbine gearboxes and increased volumes in line with the completion of the expansion project at the Lommel plant," says the company. Production capacity at the Lommel plant in Belgium has increased from making gearboxes for 2200 MW of wind turbines to 6000 MW. With the company's new India plant due online later this year (page 40) and a new China factory expected to start production in March 2009, Hansen maintains its forecast for a 50% growth in revenues for the full 2009 financial year.

Global annual production capacity is set to increase to a level where Hansen can supply gearboxes for 14,300 MW of wind plant by 2012. Based on contracted supply agreements, orders are strong, says Hansen, though it gives no details on order volume. Last year 60.1% of the market for wind turbine gearboxes was met by Hansen, says the company.

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