Suzlon Energy RI review - (Avoid)

•    SEL is one of India's largest players in the wind energy segment. 
•    It has been incurring losses for reported periods of the offer documents.
•    Q1 of FY23 marked profits due to other income, but still it has hugely carried forward losses.
•    Low promoter's equity holding raises concern. 
•    There is no harm in skipping this greedily priced RI.

ABOUT COMPANY:
Suzlon Energy Ltd. (SEL) is one of India's top manufacturers in the wind component manufacturing segment as per capacity and is one of the top renewable O&M service providers in India, as per capacity serviced (Source: CRISIL Report). It focuses on the integrated design, engineering, development, and manufacture of technologically advanced wind turbine generators ("WTGs"). 

With a footprint across 17 countries spread over six continents, it claims to have the largest wind installed base as a wind energy OEM with approximately 13.45 GW of installed capacity in India as of June 30, 2022, contributing towards approximately 33% of India's wind installed base (Source: CRISIL Report), and an installed capacity of approximately 5.96 GW outside India, aggregating to a global installed capacity of approximately 19.41 GW globally, as of the same date. 

In addition to manufacturing WTGs, SEL also provides related turnkey solutions by supplying WTGs and offering a variety of services such as wind resource mapping, identification of suitable sites, technical planning of wind energy projects, EPC, and after-sales O&M services. The company also provides power evacuation facilities through one of its Subsidiaries, SPIL, and land acquisition and site development and balance of plant work through another Subsidiary, SGWPL, for the WTGs it supplies in India. SGWPL along with certain regional suppliers, land aggregators, and other sub-contractors acquire land for sites that we have identified as suitable for wind energy projects. SGWPL engages vendors to conduct due diligence on the lands proposed to be acquired.

Through a Subsidiary SGSL, it also provides comprehensive O&M services to customers for WTGs installed on a wind farm as well as the common infrastructure facilities such as electrical substations and transmission lines that support a wind farm. As of June 30, 2022, the total fleet serviced by it in India was approximately 13.00 GW which is the largest wind installed base as a wind energy OEM in India. In the international markets SEL operates in, it currently provides O&M services for approximately 0.96 GW WTGs. It has developed several specialized products and services and customized them to meet different geographical prerequisites. These include providing O&M services to customers in India and overseas markets, including Europe, Australia, South Africa, and certain other jurisdictions, and EPC services to customers in India.

ISSUE DETAILS:
To part finance its needs for repayment/prepayment of certain borrowings (Rs. 900.00 cr.), and general corporate purposes (Rs. 283.50 cr.), SEL is offering a rights issue (RI) of 240000000 equity shares of Rs. 2 each at a price of Rs. 5 per share to mobilize Rs. 1200.00 cr. The company is offering the right shares in the ratio of 5 shares for every 21 shares held as of the record date of October 04, 2022. The issue opens for subscription on October 11, 2022, and will close on October 20, 2022. Only 50% amount (i.e. Rs. 2.50 per share) is to be paid on application and the balance on one or more calls by the company from time to time. Post allotment, shares will be listed on BSE and NSE. SEL is spending Rs. 16.50 cr. for this RI process. 

The sole lead managed for this issue is Inga Ventures Pvt. Ltd. and KFin Technologies Ltd. is the registrar to the issue.

Post RI, SEL's current paid-up equity capital of Rs. 2018 cr. will stand enhanced to Rs. 2498 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 6246.01 cr.  Due to under subscription to its previous rights issue, the actual paid-up capital of the company prior to this RI is Rs. 2014. cr. and resultantly post this RI, its post-RI paid-up capital and also the market cap will be less in that proportion. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, SEL has (on a consolidated basis) posted turnover/net profits - (loss) of Rs. 3365.59 cr. / Rs. 100.34 cr. (FY21), Rs. 6603.97 cr. / Rs. - (166.19) cr. (FY22). As per unaudited accounts, for Q1 of FY23, it reported a net profit of Rs. 2432.55 cr. on a turnover of Rs. 1383.47 cr. The sudden boost in the bottom line is attributed to gains on account of the de-recognition of OCDs and CCPS, divestment, land sale, etc.  It will continue to have a large quantum of debt even after RI. 

As of June 30, 2022, its paid-up equity capital of Rs. 1957.77 cr. has a negative reserve (excluding revaluation) of Rs. 2936.67 cr. Thus it has a negative NAV. However, the counter is well operated by vested interest above the RI pricing. 

DIVIDEND POLICY:
The company has not paid dividends since FY2009.  It will adopt a prudent dividend policy post listings of Right shares, based on its financial performance and future prospects. 

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 532667 (FV Rs. 2).
The scrip last closed on cum-right basis at Rs. 8.72 on September 30, 2022, and opened on an ex-right basis at Rs. 7.46 on October 03, 2022. Since then it has marked a high/low of Rs. 8.25 / Rs. 7.46. The scrip last closed at Rs. 7.66 as of October 07, 2022. Based on this quote, its post-RI market cap stands at Rs. 7715.98 cr. 

The scrip has posted the last 52 weeks' high/low of Rs. 12.03 / Rs. 5.43 (post adjustment of Ex-RI impact). Promoter holding has declined to 14.50% for the quarter ended September 30, 2022, against 14.92%for the previous quarter that ended on June 30, 2022.