Suzlon Energy shares: Down 96% in 5 years, this stock rebounded 42x; here's why

In its 29th Annual Wealth Creation study, MOFSL gave a few examples of how a few bruised blue chip stocks delivered stellar returns over a period of time. It included the example of Suzlon Energy Ltd, whose shares dived 96 per cent in a span of five years -- from a 2015 high of Rs 34, the Suzlon Energy stock fell to a 2020 low of Rs 1.50, before rebounding 42 times by end-November on the back of a turnaround in its financials.

MOFSL maintained that bruising alone cannot be the sole reason for buying into a blue chip. "The prospects of profit and profitability need to be bright. Else, the bruised blue chip will end up as a value trap," it warned. The financial rebound was the case with Suzlon Energy.

Suzlon's case
By the early 2000s, Suzlon Energy had established itself as a dominant force in the global wind energy market, celebrated for its advanced wind turbine generator technology, MOFSL noted. 

"The company's impressive growth trajectory culminated in a highly oversubscribed IPO in 2005. But the 2008 global financial crisis had a devastating impact on Suzlon Energy. The subsequent credit crunch hindered the company's ability to fund its growth initiatives and maintain its momentum," it said.

MOFSL noted that Suzlon Energy embarked on a series of acquisitions, including Hanson Transmissions in 2006 for 431 million euros and RE Power Systems for 1.4 billion euros. These deals, while ambitious, significantly increased the company's debt burden. As a result, Suzlon's debt soared from a mere Rs 400 crore in FY05 to nearly Rs 18,000 crore in FY15. This heavy debt load made it increasingly difficult for the company to service its interest payments, despite generating revenue.

"Suzlon faced a major quality control issue when Edison International reported blade failures at multiple sites. This manufacturing defect tarnished the company's reputation and resulted in a substantial financial burden. Suzlon was forced to implement a comprehensive retrofit program, costing over $100 million, to replace the defective blades and mitigate customer dissatisfaction," it said.

The sudden removal of accelerated depreciation and generation-based incentives in 2012 dealt a major blow to India's wind power industry. The absence of these crucial benefits eroded the investment appeal of the sector, leading to a sharp decline in wind turbine orders, MOFSL noted.

"As a consequence, annual capacity additions fell from 3,000 MW to a mere 1,500 MW. This adverse impact was particularly severe for Suzlon, as the company' went from Rs 400 crore profit in FY05 to Rs 9200 crore loss in FY15. A liquidity crunch in the global financial system meant that orders for wind turbines from international clients disappeared. The global economic slowdown, particularly in key markets like Europe and the US, reduced demand for wind energy solutions," MOFSL noted. 

Add to that were allegations of significant lapses in corporate governance and financial irregularities severely eroded investor confidence and tarnished the company's reputation. 

"This led to a dramatic decline in the stock price, which plummeted from Rs 387 in 2007 to a mere Rs 9 in 2013.

Suzlon Energy, however, took positive steps to recover and strengthen its position.

On June 27, 2020, Suzlon Energy allotted 4,45,301 fully paid-up compulsorily convertible preference shares, each with a face value of Rs 1,00,000, totaling Rs 4,450 crore, as part of the resolution plan's implementation. 

Prior to this, on June 5, 2020, the borrowers entered into a Forbearance and Restructuring Agreement to facilitate the resolution process. On June 30, 2020, Suzlon successfully executed the resolution plan to restructure its debt, as formulated under the RBI guidelines.

Selling of the crown jewel

"As part of the debt restructuring agreement, lenders required Suzlon to monetize its assets. This led to the sale of Senvion to US private equity firm Centerbridge in April 2015, generating EUR 1 billion. These funds were utilised to substantially reduce Suzlon's debt, halving it to Rs 7,000 crore. With minimal debt repayment obligations in the near future, Suzlon's interest costs have decreased significantly," MOFSL noted.

The turnaround

Its impact was visible. Suzlon Energy became the only Indian company with 20 GW of global wind installations in the beginning of fiscal year 2024. As of October 2024, the Suzlon group has secured a strong order book of 5 GW and is actively working to execute a robust pipeline of orders across multiple customer segments, including the Commercial and Industrial (C&I) sector.

"Suzlon's total income exhibited significant volatility over the analyzed period, peaking in FY17 at Rs 12,700 crore, followed by a sharp decline in FY18 and FY19. From FY20 onwards, the revenue stabilised within the range of Rs 3,000 crore to Rs 6600 crore, reaching Rs 6,500 crore in FY24, reflecting consistent growth post-FY21," MOFSL said.

The domestic brokerage said Suzlon's turnaround commenced in FY21 as Ebitda turned positive, climbing to Rs 1000 crore in FY24. "This recovery underscores operational efficiency improvements and better cost management," it said.

On the margin front, while they declined sharply from 30.8 per cent in FY16 to a negative 28.9 per cent in FY20, post FY20, margins improved steadily, rising to 15.8 per cent in FY24.