share price of suzlon energy : Review & Targets 2024

share price of suzlon energy

share price of suzlon energy : Investing is an art, and successful investors possess a unique skill – the ability to distinguish between investment and speculation. This quality is paramount in building wealth over time.

In this article, we will delve into a case study of Suzlon Energy Limited, a company that has had its share of ups and downs, to understand the fine line between investment and speculation. I’m Neil, and I’ll guide you through this exploration of one of the hottest stocks in the market today.

Suzlon Energy: The Rollercoaster Ride

Suzlon Energy Limited has garnered significant attention recently due to its remarkable performance, with its stock surging 14 times since the lows of March 2020. While experts predict further upside, it’s crucial to remember that the company hasn’t always been on this upward trajectory.

Before 2020, Suzlon Energy was one of the biggest wealth destroyers in the Indian stock market. Despite its remarkable 14x growth since 2020, it is still down a staggering 93 percent from its October 2007 highs. This means that if an investor had bought the stock in October 2007, they would still be nursing a loss of more than 90 percent, even with the recent 14-fold return.

So, why did this stock lose so much since 2007? The answer lies in a combination of factors, including demand destruction, a highly leveraged balance sheet, and regulatory flip-flops. Between FY 13 and FY 22, the company was profitable only for one year, and its net worth plunged into negative territory since FY 14.

The Recent Revival

Despite its troubled history, Suzlon Energy’s stock has made a significant comeback recently. This resurgence appears to be the strongest one yet, and there are reasons for optimism. The management’s commentary following the FY 23 results was encouraging, highlighting several key positives:

• Consolidated FY23 Pat before any exceptional items turned positive after six years.
• Substantial reduction in net finance cost from INR 7.1 billion in FY22 to INR 4 billion in FY23.
• Net debt to EBITDA (pre Forex charges) stands at 1.4x versus 7x for FY22.
• Costs have come under control as the economy and commodity prices have stabilized.
• The order book and revenue visibility are stronger than ever.

Investment or Speculation?

The question now is whether Suzlon Energy represents a solid investment opportunity or a speculative bet. To make this determination, we need to understand the intrinsic or fair value of the stock. Unfortunately, valuing the company is no easy task, given the erratic earnings it has demonstrated over the years.

Valuing Suzlon based on future earnings also poses challenges, as the company’s profitability has been inconsistent. Relying solely on future earnings can lead to overvaluation and misjudgment. Similarly, valuing the company based on book value is not a viable option since its book value is minimal.

Moreover, the company’s high debt-to-equity ratio remains a concern. The nature of the business, which requires substantial working capital, presents a risk that the debt may spiral out of control.

Setting Boundaries

Every investor should have a clear understanding of their investment versus speculation boundaries. Successful investors stay within these boundaries and exhibit the discipline to invest intelligently. In the case of Suzlon Energy, it may not fit the criteria of an investment for many.

To consider a stock an investment, a good balance sheet and a decent track record are essential. While Suzlon shows signs of improvement and deleveraging, it hasn’t consistently demonstrated profitability and still carries significant debt. Therefore, it may fall into the category of intelligent speculation rather than a core holding.

It’s crucial for investors to define their own boundaries. If Suzlon Energy doesn’t align with your investment criteria, it’s best to consider it as an intelligent speculation, but only with a small portion of your portfolio. Core holdings should be reserved for businesses within your investment boundaries, where you have a reliable understanding of the earnings power and intrinsic value of the company.

Conclusion

In the case of Suzlon Energy, whether it’s a trap or a wealth creation opportunity depends on your individual investment criteria and boundaries. As we’ve seen, the company has shown signs of recovery, but it still faces challenges and uncertainties, particularly in terms of profitability and debt. Therefore, before making any investment decisions, ensure that you understand your own boundaries and whether Suzlon falls within them. As for now, I remain cautious about considering Suzlon Energy an investment.

Disclaimer

The information provided in this article is for educational and informational purposes only and does not constitute financial advice. Always conduct thorough research and consult with a qualified financial advisor before making any investment decisions.

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