Suzlon Unit SE Forge Show Improved Financials; Over Dependency On Parent Group And Wind Sector Remain Challenging

The credit rating of the wholly owned subsidiary of Suzlon Group, SE Forge Limited (SEFL) has been upgraded by CARE ratings from BBB to BBB+, on the back of its improved financials. The rating has been assigned to SE Forge’s outstanding banking facilities.

“The improvement in the operational performance is reflected in the increase in the scale of operations and an increase in the operating margins. The company reported a net profit in FY17 against a net loss in FY16 and its capital structure and debt coverage indicators have improved over FY16”, according to CARE ratings report.

It also mentions that the ratings, however, are constrained by the high level of dependence of the company on the Suzlon group and the wind sector itself. For the year ended March 31, 2017, roughly 53% of the revenue was contributed by Suzlon Energy and derived 94.5% of its sales in FY17 from wind energy sector and balance 5.5% from non-wind sector.

SEFL was primarily incorporated to meet the captive requirement of Suzlon group which has its operations concentrated in the wind energy sector. It is a fully-integrated casting and forging company with plants located in Coimbatore and Vadodara, respectively.

Suzlon has an outstanding order book of 1562 MW of which 231 MW relates to solar power project for FY18. In Q1FY18, the company has made sales of 412 MW of which 326 MW is in wind energy and 86 MW of the solar power project. The parent company has witnessed a significant increase in its own sales resulting in strong growth prospects for SEFL.

The utilisation of plant capacity of SEFL remains significantly low. The company is, however, trying to widen its customer base to the non-wind energy sector to reduce the over-dependence.

Speaking on the occasion, Kirti Vagadia, Group Chief Financial Officer, Suzlon Group says, “SEForge has demonstrated tremendous growth over the years. Within a decade it has grown from a captive supplier to Suzlon to become an independent entity as one of the leading suppliers of large and high precision castings and forgings. The rating upgrade is a testament to our concerted efforts to ramp up volumes, diversify across sectors and geographies, cost rationalisation and improved profitability.”

On the overall wind industry outlook, the rating agency says that the current transition of the sector from feed-in tariff to the auction-based mechanism is expected to slow down the wind power capacity addition in near-term and would pick up from FY19.

“Going forward, the key monitorables for the sector would be a level of competitive intensity and success of UDAY scheme to improve the financial health of the Discoms,” says the agency.