nov 1, 2008
it seems to have lost 90% of its stock price. some bad news with breaking rotor blades, and overleverage with M&A of some european firms.
any opinions on this? is the fall in oil prices threatening all the brave new world of alternative energy companies?
9 comments:
I think that while falling oil prices will cause a temporary hit, there should be more than enough orders in the pipeline, and a strong growing commitment to green power, so that alternative energy companies can weather the current storm. Suzlon's current stock drop seems to mainly be due to their over-leveraging from all their recent acquisitions.
Some factors to consider:
1. read a number of articles on reducing fuel prices and their possible impact on renewables. globally, don't see that happening though, as most countries have renewable energy feed-in tariffs and purchase obligations in place.
2. steel, cement prices are coming down so wind equipment manufacturers should be able to cut costs.
3. large conglomerates in real estate, steel, cement etc. with surplus profits have been investing in wind energy in india, mainly on account of tax benefits. however, this has completely changed in the past 1 month due to liquidity crunch.
4. prime locations for wind energy in india seem to have been taken and the newer sites have poor plant load factors (about 25 %)
5. suzlon has initiated work on offshore wind farms in india which have huge potential and excellent plant load factors
i tend to think that suzlon is still a good long-term bet and the market as such should not be a problem. the real issue is whether they can remain solvent for the next 1-1.5 years.
anyway, it is for each one to construct his own mosaic theory.
There are 4 factors here :
1) Quality problems with breaking blades.
2) Overleveraging with M&A.
3) Losses due to dollar debt with dollar suddenly rising against the rupee as FIIs pull out.
4) The company had declared to go in for rights issue some time back to raise money.
These factors converged together in a severe bear market where most of the frontline stocks have lost more than 50 to 70% of the stock price. As they say, a bear market discounts good news and overreacts to bad news which is what seems to be happening to Suzlon here.
I don't think this is a long term threat here; this temporary phase will pass away.
By the way, I have generally seen commenterators talking of this company as a capital goods company rather than a green energy company.
thanks guys. i too think suzlon is sound long-term, but may suffer short-term problems. i bought some when it tanked, will probably buy some more. (caveat emptor! you follow my stock advice or actions at your own risk and i disclaim any and all responsibility)
also, i have getting very interested in energy issues. if you guys find good articles on new energy technologies, do send them to me. anything to screw OPEC.
There are two opposing views I have come across on this topic.
On one side there are people who think that due to the federal reserve cutting interest rates and loosening monetary policy, over time the dollar will continue to be diluted as the supply of dollar in our world shoots up. But commodities have a limited supply. So Jim Jubak of MSN money thinks that when the US recovers from this recession, or starts to recover, we are going to see everything related to commodities rally, which will include metals, oil, natural gas, agriculture. That will be when I enter mining stocks in a big way. Jubak says we may be 12 to 18 months away from the next leg up in the commodities rally. What we see in the commodities right now is a cyclic bear market in a secular bull market.
Read this interesting column here:
http://articles.moneycentral.msn.com/Investing/JubaksJournal/be-ready-for-the-commodity-comeback.aspx
On the other hand, Nouriel Roubini recently wrote that stag deflation was more real possibiolity that stagflation. What this will mean is that we might have economic stagnation combined with price deflation due severe demand destruction.
See:
http://www.rgemonitor.com/roubini-monitor/254148/the_coming_global_stag-deflation_stagnationrecession_plus_deflation
In my opinion, it all depends on how long it takes for the credit crisis to ended. I feel that due to all the money being pumped into the economy, stag deflation, if it happens, may be temporary, and may not touch commodities as they are going to see real demand going forward.
One must remember that oil at $50 a barrel is unprofitable for all major oil producers and they are going to cut back production to prop up prices to a level at which it will be profitable which could be to %80 a barrel for a while. If we do not see stag-Deflation, then 18 months from now when the cerdit crisis is history, oil prices will start to move up again and will certainly exceed $147 a barrell and shoot to say $300 a barrel in 5 years. When we know the dollar will continue to lose value, the price of commodities will have to shoot up.
One other aspect is the creation of new supplies. According to Jim Rogers, no new supplies of oil have been discovered and put into production in 40 years. And during this time the existing supplies are getting depleted. It is not hard to find that the demand for oil will far exceed anticipated future supplies.
I would wait for 12 to 18 months before committing any money into commodities related stocks.
No - they are simply over leveraged and Tulsi Tanti has over-reached on growth. Now they are saddled with hi cost assets that have depreciated ... so returns will take time to come. Obviously product issues top up the fears - but the basic reasons are pretty much the same a Lehman Brothers ... over-reaching - way way beyond their real means
An article on energy issue:
http://www.business-standard.com/india/storypage.php?leftnm=1&leftindx=1&subLeft=1&autono=339003
The same story as above, but am posting it as the site seems to contain a lot of updates on renewable energy.
http://www.yourrenewablenews.com/jyoti+ltd+plans+renewable+energy+sector+foray_14360.html
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