Wednesday, 1 January 2014

Equity: Case Study: Suzlon Energy

Introduction:

From Wikipedia:

Suzlon Energy Limited is an Indian multinational wind power company based in Pune, India.

In terms of market share, in 2012 the company was the fifth largest wind turbine manufacturer by cumulative installed capacity worldwide approaching 22,000 megawatts of installations in 32 countries.

Suzlon consists of Suzlon Energy Limited (SEL), India, (The Company) and 84 subsidiaries (12 Indian and 72 international). Suzlon is present in 33 countries across six continents: North and South America, Asia, Australia, Europe, and Africa.

With headquarters in Pune, it operates several manufacturing facilities in India, at places such as Coimbatore, Padubidri, Vadodara, Daman, Dhule, Chakan, Gandhidham and Pondicherry. It also operates facilities in Mainland China, Germany and Belgium.


TECHNICALS:

Just three years back Suzlon Energy share price was at INR 55 and bottomed out at INR 5.72 in August 2013. (See below).


However, since November 2013, this share has been gaining, after announcements about it booking good orders in France, Germany, and Australia.


And it looks like public interest will continue for a while. Bullish crossovers are marked in the curve below. Upward movements are accompanied by high volumes in share trading, and total volume trade is increasing.

In the GMMA, it is clear that short term traders are more active than long term ones. This is a bullish signal.

At the end of the graph, we see the 15 day MA and 50 day MA moving upwards, about to cross the 200 day MA from below simultaneously. That is a bullish signal.


FUNDAMENTALS:

The company has been reporting losses since December 2008, except December 2009 when it reported a profit of INR 14 crore but that was because it sold its stake in a company named Hansen.


The debt-equity ratios look bad. Its latest debt equity ratio stands at 3.41.

Losses upon losses, problems with clients, complaints of bad quality turbines.

So is this a bad investment opportunity, keeping in mind that the share was above INR 400, at one time and is now hovering around INR 10? Could the company go bust one of these days in view of its financial mess?

It could. I don't know.

But would like to quote Benjamin Graham at this point.

Page 379, "The Intelligent Investor"...

Perhaps many of the security analysts are handicapped by a flaw in their basic approach to the problem of stock selection. They seek the industries with the best prospects of growth, and the companies in these industries with the best management and other advantages. The implication is that they will buy into such industries and such companies at any price, however high, and they will avoid less promising industries and companies no matter how low the price of their shares. This would be the only correct procedure if the earnings of the good companies were sure to grow at a rapid rate indefinitely in the future, for then in theory their value would be infinite. And if the less promising companies were headed for extinction, with no salvage, the analysts would be right to consider them unattractive at any price.

The truth about our corporate ventures is quite otherwise. Extremely few companies have been able to show a high rate of uninterrupted growth for long periods of time. Remarkably few, also, of the larger companies suffer ultimate extinction. For most, their history is one of vicissitudes, of ups and downs, of change in their relative standing.


UPDATE: SUZLON TECHNICALS Jan 7, 2013

The green arrows mark the point at which the 15 day and 50 day moving averages are cutting through the 200 day moving average from below.

The trading volumes (green bars) are increasing steadily, and accompanying the price upward move, as is also indicated by the FORCE INDEX (navy blue).

The recent news of Suzlon sorting out its FCCB issues (Jan 7, 2013), is further fueling the bullish sentiment that has been building up in recent weeks.

At the time of writing this update, Suzlon's closing price was INR 11.65.


UPDATE Feb 02, 2014
At the time of writing this update, Suzlon's closing price was INR 10.70.

Technicals:

1. Suzlon has been trading above its 200 day EMA (blue) since 24th December 2013.

2. The 20 day and 50 day EMAs (red, yellow) cut the 200 day EMA from below in the 1st week of January 2014.

3. The 100 day EMA (purple) has been on a rising trajectory since 17th December 2013. It is heading towards the 200 day EMA from below, and will intercept, if no sudden opposing force rises.

4. The 200 day EMA (blue) is still on a falling trajectory.



News:

1. At the time of writing, 02 Feb 2014, almost 1 million BIDS for the stock exist on NSE...and no offers to sell!


News 25 May 2014:

Still going strong, in fact stronger. Two million BIDS at EOD. No sellers.


News 05 June 201: OMFG...

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