October 12, 2010 12:26 am
Is it right time to buy suzlon and unitech stocks now, to hold on for a year time.
My take on the above stocks:
1. Suzlon energy:
I assume your investment argument on suzlon energy stock as follows:
a. bullish on future of alternate clean energy like wind energy
c. leading wind turbine manufacturing company available at dirt cheap i.e. available at one-tenth of peak valuation in 2007.
First let us understand why the market is beating the stock so badly even in the current bull run:
a. Its foray into US market has backfired. Almost all blades supplied to the US developing cracks and hence it is forced to replace them costing the company huge loss.
b. Suzlon has serious debt problems and high interest costs due to highly leveraged acquisition of Germany-based wind equipment player, Repower, in 2007.
c. The economic crisis in the US and europe meant a sharp drop in investments in wind energy resulting in decline in orders. (close to half of its revenues from developed western market which is not showing any signs of improvement till this point).
Now lets see what the management is doing: Really it is fighting the situation bravely by
a. actively restructuring and refinancing its debt.
b. As order flows from US markets reduced, it ramped up projects in new markets such as China and Australia.(but it will take some years to earn profits from this move).
do you think the company will earn anything in near one year term for its shareholders?
In my view the company will take 3-5 years to pay off its debt and will return to growth mode after that. If you really believe in the clean energy theme and the management stay invested for 5 years (Remember that the company operates in capital intensive sector and dont expect any spectacular returns in short time).
2. If you want to diversify your portfolio with real estate, its always better to invest directly rather than through real estate stocks because balance sheet of most of the real estate companies are opaque and nobody knows the exact value of the lands in their land bank. Dont fall to the trap of cheap valuations available now and always better to avoid them.
Happy investing 🙂
Wait for some correction in the market. You’ll get better price in coming weeks. After that, you can hold them. Suzlon is a range-bound stock. You need patience.
Hope it will help you.
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