First published in Quoted Cleantech, july 2011. Copyright Cleantech Investor 2011  

by Anne McIvor

Suzlon, an Indian wind turbine manufacturer which was created in 1995, ranks today as a world leader. The company has grown organically, financing project development as well as supplying turbines for markets including its domestic Indian market. Over recent years, Suzlon has expanded far beyond its roots in India – partly through organic growth but also through acquisition. Notable acquisitions have included Hansen Transmissions, the gearbox manufacturer, and REpower, the German turbine manufacturer which is a leading offshore turbine producer.

Combined with REpower, Suzlon’s market share of the global wind turbine market is around 6.9%. In addition to its bases in Germany and India, Suzlon has research and development capacity in the Netherlands, Belgium and Denmark. With operations across the Americas, Asia, Australia and Europe, the company employs some 13,000 people.
Suzlon is an important player in the Chinese wind market and has a manufacturing base there. The company’s current strategy involves focusing increasingly on markets in emerging economies, including Brazil (where Suzlon expects to work in partnership with a Chinese utility), and new markets for wind – such as Australia.
Over the past few years Suzlon has enjoyed something of a spending spree, buying up companies such as REpower and Hansen and expanding around the world. Combined with the difficult economic conditions, this experience has left the company highly indebted. At the end of March this year (the close of its 2010/2011 financial year), Suzlon had debt of INR9.1 billion. The company arranged a rupee loan refinancing and raised funding of INR1.2 billion through a rights issue during the last year.

Suzlon is currently in the process of buying out REpower’s minority shareholders (who still own around 4.8% of the company). When that programme is completed later this year, REpower’s listing on the Frankfurt Bourse will be removed and the company will be more fully integrated with the Suzlon Group.
REpower is an important player in the UK and German offshore wind industries and is manufacturing 5MW and 6MW turbines for these markets. Plans are for REpower to start manufacturing some of its smaller, 2MW turbines at a Suzlon plant in India – for machines aimed at the Australian and US markets. REpower is also focusing on sourcing supplies from Asia, which are cheaper.

In the 2010/2011 financial year, Suzlon reported consolidated revenue of INR17.9 billion, down from INR18.1 billion in the previous year. EBITDA rose to INR808 million, from INR703 million, but EBIT fell to INR151 million from INR202 million. Working capital slipped to INR9.1 billion from INR9.7 billion. The company reported a full year net loss of INR1.1 billion compared to INR989 million in the year ending March 2010. For the fourth quarter, however, Suzlon returned to profit, reporting a net profit of INR448 million for the three months to March 2011, compared to a loss of INR188 million in the corresponding quarter of the previous year.

Suzlon Wind delivered 1,521MW during the full year, which was below management expectations of 1,700MW. The shortfall was attributed to the fact that a number of deliveries were postponed until after the end of the financial year. REpower had revenues of €1.27 billion with an EBIT margin of 5%. The Suzlon group has been focusing on reducing expenses, which have decreased by INR505 million for the group as a whole for the year (excluding Hansen Transmisssions) and by INR374 million for Suzlon Wind.

The company currently has a healthy order book, backed by an especially strong performance in its domestic Indian market. The order book stood at 4,639MW for the group as a whole on 13 May and was valued at US$6.7 billion. This breaks down as 2,231MW for Suzlon Wind, of which 1,353MW is in India and 877MW international. The Suzlon Wind order intake over the year was 2,626MW, the largest in the last three years.

REpower’s order book stood at 2,409MW on 13 May and was valued at $3.9 billion.
Order inflow is being underpinned by new products which have launched recently, including the 3XM and S9X. Suzlon has a strong reputation for reliability and its turbine availability rates are consistently above 97%.
New orders are flowing from both existing and new customers and include recent agreements with Techno Electric, for 300MW, and with EUFER (a joint venture between ENEL Green Energy and Union Fenosa), for 225MW for Spain; and an agreement with EDF Energies Nouvelles and RES Canada for 954MW onshore turbines. REpower has an agreement with RWE Innogy for up to 250 units of 5MW/6MW offshore turbines aggregating to 1,250 –1,500MW. As long ago as January 2010, REpower announced 295MW of confirmed orders for its new 6M turbines.

The wind industry is expected to grow at over 15% annually over the next five years. Established markets including the US, EU and China (combined) are forecast by Make Consulting to grow at a CAGR of between 12% and 13%. Suzlon is especially well positioned to benefit from fast growth in its core markets, India and the offshore market (the latter through REpower). Both market segments are expected to see growth of between 40% and 50% year-on-year. India looks set to be impacted by the removal of tax credits which have underpinned investment in the sector.  However, although this may mean a consolidation period in the short term, longer term prospects remain strong.

India and offshore, combined with other emerging wind markets such as Brazil and Australia (projected to grow at between 30% and 35%), will remain the key focus for the group going forward. Suzlon already has a market share of over one third of the installed base of generating capacity in Brazil and recently decided to establish a manufacturing base in the country, having previously imported equipment. Expansion in Brazil positions Suzlon in thee of the ‘bric economy’ wind markets. Combined with REpower’s standing in offshore wind, the group is strongly placed to build a leading global position in the industry.

Suzlon shares traded as high as INR440 in 2008, but are currently valued at just one tenth of that amount. With a return to profit and a strong order intake, perhaps it’s time to revisit this wind giant?

 Market: Bombay
 Share Price: INR47.95
 Code: SUEL:IN
 12 month high/low: INR66.30/42.80
 Market Cap: INR92.4bn

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