Energy Sector- Suzlon Energy
Hakimi Consultants
A global wind power company.
Founded by Mr. Tulsi Tanti (Chairman & MD) in 1995.
Headquarter- Pune, India.
Employee Strength over 14000
Suzlon (including REpower) is the world's third leading wind turbine
supplier group in terms of market share.
Global Market share=9.8% (Suzlon:6.4% +REpower 3.4%)
Geographical Presence in 30+ countries spread across 5 continents
Manufacturing Units in 3 continents.
R&D centers: Belgium, Denmark, Germany, India and Netherlands
Leading Supplier in India for the 12th year approx. 50% market share
Specialization in On Shore (Suzlon); Off Shore & On Shore (REpower)
Added over 5,000 MW of wind power capacity for over 1,600 customers in
India.
Accounts for more than half of the India’s total wind turbine installations
Global Wind Power Share
Global Installed Capacity (GW)
Global Energy Generation (TWh)
*Source-Suzlon Q1 FY11 Result Presentation
Energy
Security
Climate Change & Global
Warming
Cost Competitiveness & Hedging
•Hedge against Geopolitical risks-Local and
Secured supply
•Kyoto Protocol: Reduction of CO2
emissions
•EU Declaration: 20% from RE by 2020
•US/India: 10% to 20% RPS/RPO mandates
•Improvements in yield (cost/kWh)
•Cost/kWh of generation: US$ 0.03-0.06
•Wind Energy directly competing with
conventional power
1500
1000
Production(GW)
500
Consumption (TWh)
0
2011 2014
2018
2021
*calculated on the basis of existing market conditions
Electricity Demand Projections in India
Current Regulations and Benefits
 80% Accelerated depreciation allowed in wind energy projects if they are commissioned before
30 September of the same financial year; or 40% if commissioned before 31 March.
 10 year income tax holiday for wind power generation projects
 100% excise duty waiver on certain wind turbine parts
 Reduced wheeling charges as compared to conventional energy
 100% FDI investment allowed in Renewable energy generation projects
 Generation Based Incentive (GBI) scheme for grid interactive wind power projects -Rs 0.50 per kWh
 Declaration of preferential tariffs from Rs 3.39–5.32 per kWh by some states
Decommissioning
of
Accelerated
Depreciation
Policy
 With the introduction of Direct Tax Code by 2012, accelerated depreciation
policy will expire.
 This initiative may de-motivate the big companies of wind power because
accelerated depreciation accounting method allows companies to write off
investments at a faster rate than normal, which reduces tax liabilities.
Inadequate grid
infrastructure
 Inadequate grid infrastructure in states with high wind potential has slowed
down the growth of wind energy industry
Irregular
Tariff
Changes for Wind
Energy
 In many states, tariffs once fixed have remained unchanged over two to three
years, despite significant changes in the market conditions.
 There is a need for a regularization of determining these prices as inadequate
price levels will act as a deterrent to investment in wind based projects.
High Competition
from
Foreign
Players
 Increased competition from global players such as Vestas, Sinovel and Enercon.
India, a growing wind energy markets, is likely to see increased focus from
players like Siemens, GE and Indowind.
Threat of New Entry
(Low)
Buyer Power (Low)
•Few potential Buyers
Threat of
New
Entry
•Huge Capital requirement
•Suzlon as a brand is
preferred by clients
•Advanced
Technology
required
•Access to resources
•Quality control Standards
Supplier
Power
Competitive
Rivalry
•Sensitive to pricing
•Power Purchase Structure
• In India Switching cost is
high
•Backward integration for
buyers is difficult
Buyer
Power
Threat of Substitutes
(Moderate)
Supplier Power ( Low to
Moderate)
•High
demand
for
components
•Suzlon has successfully
adopted
Backward
Integration
which
has
reduced its dependency on
suppliers.
• For the suppliers forward
integration is very costly
•Other
Threat of
Substitutes
Competitive Rivalry (Moderate to High)
•High Exit Costs
•Competitive pricing
•Large global players like Vestas, GE wind etc.
renewable
technologies
•Price substitution from
conventional sources
•Although
financial
incentives are there for
wind energy from govt.
Weaknesses
Strengths
Technologies &
Capabilities
Integrated Business
Model
•Development
expertise in key
components
•Global resource pool
for faster designing
& development
•MW and multi-MW
WTG models and
Rotor blades
developed
indigenously
•Reduces supplier
dependency
•Benefit from cost
efficiencies and
economies of scale
•Hassle free solutions
to customers
•Greater control over
execution time line,
cost & quality
Opportunities
Market Leader and
Global presence
•Among the top
three WTGs
companies
•Global presence
across 5 continents
•Market leader in
India
Threats
Acquisitions and
Alliances
•Competitive
advantage through
acquisitions of
REpower & Hansen
End-to-End Solution
Provider
Wind
Resource
mapping
Site
Identification
Land
Acquisition
WTG and
Component
Manufacturing
Site
Development,
Infrastructure
set-up and WTG
installation
Operations
and
Maintenance
Services
Weaknesses
Strengths
Opportunities
Huge growth in assets is
diminishing the growth in
profits
Unsupportive
Stock Prices
Operational inefficiencies
WEAKNESSES
Weak Strategic Financial Management
Threats
Unfavourable Ratings
from rating agencies
Inefficient Working Capital Management
Weaknesses
Strengths
Opportunities
Environmental Awareness
Environmental awareness has increased. This factor is favourable for the
wind power energy as its an option to thermal power. Suzlon is the market
leader in India and has a strong global presence in this therefore, there is a
high growth opportunity for Suzlon in future horizon.
Government Initiatives
Govt. is providing tax exemption ,accelerated depreciation tax benefits and
also providing subsidies for encouraging investment in remote areas of the
country to generate employment.
Untapped offshore markets
Suzlon can have advantage of covering untapped offshore market. India has
a coast line of 7600 km. Offshore wind turbines generally yields 40% higher
outputs than turbines on onshore sites. So offshore expansion will be
profitable to Suzlon.
Steady growth in demand
Increased electricity demand, environmental concerns and depleting
sources of fossil fuels have increased the demand of renewable energy
sources. Hence Suzlon can leverage from this growth in demand.
Threats
Strengths
Weaknesses
Opportunities
Threats
High Competition
 The govt. of India has approved FDI limits up to 74%. Although Suzlon is a market leader, its
technology efficiency is not as compared to global giants like VASTAS, GE Wind etc. So this initiative
can be a threat for Suzlon.
Foreign Exchange Risk
 Due to global presence of Suzlon, there is default risk of exchange rate fluctuations. The exchange
rates are highly fluctuating since last couple of years and hence it has become riskier for Suzlon to
do business globally.
Technology Risk
 Suzlon has to implement the fast changing technologies to compete in the market otherwise it will
lose the competitive advantage.
Hindrances / Objections to Wind Power
 The main objection to wind power is due to other environmental costs. Many wind parks remain
shut-down for a part of the year because of bird migration. Larger turbines produce more power,
but they also take more land to operate safely and effectively. Many eco-warriors object to the
installation of wind parks by lobbying the govt. to look for alternative sources of energy.
Horizontal growth
acceleration
through M&A
Vertical Integration
Improving Cost
Efficiency
Expanding Global Presence
Australia - Sustainable and internationally competitive
renewable energy industry
USA – It has outpaced Germany in terms of capacity
China - Favorable policies & targets
India – Robust domestic demand
Knowledge
Acquisition
• Acquired the
technical knowhow through
permits and
buying of smaller
wind technology
firms.
Resource
Mobilization
• Optimum
utilization of low
costs resources,
labour and other
infrastructural
facilities
Focus on High
Growth Markets
Strategic Focus on
Customer needs
(End-to-End)
R&D and Innovation
Global Acquisitions
Hansen Transmission-Develops long term growth driver
in terms of wind and industrial gearbox business.
REpower Systems AG-Entry into large European
markets; Complimentary product portfolio - offshore
technology; Capitalize on know-how and brand equity
Vertical
Integration
• To eliminate
supply chain
constraints and
ensure quicker
delivery to
customers
Mergers and
Acquisitions
• Boosting its core
competencies
• Integrate with its
operations, and
• Have manageable
consolidation risks
Corporate
services
Suzlon Technology
Group
R&D
Functional
Areas
Manufacturing
Product and Project
Management
Organization
Functional
Organization
Business
Units
•Suzlon has opted Project Centered Matrix Organization which focuses on two key factors:
 Customer Orientation
 Technology Leadership
•The Product & Project Management Organization ensures that customer expectations are met.
•The functional organization focuses on the technical side of the business.
Issues with the current Organizational Structure
•The employees may experience dual authority like reporting to two bosses .
•The matrix structure forces the managers to spend a great deal of time in meetings, hence time consuming
•This structure also requires great effort to maintain power balance.
Currently Suzlon is operating in more than 30 countries and expanding.
In the near future as Suzlon increases its foothold to other geographies, Geographical Organizational
Structure will be more efficient in terms of managing different units of Suzlon and facilitating
manufacture and deliver of products.
Better quality control over various geographic locations.
It will reduce cross culture management issues.
CMD
Suzlon
Asia
Functional
Groups
Technical
groups
Manufacturing
Australia
Europe
North
America
South
America
Functional
Groups
Functional
Groups
Functional
Groups
Functional
Groups
Technical
groups
Manufacturing
Technical
groups
Manufacturing
Technical
groups
Manufacturing
Technical
groups
Manufacturing
Mexico
Argentina,
Uruguay
Morocco
Egypt
Japan, Philippines,
Taiwan, Thailand
Argentina
Thailand
• It’s wind resources are unrivalled in the Latin American region and estimated to be enough to
supply the regions entire electricity demand several times over, but till date only a tiny
amount of the potential, 60 MW has been developed .
• High GDP growth of 8% has led to a dramatic rise in electricity consumption and approx. 30 GW
of new generation capacity will be needed by 2021. The government has set a target of
renewable energy from 6.4% in 2008 to 20% in 2022, with an 800 MW target for wind capacity.
Philippines
• The country has a present generation capacity of 33 MW of wind power, but the potential is
estimated at around 55 GW. The government has set a target for 40% of its electricity to be
generated by renewable sources by 2020, up from the current 33%.
Mexico
• The country has an outstanding wind resource, especially in the Oaxaca region. It’s installed
wind capacity has increased more than 5 times since the end of 2009.
Others
• After the recent nuclear disaster Japan is planning to switch alternate sources of energy like
wind power, solar, etc.
• Other countries such as Uruguay, Egypt, Morocco also have promising wind energy potential.
Repowering and Recycling
Wind-Solar Hybrid Systems
Gearless turbine - Direct Drive Technology
Blue Ocean Strategy-B2C
Brand Promotion – Social Media
 Repowering involves the replacement of old WTGs with new and more cost efficient WTGs.
 According to industry research, over 10,500 machines that were installed during the mid ‘80s and
‘90s will soon be replaced by larger, more efficient turbines.
84% of nacelle can be recycled
93% of Tower parts can be recycled
52% of other parts can be recycled
42 % of the rotor parts can be recycled
Our Recommendation
 Repowering is one of the growth drivers to the future market for wind power
 Suzlon should also initiate recycling dismantled wind turbines as well as production of more MWh
per kilogram wind turbine.
Hybrid systems make optimal use of sunlight and wind speeds - the two main resources
readily available.
These can be integrated with different energy sources such as PV or diesel generators and
requires little maintenance and can be easily assembled and installed on site.
Typical applications range from house or village electrification, small enterprises to water
pumping and is ideal for electrification of remote areas where reliable power supply is not
available and eliminates reliance on power grids.
Street Lamps using Wind Solar Hybrid technology are already a growing market
Suzlon being a leading player should work on to tap the big potential the sector has been
offering.
The product has scope to be commercialized on a global scale and will increase the foothold
of Suzlon in foreign markets.
•
Suzlon needs to upgrade its existing
turbines and also add new products to its
portfolio
•
Gearless wind turbines which work on
direct-drive generator technology making
them more efficient and cost effective to
maintain.
•
Conventional gearboxes used in turbines
are quite vulnerable to failure
•
Maintaining geared turbines for offshore
installations incurs high repair costs
•
Gearless turbines still a developing
technology
•
Huge market potential in Europe, US and
Asia in the next decade.
Our Recommendation:
Acquire a company in the domestic
market which has expertise on directdrive generator technology and
leverage on the technology
Vast majority of consumers today want to access more
Renewable energy
Surveys shows that 90 per cent of consumers globally
want more renewable energy ahead of further
investments in fossil fuels and nuclear plants.
B-to-C
Consumers
65 per cent of people claim they would like to buy
products made using wind energy
Suzlon should target more B-to-C companies. It
can mean fast-tracking of more renewable and
wind energy
Suzlon can move ahead of the competition
and create a blue ocean by indirectly
targeting B-to-C consumers and thus boost
wind turbine sales.
B-to-B
Consumers
 92% B2B requirements commence with an online search
 75% B2B decisions are finalized online
Ample evidence of the power
of internet in the B2B space
What if something could convert this scope into business inflow for Suzlon?
A response to this highlighting Suzlon could straight away get the business for Suzlon
Suzlon by being live in the Social Media can generate more business
 Support Wind R&D in private sectors and educational institutions like IIT’s.
 Target firms which exceed pollution limits with its signature end-to-end services.
 Manufacture when business stable & market developed or consider Acquisitions
 Explore opportunities in African and South East Asian markets
 Focus on offshore markets
 Through forward integration venture in electricity generation through wind power
 Go for franchise model for transmission and distribution of wind power energy
Customer
Centricity
Lead, or
aspire to lead
Be #1 or #2 in
the business
Global
Potential
Explore the
world
markets
Ruthless
focus on
financial
returns
Innovativeness
20% revenues
from products
launched in the
last 3 years
Suzlon’s Wind Turbines business should
aim to fit into each of the following 5
Blue-Chip Mantras:
1. Suzlon is a world class player in wind
turbines.
2. ‘Global’ potential
3. R&D provides innovation
4. Promising Returns
5. Extremely Customer Centric
 Presently outstanding debt of USD 2.6 bn (including FCCBs of USD 654 mn)
 Debt repayment schedules of USD 150 mn and 283 mn for FY13E and FY14E, respectively.
 FCCBs worth USD 389 mn due for conversion in FY13E, USD 90 mn in FY15E, while the balance USD
175 mn in FY16E
 Proceeds of USD 187 mn from the Hansen stake sale of 26% and receivable of approx. USD 200 mn
from Edison, to aid the debt repayments
 Company to raise USD 1.1 bn via equity and debt in 2011
 Suzlon has burdened itself
with high debt on its balance
sheet with a leverage of 1.9x
with interest payments of
more than INR 1000 cr
annually
 It should not take further
obligations that might affect
its financials negatively in the
short term
Future Projections
(Rs cr)
2010-11
2010-11 Q4
2011-12 Q1
2011-12E
2012-13E 2013-14E
Revenue
18090
7372
4326
26000
29900
34385
Net Profit
-1103.43
309
60
2080
2392
3782
*calculated on the basis of existing market conditions
Reduce operational expenditures and increase efficiency to
boost bottom-line
Listing overseas in
NYSE/DAX will improve
the liquidity of the
company’s stock and
provide access to new
capital markets
Publishing additional set of financial
statements in accordance with US
GAAP / IFRS will be more relevant to
its potential US and European
investors, who make up more than
50% of Suzlon's revenue.
Joint Ventures in select
potential new markets
instead of acquisitions
which would reduce its
investment cash
outflows
Post complete acquisition of RE Power, Suzlon should leverage and garner maximum
potential from RE and integrate RE’s operations with its global operations to increase
synergy and optimization
Focus on geographical diversification of business to reduce risk
Exploit huge opportunities in the German market where Nuclear Plants are
being phased out and Wind energy share is expected to increase
Forward integration in the value chain by Electricity Generation
Gain competitive advantage through Corporate Social Responsibility
Achieve Six-Sigma standards in manufacturing operations
Reduce carbon footprints by focusing on addressing emissions in all phases
of wind plant’s life cycle
Improvements in turbine size, efficiency, reliability and lifetime.
Development of cost-effective local storage solutions such as fuel cells.
Research on new cost effective technologies like Vertical Axis Turbines,
Gorlov Helical Turbines .
Diversify into other renewable technologies like Solar PV .
 www.suzlon.com
 Annual Reports and Investors
 Presentations
 http://economictimes.indiatimes.com/
 http://www.bloomberg.com
 http://www.wikipedia.com/wiki/
 Reports (Source: http://www.gwec.net/)
 Indian Wind Energy Outlook 2011
 Global Wind Energy Outlook 2010