S.W.O.T – SUZLON ENERGY LIMITED
MAY, 2009
BSE CODE : 532667
NSE CODE : SUZLON
REUTERS : SUZL.BO
INDUSTRY : Heavy Engineering
Company Address:
Suzlon Energy Limited,
5 Shrimali Society,
Near Krishna Complex
Ahmedabad
Website:www.Suzlon.com
Headquarter: Denmark
KEY DATA (As on 16-05-2009)
CMP
52 W H/L
MKT. CAP
P/E
EPS
DIV.YIELD
: 76.00
: 320.80/33.05
: 12113.76(Cr.)
: 11.09
: 7.29
: 1.24%
Sites in India
Beta
: 1.46
Karnataka
Maharashtra
Rajasthan
Gujarat
Performance(Vs to Sensex)
(Region of Europe, Middle East ,Africa, Central &South
America)
Global Marketing Center: Holland
Source Capitaline
Shareholding Pattern :( as on 14-05-09 in %)
Top Management:
Tulsi R Tanti
Girish R Tanti
Ajay Relan
Ashish Dhawan
Pradip Kr Khaitan
V Raghuraman
Heamal A Kanuga
Chairman & Managing Director
Executive Director
Director
Director
Director
Director
Company Secretary
Foreign
Institutions
Govt. Holding
Non promoting
Corp
Promoters(*)
Public &
Others
Total
145370294
74681185
0
9.7
4.98
0
87784276
986268000
5.86
65.83
204191645
1498295400
13.63
100
*The holding is now 63..83%w.e.f 13,May 2009
SUZLON ENERGY
Wind-----An Upcoming Energy Avenue
Arising energy deficit, overdependence on imports for crude and
nuclear energy, slow pace in scaling up hydro projects and the impact
of coal on climate are all factors that will drive the adoption of
alternative energy in India. While short term concerns could be result
from weak macro conditions and falling crude prices, this is a space
that could witness a sustained growth trajectory given emerging policy
support and structural drivers. The Global wind energy council recently
reported that, by the year 2020 12% of the world’s electricity will be
generated from wind. Increasing oil prices, development in the field of
renewable energy generation, and climate change concerns have
increased the demand for wind energy.
Company Vision
The company aims to be a technology leader, to be among the top 3
wind energy companies in the world by leveraging technological and
commercial acumen to exceed customer expectations and to be the most
respectable brand which grow fast and is the most profitable company
employing the best team in the sector.
Company Values
People strength, aggressive vertical integration strategy, strong R&D
Team, expanding Manufacturing capability.
Company Overview
Suzlon Energy Limited (Suzlon) is a wind power company. The
company along with its subsidiaries engages in designing, developing
and manufacturing of wind turbine generators and related components
such as rotor blades, control panels, nacelle cover, tubular towers,
generators and gearboxes. Further, the company also provides
consultancy, design, manufacturing, installation, operation and
maintenance services as well as is involved in wind resource mapping,
identification of suitable sites and technical planning of wind power
projects. The company principally operates in India, China, The
Americas, Europe, New Zealand, South Korea, South Africa and
Australia. Suzlon, a major force in Global Wind Industry (Ranked 5th
Worldwide) by installed capacity. It provides end-to-end power
solutions. The company holds nearly 10.5% share in the global market.
Now, the company has the total production capacity of over 3000 MW.
The company currently has a combined manufacturing base of 2,700
MW of annual capacity, and is undertaking an aggressive expansion
program to expand its base to 5,700 MW of capacity in FY2009.
Aggressive growth
The company has emerged as a formidable force in Mergers &
Acquisitions. In March 2006, it acquired Hansen Transmissions, the
world's second largest turbine gearbox maker, for US$585m.In June
2007, Suzlon finally saw off French nuclear group Areva in a hardfought battle for Repower, paying US$1.9bn for its German rival.
Milestones: The Company obtained the official non-exclusive, nontransferable license for the manufacturing, marketing, dealing and
servicing of APX-60 type blades from the trustee of Aerpac B.V upon
its liquidation, for consideration of Euro 200,000 vide an agreement
that was entered into between the trustee of Aerpac B.V and the
Company dated June 4, 2001. This license is valid for an indefinite
period. The growth story so far as follows:
1998: Company installed first wind turbine in Maharashtra Satara
district.
2000: Commissioned 50MW wind turbine generator at Vankhusavade
in Maharashtra.
2001: Formation of subsidiaries Suzlon wind Energy Corp, USA and
Suzlon Energy.
2002: First export order, its First Wind Turbine in the USA.
2003: Representative office in Beijing, China.
2005: Korean Order for a 150 MW for the Jeju Wind Farm Project.
2006: 200MW Wind Farm Project for Australia Gas & Light Company.
2007: 400 MW deal with PPM Energy of Portland, USA Acquired
German wind turbine company RE Power.
2009: Market entry into Sri Lanka with an order to supply 10 MW of
wind turbine capacity to a project developed by Senok Wind Power Pvt.
Ltd.
2009: Looking at the option to start business operations in the
Canadian market in 2010.
Order Book:
Suzlon’s order book position is a reflection of its strong market position
and consistency in delivering to their customers. Its order book stands
at around USD 4,335 million. The domestic order book position is for a
capacity of 441 MW and international orders for 3,726 MW.
IOC sets up wind farm
in Gujarat-Suzlon has
awarded contract for
operation and
Maintenance
Gujarat Electricity
Regulatory
Commission has given
approval for
distribution of power
to the SEZ to Suzlon
Clientele:
Name
MSPL LTD.
Bajaj Auto Ltd
TATA Group
RELIANCE Group
Edision Mission Group
John Deere Wind Energy
Tierra Energy
Maestrale Green Energy
Technologias Energeticas Sa
Ayen Energy Company
SIIF Energy
Australia Gas & Light
Country
India
India
India
India
U.S.A
U.S.A
U.S.A
Italy
Portugal
Turkey
Brazil
Australia
Competitors:
Gamesa(Spain)
Vestas(Spain)
Enercon(Germany)
GE Wind(USA)
Global Wind Energy ETF(USA)
Nordex(Netherlands)
GoldWind(China)
Clipper Windpower(UK)
Bhel(India)
GE Wind Energy(US Subisidiary,India)
Enercon (India) Ltd.
Vestas Wind Technology India Pvt. Ltd.
NEPC India Ltd.
Strengths:
•
•
•
•
•
Skill Amalgamation
Cost Reduction---It has blended the best resources
across the globe. It has competitive R&D in Europe. The
Manufacturing Units in India and China proves to be
cost effective. Suzlon has continuously reduced capital
cost per unit of power generation and also has
maintained a consistent new product launch schedule.
Reverse outsourcing----The Company has international
head offices in Aarhus, Denmark where it has wide base
of wind energy expertise and large network of
components suppliers. The skilled workforce is available
to the company. Globally renowned wind energy
companies’ presence like Vetas and NEG Micon makes
it a hub of talented workforce and technology.
End to End Solutions---Planning of Wind Farm Systems, Land
Acquisition, Development and Technical Design., Infrastructure
and Equipment, O&M services. Suzlon offers customers' endto-end wind energy solutions, including wind resource mapping,
site development and installation, and finally operations &
maintenance services in India. This allows Suzlon to offer
Indian customers economies of scale, and eliminates the need
for customer involvement in the complex process of wind farm
development.
Vertical Integration and Amalgamation-- Suzlon is a
vertically integrated wind turbine manufacturer – with
manufacturing capability along the full value chain – ranging
from components to complete wind turbine systems.
Market leadership in India and Global Presence- The
industry's outlook to turn favorable by 2010 as easing credit and
lower costs boost demand from the U.S., Europe, China and
India.
Growth-Growing at 29% CAGR for past 10 years, higher than
industry rate.
SWOT ANALYSIS
•
Integrated Business Model-The Company plans to enter in to
Solar and Bio-fuel Business. The company is conducting
feasibility study for the further approach in this business. This
will help the company to produce 10-20 MW additionally. It has
become global/ world-wide sponsor for CNN International
innovative capsule on environment preservation.
•
Innovation- Suzlon’s R&D effort includes a highly successful
practice of leveraging skill and knowledge pools in the industry
and allied areas the world over. This has resulted in a R&D
network located across geographies.
•
Human Resource-Suzlon’s true strength is seen not only in its
technology, quality and market share – but also its people. The
Suzlon Group boasts one of the largest teams in the wind energy
business, totaling over 13,000 people from over a dozen
nationalities in operations around the world. Suzlon in its vision
for future growth aims to rank among the top three wind turbine
manufacturers worldwide, maximizing growth while
maintaining margins to generate maximum value for all
stakeholders.
•
The Electricity Act, 2003, specifies that a minimum percentage
of power generation should come from non-conventional energy
sources. For example, the Karnataka government has mandated
5% from non-conventional sources, and the Madhya Pradesh
government 0.5% This reflects the government’s intention of
reducing the dependence on fossil fuels and cut down carbondioxide emission. Moreover, perennial power shortages assure a
sustained growth in demand for power generation.
Weakness:
• Management Structure-The Company is fully dependent on
promoter Tulsi Tanti. In fact the board of directors have only
two Tanti brothers as executive directors. Three other board
members are non-executive independent directors.
• Capital Intensive-Wind power projects require high upfront
capital investment per kWh of energy. So demand will be
sensitive to interest rates.
• Overseas Business-Suzlon Energy is expanding overseas,
where major players have established markets. The advantage of
new markets and new orders may take time, while marketing,
personnel and other initial costs could jump. Hence, this may
put pressure on the margin in the short run. Risks involved in
overseas business are also higher, Company is facing liquidity
crunch to pay its debt recently promoters had sold their holding
in the company. So expansion plan may further increase the
burden on the company balance sheet.
•
Operational Risk
Cash Conversion-Company revenue mostly comes
from the International clients that involves exchange rate
risk.
Growth in Assets overweighting Growth in ProfitsRoot cause analysis shows cost overrun due to
retrofitting in winter which is an operationally
challenging season results in low productivity and
inefficiencies. As it is a rate sensitive sector reduction in
commodity prices, logistics costs, inventory, and overall
project costs affects the business as a whole.
Basic
Infrastructure:
Disruptions
in
telecommunications and basic infrastructure could harm
our ability to provide O&M services, which could result
in client dissatisfaction and a reduction of our revenues.
Local Units- The construction and operation of wind
power projects has faced opposition from local
communities and other Parties.
The
founders
of
Suzlon Energy
to
raise up to $48 million
through the sale of 30
million shares or a
stake of 2% in the
wind turbine maker to
institutional investors.
• Financial Performance:
Profitability- The Company faces foreign exchange loss
of nearly Rs 435 crore because of that 500 million zero
coupon convertible foreign Currency Convertible Bond
(FCCB) which is still pending are due in 2012. The
blade retrofits and consequentially availability charges
of nearly Rs 307 crore is another concern area and the
third is the mark-to-market (MTM) loss of nearly Rs 215
crore which is on account of foreign exchanges forwards
options contract which the company has taken to hedge.
These are the three important areas – the foreign
exchange loss, blade retrofits and MTM loss which can
affect the company’s profitability in coming time.
Leverage-The total debt on the company’s book stands
nearly Rs 14,860 crore .The Redemption of 500 million
Zero Coupon Convertible which are due in 2012 is
nearly Rs 273 cr.
Ratings—CRISIL has downgraded the rating of the
Company to BBB/P3 from A-/P+2.It reflects the
significant delays in Private equity infusion into Suzlon
resulting in a sharp deterioration in its gearing, in
contrast to the expected improvement.
Net Income- The allocation of Equity Shares pursuant to
Employee Stock Option Plan will result in a change to
income statement and will adversely impact company
net income
Opportunities:
•
•
•
•
•
Environmental and Government initiatives- The projections
of Ministry of Non-Conventional Energy Sources says10% of
the 2, 40,000MW (i.e. 24,000MW) installed capacity
requirement by the year 2012 A.D. will come from renewable. It
is envisaged that 50% of this capacity or 12,000MW may come
from wind power. India has now gained sufficient technical and
operational experience, and is now on the threshold of "taking
off" in wind power.
Favourable tax exemptions-The Wind Energy industry enjoys
special tax benefits from government and subsidies from
regulatory bodies. Better tariffs, policy support and optimistic
outlook are driving investment in this sector.
Untapped offshore Market-According to the estimate the
demand for power is still high in India even during the recent
global slowdown. The gap between supply and demand is
increasing .According to the CEA estimates by 2012 the energy
demand is expected to increase by 44%.
Steady source of demand- In US by 2030, 20 % of the
electricity would be generated by wind energy as compared to
today's 1%. In Europe, wind is expected to account for 34% of
new generating capacity. It'll account for 46% from 2020-2030.
Mexico is investing more than half a billion US dollars and
plans to build a wind farm of 250 MW within ten years. Kenya
plans to erect a wind farm that will provide up to 30 percent of
its electricity needs.
Green Power: The existing power sector emits around 40% of
global carbon dioxide emissions and there are only three options
to substantially reduce these emissions between now and 2020:
energy efficiency, fuel switching, and renewable, predominantly
wind power. Wind power could produce 12% of the world’s
energy needs and save 10 billion tones of CO2 within 12 years.
Thus addressing the environmental concerns all over the world.
Threats:
•
•
•
•
•
•
•
Intense competition- The Indian wind industry was placed third
in terms of total installed capacity of wind electricity in the
world some years back. It suffered a great setback when this
rank shifted down to fifth after the United States, Germany,
Denmark, and Spain in later years. The fastest growing wind
markets are Turkey, Mexico, Brazil, China, and Poland.
Over dependence on US- USA accounts for 50% sales for
Suzlon. Recent economic slowdown results affects the States
wind energy sector which results in liquidity crunch and
investment setback in India.
Foreign Exchange Risk-Fluctuation in the value of the Rupee
against other currencies could adversely affect the cost of our
borrowings and repayment of indebtedness, the costs of our raw
materials and revenues from exports.
Technology Risk- The failure to keep technical knowledge
confidential could erode company competitive advantage.
Decreasing Price of crude- There is a direct correlation
between Crude prices and Wind energy demand. If the crude
suffers from low prices which indicate the overall fall in
demand in infrastructure and energy demand then it would
affect the growth of the Sector.
Interest rate increase-Company agreements with whollyowned overseas subsidiaries are subject to transfer pricing
regulations. These agreements may be subject to regulatory
challenges, which may subject to higher taxes and adversely
affects the earnings.
Further Cancellation of orders- The construction and
operation of wind power projects is subject to regulation,
including environmental controls and other regulations , global
slowdown may hamper the demand for the energy in the host
countries which are most affected by the recession further blade
quality issue in China and Australia is a concern for the
company
BHEL to re-enter
wind energy biz with
big expansion plan
this year focus on
equipment
manufacture.
GAIL plans wind
energy projects in
Gujarat current fiscal
year.
INVESTMENT RATIONLE:
Full integration of RE Power acquisition will affect the EPS
of the company positively. It will give it immediate access
to mature European market. European market is largest
WTG market in terms of volumes. RE Power is considered
strong technology company. RE Power margins are lowest
in industry as it is only working as assembler. With its
acquisition a vertically integrated Suzlon can improve upon
its margin.
As world is looking alternative source of energy to sustain
the growth, harvesting energy through wind is the best
alternative. Suzlon is better positioned to capture the
opportunity. People are very much now concerned about the
environment. The demand for pollution free source of
energy is gaining ground. Harvesting energy through wind is
good alternative as most of the regions have good wind,
specially the coastal region. Energy produced from wind
mills are low cost as compared to the energy produced
through any other sources.
The wind energy demand is directly correlated with the
crude oil prices. As global economy is expected to revive by
the FY2010 .We expect the demand for crude oil will be
back as and prices will be once again shoot up from the
current levels. The demand for crude will be there for the
revival of economies especially in Emerging markets like
India and China. This scenario would urge the demand for
other alternative energy resources on demand-Supply
concerns.
The industry's outlook is expected to turn favorable by 2010
as easing credit and lower costs boost demand from the
U.S., Europe, China and India. The slowdown in the
renewable energy sector is likely to be temporary. US is
expected to approve $150b to support the US renewable
energy sector with large government incentives. The US
policy will likely boost the global renewable energy market
as well.
Products:
Wind Turbines
Components
Rotor Blade
Gearbox
Control Panels
Nacelle Cover
Tubular Towers
Services:
Wind Resource Mapping
Identification of Suitable Sites
Technical Planning of Wind Power Projects
Services and Maintenance
Project Development
Wind Farms Development
Financial Overview: (cr.)
Equity Paid Up
Networth
Capital Employed
Gross Block
Net Working Capital
Current Assets
Current Liabilities and
Provisions
Total Assets/Liabilities
Gross Sales
Net Sales
Other Income
Value Of Output
Cost of Production
Selling Cost
PBIDT
PBDT
PBIT
PBT
2008
299.39
6937.44
10022.1
8
779.2
4455.85
7348.74
2007
287.76
3701.58
2006
287.53
2796.89
4838.22
567.04
3551.78
5346.93
3147.26
400.41
2482.59
3911.84
2892.89
12915.0
7
6926.01
6926.01
151.36
7080.15
4603.69
339.68
1581.61
1442
1495.4
1355.79
1795.15
1429.25
6633.37
5380.37
5380.37
88.1
5448.97
3532.6
266.24
1294.54
1193.07
1221.05
1119.58
4576.51
3788.46
3788.46
69.28
3899.06
2483.66
120.72
1003.09
948.53
957.22
902.66
CONCLUSION:
At this price stock is having very low downside risk. The entire
negative has been discounted in the price. Investor with low risk
appetite could start accumulating this stock Investors can initiate fresh
long positions at the dips around the level of 55.The Investors if they
are holding the stock can remain invested. We expect a return of 5070% from this level.
Suhail – Zaman
Rekha Chauhan
RR Information &
Investment Research
Pvt. Ltd.
09312940496
011—23508710
suhail@rrfcl.com
09999803191
011—23508445
rekha@rrfcl.com
47, MM Road Jhandewalan New Delhi-110055 (INDIA)
011-23636362/63
www.rrfinance.com
Disclaimer
Kindly read the Risk Disclosure Documents carefully before investing in Equity Shares, Derivatives or other instruments traded
on the Stock Exchanges. RR would include RR Financial Consultants Ltd. and its subsidiaries, group companies, employees
and affiliates. The information contained herein is strictly confidential and meant solely for the selected recipient and may not be
altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in
any form, without prior written consent of RR. The information contained herein is obtained from public sources and sources
believed to be reliable, but independent verification has not been made nor is its accuracy or completeness guaranteed. RR or
their employees may have or may not have an outstanding buy or sell position or holding or interest in the products mentioned
herein. The contents and the information herein is solely for informational purpose and may not be used or considered as an
offer document or solicitation of offer to buy or sell or subscribe for securities or other financial and insurance products and
instruments. Nothing in this report constitutes investment, legal, accounting and/or tax advice or a representation that any
investment or strategy is suitable or appropriate to recipients specific circumstances. The securities and products discussed and
opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on
their own investment objectives, financial positions and needs. Please note that fixed deposits, bonds, debentures are
loans/lending instruments and the investor must satisfy himself/herself on the financial health of the company/bank/institution
before making any investment. RR and/or its affiliates take no guarantee of soundness of any company or scheme. RR has/will
make available all required information to the prospective investor if asked for in respect of any scheme/fixed
deposit/bond/loan/debenture. RR is only acting as a broker/distributor and is not representing any company in any manner
except to distribute its schemes. Mutual Fund Investments are subject to market risks, read the offer document carefully before
investing. Any recipient herein may not take the content in substitution for the exercise of independent judgment. The recipient
should independently evaluate the investment risks of any scheme of a mutual fund. RR and its affiliates accept no liability for
any loss or damage of any kind arising out of the use of any information contained herein. Past performance is not necessarily a
guide to future performance. Actual results may differ materially from those set forth in projections. RR may have issued other
reports that are inconsistent with and reach different conclusion from the information presented in this report. The information
herein is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any
locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law,
regulation or which would subject RR and its affiliates to any registration or licensing requirement within such jurisdiction. The
securities and products described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors.
Persons in whose possession this document may come are required to inform them of and to observe such restriction(s). The
display, description or references to any products, services, publications or links herein shall not constitute an endorsement by
RR. Insurance is a subject matter of solicitation. Kindly also note all the risk disclosure documents carefully before investing in
Equity Shares, IPO’s, Mutual Fund Schemes, Insurance Schemes, Fixed Deposit schemes, Debt offers, Hybrid Instruments, or
other instruments traded on Stock Exchanges or otherwise. Prospective investors can get all details and information from the
sites of SEBI, IRDA, AMFI or respective Mutual Fund Companies, Insurance Companies, Rating Agencies, Stock Exchanges
and individual corporate websites. Prospective investors are advised to fully satisfy themselves before making any investment
decision
NSE - INB 231219636, INF 231219636 BSE - INB 011219632