You are on page 1of 27

Energy Sector- Suzlon

Energy
Hakimi Consultants

SUZLON-Company
Overview
A globalwind powercompany.
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
continents

30+ countries spread across 5

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 Indias total wind turbine
installations

Global - Industry Trends &


Outcomes

Global Wind Power Share

Global Installed Capacity (GW)

Global Energy Generation (TWh)


*Source-Suzlon Q1 FY11 Result Presentation

Energy
Security

Kyoto Protocol: Reduction of CO22


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

Climate Change &


Global Warming

Cost Competitiveness &


Hedging

Hedge against Geopolitical risksLocal and


Secured supply

1600
1400
1200
1000
800
600
400
200
0

India - Industry Trends &


Outcomes
Production(GW)
Consumption
(TWh)

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 3.395.32 per kWh by some states

Industry Analysis Challenges


Decommissio
ning
of
Accelerated
Depreciation
Policy
Inadequate
grid
infrastructur
e
Irregular
Tariff
Changes for
Wind Energy
High
Competition
from Foreign
Players

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
Inadequate
grid
in states
with
high reduces
wind potential
investments
at infrastructure
a faster rate than
normal,
which
tax
has slowed down the growth of wind energy industry
liabilities.

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
Increased competition from global players such as Vestas,
projects.
Sinovel and Enercon. India, a growing wind energy markets, is
likely to see increased focus from players like Siemens, GE and
Indowind.

Huge
Capital
Threat
of
New
requirement
Entry
Suzlon
as (Low)
a brand is
preferred by clients
Advanced Technology
required
Access to resources
Quality
control
Standards

High
demand
Supplier
Powerfor
components
( Low to
Suzlon
Moderate) has
successfully
adopted
Backward Integration
which has reduced its
dependency
on
suppliers.
For the suppliers
forward integration is
very costly

Porters Five Forces Few potential Buyers


Threat
of New
Entry

Suppli
er
Power

Competit
ive
Rivalry

BuyertoPower
Sensitive
pricing
Power (Low)Purchase
Structure
In India Switching
cost is high
Backward integration
for buyers is difficult

Buyer
Powe
r
Threatrenewable
of
Other

Threat
of
Substitu
tes
Competitive Rivalry (Moderate to
High Exit Costs High)

Competitive pricing
Large global players like Vestas, GE wind
etc.

Substitutes
technologies
(Moderate)
Price
substitution
from
conventional
sources
Although
financial
incentives are there
for wind energy from
govt.

SWOT Analysis
Weaknesse
s

Strengths
Technologies &
Development
Capabilities
expertise in key
components
Global resource
pool
for faster
designing
& development
MW and multiMW
WTG models and
Rotor blades
developed
indigenously

Wind
Resource
mapping

Opportunit
ies

Reduces
Integrated
Market Leader
supplier

Among
the top
Business
Model
and Global
dependency
three
WTGs
presence
Benefit from
companies
cost
Global
efficiencies and
presence
economies of
across 5
scale
continents
Hassle free
Market leader
solutions
in
to customers
India
Greater control
over
execution time
line,
End-to-End
cost & quality
Solution
Provider

Site
Identificati
on

Land
Acquisitio
n

WTG and
Component
Manufacturi
ng

Threats
Acquisitions
and Alliances
Competitive
advantage
through
acquisitions of
REpower &
Hansen

Site
Developme
nt,
Infrastructu
re set-up
and WTG
installation

Operation
s and
Maintena
nce
Services

SWOT Analysis
Strengths

Weaknesse
s

Huge growth in
assets is
diminishing the
growth in profits

Unsupportive
Stock Prices

Opportunit
ies

Operational inefficiencies

WEAKNESSES

Weak Strategic Financial Management

Threats

Unfavourable
Ratings
from
rating
agencies

Inefficient Working Capital Management

SWOT Analysis
Strengths

Weaknesse
s

Opportunit
ies

Threats

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.

SWOT Analysis
Strengths

Weaknesse
s

Opportunit
ies

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.

Suzlon-Current Growth Strategies


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
know-how
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-toEnd)

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

Mergers and
Acquisitions

To eliminate
supply chain
constraints
and ensure
quicker
delivery to
customers

Boosting its
core
competencies
Integrate with
its operations,
and
Have
manageable
consolidation

R&D and
Innovation

Organizational Structure
Corporate
services

R&D

Functio
nal
Areas

Manufactu
ring

Suzlon
Technology
Group
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

Currently Suzlon is operating in more than 30 countries and expanding.

Proposed Organizational
In the near future as Suzlon increases its foothold to other
Geographical
Organizational
Structure

geographies,

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
Suzl
on
Asia

Austra
lia

Europ
e

North
Americ
a

South
Americ
a

Functio
nal
Groups

Functio
nal
Groups

Functio
nal
Groups

Functio
nal
Groups

Functio
nal
Groups

Techni
cal
groups

Manufactu
Manufactu
ring
ring

Techni
cal
groups

Manufactu
Manufactu
ring
ring

Techni
cal
groups

Manufactu
Manufactu
ring
ring

Techni
cal
groups

Manufactu
Manufactu
ring
ring

Techni
cal
groups

Manufactu
Manufactu
ring
ring

Potential New Target Markets


Mexico

Argentina,
Uruguay

Morocco

Egypt

Japan, Philippines,
Taiwan, Thailand

Potential New Target Markets


Argenti
na

Its 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 .

Thailan
d

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.

Philippi
nes

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. Its 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.

Proposed Strategic Initiatives


Repowering and Recycling

Wind-Solar Hybrid Systems

Gearless turbine - Direct Drive Technology

Blue Ocean Strategy-B2C

Brand Promotion Social Media

Repowering and Recycling

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

42 % of the rotor parts can be recycled

52% of other 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.

Wind-Solar Hybrid Systems


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.

Gearless turbine - Direct Drive


Technology

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 direct-drive
generator technology and
leverage on the technology

Blue Ocean Strategy - B2C


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.
65 per cent of people claim they would
like to buy products made using wind
energy

B-to-C
Consum
ers

The Road Ahea

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
Consum
ers

Today

Brand Promotion Social Media


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?

onse to this highlighting Suzlon could straight away get the business for

Suzlon by being live in the Social Media can generate more business

Strategy - Medium Term

Support Wind R&D in private sectors and educational institutions like


IITs.
Target firms which exceed pollution limits with its signature end-toend 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

Blue Chip Mantras


Custome
r
Centricit
y

Ruthless
focus on
financial
returns

Innovative
ness 20%
revenues
from
products
launched in
the last 3
years

Lead, or
aspire to
lead Be
#1 or #2
in the
business

Global
Potentia
l Explore
the world
markets

Suzlons
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

Debt Restructuring
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

Financial Strategies
Future Projections
(Rs cr)

2010-11

2010-11
Q4

2011-12
2012- 20132011-12E
Q1
13E
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
Publishing additional set of financial
Joint Ventures in
Listing overseas in
statements in accordance with US
select potential
NYSE/DAX will
GAAP
/
IFRS
will
be
more
relevant
to
new markets
improve the
its potential US and European
instead of
liquidity of the
investors, who make up more than
acquisitions which
companys stock
50% of Suzlon's revenue.
would reduce its
and provide access
investment cash
to new capital
Post complete acquisition of RE Power, Suzlon should
leverage and
outflows
markets
garner maximum potential from RE and integrate REs operations with
its global operations to increase synergy and optimization

Strategic Roadmap
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 plants 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 .

References
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

Thank You