WIND ENERGY MARKET - Suzlon looks to China, India for turnaround

BY VARUN SOOD & SATISH JOHN

After two years of losses, Suzlon Energy Ltd, the Indian wind energy turbine maker, is looking at China and the local market to guide it to a full-year profit.

“The worst is over,“ said chairman Tulsi Tanti in a phone interview on Wednes- day, saying his firm would post profits in fiscal 2011.

This, he said, would be driv- en largely by a 50% growth it expects in China, currently the world's largest wind energy market, and a 40% growth in India, the fifth largest.

Suzlon has a 3.5% market share in China and a 59.7% share domestically.

In an interview to Bloomberg earlier this week, Tanti said the firm will be capable of making turbines with a combined ca- pacity of 1,000MW each year at its China plant by 2013, a move that will add 67% to its current 600MW capacity.

Globally, the Pune-based firm has around 10% of the wind turbine market, and had revenue of `20,620 crore for fiscal 2010. The company in- stalled 1,460MW energy, in- cluding 688MW installed in In- dia, 410MW in the US and 182MW in China.

However, competition from Chinese firms, along with slow growth in developed markets, pushed Suzlon into losses in fiscals 2009 and 2010. In the first quarter of fiscal 2011 end- ing June, it posted a loss of `912 crore on revenue of `2,399 crore.

Meanwhile, experts expect Suzlon to face hurdles as it competes against Chinese wind turbine players such as Sinovel Wind Group Co. Ltd, Xinjiang Goldwind Science and Technology Co. and Dongfang Electric Corporation. These firms had a 22.9% market share of the 38,103MW installed global wind energy market in 2009, helped by turbines that are at least 5% cheaper than Suzlon's.

“Chinese wind energy man- ufacturers have been backed by supportive government pol- icies, and many of the firms have been able to get financing from the state-owned banks, so competing against them in China will be increasingly dif- ficult,“ said Joanna Lewis, as- sistant professor, science, technology and international affairs, at Georgetown Univer- sity in Washington DC, and whose research has focused on wind energy.

In a 2 June report, analysts Pankaj Sharma and Sandip Bansal of UBS Investment Re- search wrote that the key risks to Suzlon are “liquidity and cash flows..., (and) later than expected recovery in wind orders globally.“

Tanti, though, is confident the company will sail through the tough times. He said it has addressed issues with his lend- ers and has got a “two-year moratorium on principal pay- ments and a two-year holiday on banking covenants“ as part of its refinancing plans.

Though Suzlon had a debt of `10,153 crore at the end of June, a spokesperson said that it has been reduced by 12% post a rights-issue in June to convert debt into equity by is- suing additional shares.

“We would be paying rough- ly `1,000 crore on interest on yearly basis. It is very comfort- able,“ said Tanti, who is at- tending the World Economic Forum in China.

Investors have not been con- vinced so far. The company has underperformed the Bom- bay Stock Exchange's bell- wether Sensitive Index, which rose 11.67% year to date, while Suzlon lost 43.98%. The power index on the bourse dropped 0.67%. On Wednesday, Su- zlon's shares fell 0.10% to `51.65, while Sensex rose 0.80% to 19,502.11. Suzlon is also trying to re- position REpower Systems AG, the company's German unit, with Tanti saying that it is “ex- ploring if a joint venture with a Chinese company could be done to pursue offshore wind plants“.

Under the arrangement, Su- zlon--which owns close to 91% in REpower--would provide the wind turbines while its Chinese partner would help set up the offshore structure.
“We will integrate REpower and raise our stake,“ Tanti added, rebutting market ru- mours of a partial stake sale in that firm.

Some analysts, however, say Suzlon could dilute its stake in its Belgian subsidiary Hansen Transmissions International NV to cut debt.

Analysts at JM Financial, in an August research report, wrote that “...On Hansen,...
(in) which Tanti's Suzlon pared stake to 26% last year to repay debt, the Indian promot- er has reserved his right to sell at a later date.. It will help re- duce debt burden and result in substantial fixed cost reduc- tion for Suzlon“.

Tanti, however, said there were no immediate “plans to dilute our stake in Hansen. In the future, depending on the right valuation, we could con- sider it“.

varun.s@livemint.com