1. Energy Sector- Suzlon Energy Hakimi Consultants

2. 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 Indias total wind turbine installations 3. 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 Global Wind Power Share Global Energy Generation (TWh)Global Installed Capacity (GW) *Source-Suzlon Q1 FY11 Result Presentation 4. 2011 2014 2018 2021 0 500 1000 1500 Production(GW) Consumption (TWh) *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 5. 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. 6. Competitive Rivalry Supplier Power Threat of New Entry Threat of Substitutes Buyer Power Huge Capital requirement Suzlon as a brand is preferred by clients Advanced Technology required Access to resources Quality control Standards Few potential Buyers Sensitive to pricing Power Purchase Structure In India Switching cost is high Backward integration for buyers is difficult 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 renewable technologies Price substitution from conventional sources Although financial incentives are there for wind energy from govt. Threat of New Entry (Low) Buyer Power (Low) Supplier Power ( Low to Moderate) Threat of Substitutes (Moderate) High Exit Costs Competitive pricing Large global players like Vestas, GE wind etc. Competitive Rivalry (Moderate to High) 7. OpportunitiesWeaknesses Integrated Business Model Reduces supplier dependency Benefit from cost efficiencies and economies of scale Hassle free solutions to customers Greater control over execution time line, cost & quality Development expertise in key components Global resource pool for faster designing & development MW and multi-MW WTG models and Rotor blades developed indigenously Wind Resource mapping Site Identification Land Acquisition WTG and Component Manufacturing Site Development, I nfrastructure set-up and WTG installation Operations and Maintenance Services End-to-End Solution Provider Technologies & Capabilities Acquisitions and Alliances Market Leader and Global presence Among the top three WTGs companies Global presence across 5 continents Market leader in India Competitive advantage through acquisitions of REpower & Hansen Strengths Threats 8. OpportunitiesWeaknesses WEAKNESSES Operational inefficiencies Huge growth in assets is diminishing the growth in profits Unsupportive Stock Prices Unfavourable Ratings from rating agencies Weak Strategic Financial Management Inefficient Working Capital Management Strengths Threats 9. OpportunitiesWeaknesses 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. Strengths Threats 10. 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. OpportunitiesWeaknessesStrengths Threats 11. Horizontal growth acceleration through M&A Vertical Integration Improving Cost Efficiency Focus on High Growth Markets Strategic Focus on Customer needs (End-to-End) R&D and Innovation 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 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 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 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 12. Functional Areas Corporate services Manufacturing Business Units R&D 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. 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. Suzlon Technology Group Product and Project Management Organization Functional Organization 13. CMD Suzlon Asia Functional Groups Technical groups Manufacturing Australia Functional Groups Technical groups Manufacturing Europe Functional Groups Technical groups Manufacturing North America Functional Groups Technical groups Manufacturing South America Functional Groups Technical groups Manufacturing 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. 14. Argentina, Uru guay Morocco Egypt Japan, Philippines, Taiwan, ThailandMexico 15. 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 . Argentina 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. Thailand 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%. Philippines 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.Mexico 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. Others 16. Repowering and Recycling Wind-Solar Hybrid Systems Gearless turbine - Direct Drive Technology Blue Ocean Strategy-B2C Brand Promotion Social Media 17. 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. 18. 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. 19. 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 20. B-to-C Consumers B-to-B Consumers 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 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. 21. Ample evidence of the power of internet in the B2B space 92% B2B requirements commence with an online search 75% B2B decisions are finalized online 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 22. Support Wind R&D in private sectors and educational institutions like IITs. 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 23. Lead, or aspire to lead Be #1 or #2 in the business Global Potential Explore the world markets Innovativeness 20% revenues from products launched in the last 3 years Ruthless focus on financial returns Customer Centricity 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 24. 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 25. 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 Listing overseas in NYSE/DAX will improve the liquidity of the companys 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 REs operations with its global operations to increase synergy and optimization Reduce operational expenditures and increase efficiency to boost bottom-line 26. Gain competitive advantage through Corporate Social Responsibility Forward integration in the value chain by Electricity Generation Focus on geographical diversification of business to reduce risk Reduce carbon footprints by focusing on addressing emissions in all phases of wind plants life cycle Exploit huge opportunities in the German market where Nuclear Plants are being phased out and Wind energy share is expected to increase Achieve Six-Sigma standards in manufacturing operations 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 . 27. 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