Suzlon, The Wind Turbine Manufacturer

Suzlon which is India’s largest pure play green company and one of the largest wind turbine manufactures globally has been stuck in morass since 2009. The company has been making losses continuously as the global environment changed dramatically with a massive supply glut by Chinese wind turbine makers and falling prices. Suzlon has never recovered from these problems and the recent quarter earnings were one of the worst. The company is facing a severe cash squeeze as it loses business due to working capital shortage. While senior creditors have supported the company in paying a foreign convertible debt, more principal debt is coming for payment soon. Suzlon has been selling assets like its wind turbine business in China, wind farms, however it is not making a dent in the massive debt load.

Suzlon like the other erstwhile wind giants like Vestas and Gamesa are being slowly driven to bankruptcy and consolidation by attrition. Most of the top 10 wind turbine producers are losing money including Chinese giants like Sinovel. Suzlon is going to fire 20% of its workforce and sell more of its crown jewels. Servicing of the Debt will become even more difficult as it sells key revenue generating assets like wind farms and its Forge Unit.

Demand is also slowing down in key markets like China, USA and India with subsidies being reduced and wind markets reaching maturity. Wind Power in India is also slowing down as accelerated depreciation and GBI have been removed. With growth slowing down, it is becoming even harder to raise prices and return to profitability. There are already rumors that the biggest wind company Vestas is on sale. It looks like that Suzlon also has a limited time to remain an independent company as well.

We had discussed in GWI that Suzlon was not a good buy at Rs 51 when the analysts were all gung-ho and it has been proved that the Suzlon has been a falling knife falling to one-third of its share price at that time

The company continues to operate at a below break-even level despite order book improving slowly. RePower is a bright spot with a good order book and gaining strong traction for its larger turbines. It has a marketcap of ~$2 billion which gives it an enterprise value of ~$2.75 billion. This is not cheap considering it has been losing money for the last several quarters. The stock is trading at a 52 week low of Rs 51 which is less than half of its 52 week high price. The stock might offer some  short term profits  for high risk traders on a dead cat bounce, but it is definitely not a fundamental pick. Unless the company really makes significant progress on the revenue and orders front, it is not a buy in my book.

 Bloomberg

Suzlon plans to pare fixed costs by 20 percent this fiscal year by “reducing manpower and operational expenditures,” Chief Financial Officer Kirti Vagadia said in a phone interview today. The company’s shares closed down 4 percent at 17 rupees. The Pune-based company plans a foreign currency- denominated, high-yield bond issue of as much as $500 million in the third quarter, Vagadia said. The company must redeem $142.2 million of convertible notes maturing on Oct. 11, according to data compiled by Bloomberg. To meet debt obligations, Suzlon has borrowed $300 million from banks and liquidated non-critical assets, including two Indian wind farms in April and a Chinese factory. The company redeemed $360 million of convertible notes on July 27, the last day of a 45-day extension it had requested of bondholders while it raised money from lenders.

Note some of India’s wind companies like Regen have managed to perform well.

1) Suzlon Energy – Suzlon Energy is the biggest Wind Energy Company by far with 4-5 Gigawatts of WTG Capacity per year. Its subsidiaries Hansen Transmission and RePower are also big players in the Wind Energy in Europe. The Company has seen its revenues and profits take a huge hit in recent times but has been recovering slowly.

2) RRB Energy – The company has a long history and manufactures Wind Turbines at its plants in Tamil Nadu. The Company has a capacity of 300 MW which it is expanding to 700 MW. The Company makes only 2 models with power rating of 600 Kw and 1.8 MW. Merill Lynch made a small investment in this company.

3) NEPC India – This company was one of the wind energy heavyweights and a stock market darling earlier. However It no longer remains an active player in the Indian market. Heavy Debt and Bad Management drove to this company to the ground despite being a pioneer in the Indian Wind Power Market.

4) Auro Mira Energy – The company is more of a Green Utility rather than a full fledged WEG manufacturer. It has made plans to manufacture Wind Turbines in the future. It has attracted funds from Baring and IFC to push forward its Green Plans.

5) Regen Powertech – It is a small scale WTG Supplier like RRB Energy which recently set up a small 300 MW manufacturing facility in Tada, Andhra Pradesh recently. The company licenses technology from Vensys to manufacture 1.5 MW gearless Wind Turbines. The company has managed to supply both big and small wind farms over the last 2 years. The company is supported by the PE arm of Future Group.

6) WinWind – The company is not exactly a domestic company rather one with a Finnish Origin. It is owned by the Abu Dhabi Masdar, Siva Group and the government of Finland. It has recently established a 1000 MW capacity in Venga, Tamil Nadu and also has a 500 MW plant in Finland as well. The company plans to producer 3 MW Turbines at its Indian plant as well.

7) Pioneer Wincon – The company is a JV between the Pioneer Group and Wincon of Denmark. It makes small 250 KW Turbines and is a bit player with 30 years of operations in India. The Company remains a small static player in the Wind Energy Market of India.

8) Chiranjeevi Wind Energy – A Small bit player like Pioneer Wincon which engages mostly in the sale of small 250 KW Wind Turbines. Like Pioneer Wincon it has sold a number of these Turbines to small companies mainly in the Southern Part of India.

9) Lietnar Shriram Limited – The company is a 50:50 JV between the Shriram Group of India and Lietnar of Italy. The company makes gearless turbines of 1.5 MW capacity and has supplied to small farms in Maharashtra. The company has a major in-house customer in the form of Orient Green Power which is building a 300 MW farm in Tamil Nadu using Lietnar Shriram Wind Turbines.

10) Kenersys – The company is part of the Baba Kalyani Group which is a major forgings manufacturer in India. It was bought over in 2007, when the Kalyani Group and PE firm First Reserve bought over the German company RSB Consult. The Company mainly  makes 2 and 2.5 MW turbines and has production facilities both in India and Germany. It has wind design capabilities between 1-3.6 MW and with a powerful parent, it could become a success in the future. Amongst the newer wind energy companies like Lietnar, RRB Energy, Regen and WinWind, it looks like the one with most potential.