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Suzlon Energy

Strategic Mangement

… provides innovative, efficient and customized wind power solutions


that drive economic development, while preserving nature and
mitigating the effects of unbridled development – creating a more
sustainable, greener tomorrow

Riddhima Agarwal 02
Gargi Datta
13
AvinashLobo 34
Sumit Kumar
35
Nikhar Shah 55
Suzlon Energy Limited
 A Major Force in the Global Wind Industry (Ranked 5th
Worldwide)*

 Provides end-to-end wind power solutions

 Broad spectrum of services:


 Design & Development
 Wind farm project developer and operator
 Manufacturing
 Marketing
 EPC Project Delivery
 Operations
 Maintenance of Wind Turbine Generators

* by capacity installed
Company Vision
“ To be a technology leader, to be among the top 3 wind energy

companies in the

world by leveraging technological leadership and commercial

acumen to exceed

customer expectations and be the most respectable brand which

grows fast & is

the most profitable company employing the best team in the

sector”
Company Mission
“To pursue technological advancement and combine innovation,

providing end-to-end

solutions and a vertically integrated manufacturing strategy to deliver

maximum value

to the customer, and to lead the way in ‘powering a greener tomorrow “


Company Values

People Strength

Aggressive vertical integration strategy

Strong R&D program

Expanding manufacturing capability


The Growth Story
1995: First wind farm project in Gujarat (3 MW)

1997: Det Norse Veritas (DNV) certifies Suzlonwith the coveted ISO 9001/2

1998: First Wind Turbine in Maharashtra, Satara District

2000: Commissioned 50 MW Wind turbine generator at Vankhusavade,


Maharashtra

2001: Formation of subsidiaries: Suzlon Wind Energy Corp, U SA & Suzlon


Energy Gmbh, Germany

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: 200 MW 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
Most Recently…

 Entered markets in Spain, Nicaragua


and Turkey
 Backward integration into cast and
forged steel

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Industry Overview and
Analysis
Global wind Industry
In 2006, over 15 GW of new wind power capacity was installed worldwide

Demand for renewable energy by consumers

Rising oil and gas prices

Rising worldwide demand for energy especially in developing countries

Social shift toward "green" thinking has positioned wind as a energy

source for the future


Global Trends

Installed Capacity

Cumulative Capacity
Global wind turbine
flow
Global Market

Global Market Share: Top 10 Wind Turbine


Manufacturers (2007)
Source: BTM, 2007,Windpower Monthly
Indian Market
 India – The 4th largest installed wind power
capacity in the world and the wind energy
leader in the developing world.

 Domestic policy support for wind power (Ministry for

Non-Conventional Energy Sources ,MNES)

 Rise of a leading global wind turbine manufacturer

(Suzlon, 52 % market share in India & 5th largest in


the world)
PESTLE Analysis
Political
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Economic
Social
Technological
Enviornmental
Legal
Porter’s 5 Force Analysi
The Intensity of
Competitive
Medium
Rivalry
Bargaining Power of
Suppliers
High
Bargaining Power
ofBuyers
Low
The Threat of Substitute
Product
Low
The Threat of New
Entrants
Low
Detailed Competitor
Analysis
Competitors Analysis :- Growth in
Market Share
Competitors Analysis :- Future
Capex
Competitors Analysis
Suzlon’s Strategy
Suzlon : Key Strategies
 Skill Amalgamation
 Cost Reduction

 Reverse Outsourcing

 End to End Solutions


 Vertical Integration and Acquisition
 Integrated manufacturing capability
 Wide range of offerings
Skill Amalgamation
 Blend of the best possible skills / resources across the globe
 R and D in Europe
 Low Cost manufacturing in India and China
 Suzlon has continuously reduced capital cost per unit of power
generation and also has maintained a consistent new product
launch schedule
Cost Reduction
Reverse Outsourcing
• International headquarters in Aarhus, Denmark
 Base of wind energy expertise and extensive network of
components suppliers
 Large available workforce
 Europe - Global R & D center of wind power
 Talent hub due to presence of Danish wind companies,
Vestas and NEG Micon,
End to End Solutions
Suzlon – Vertical
Integration through
Acquisitions
Acquisition of Hansen
 Manufactures gear boxes for wind turbines

 Gearbox is key bottleneck in the industry due to lead times

 Was a source of comfort to other wind turbine makers


Vertical Integration and
Acquisition
 Step 1 - Acquisition of Hansen for gearbox
capacity
 Siemens AG taking control of the market leader in
gearboxes, Winergy AG
 Gearbox is a supply bottleneck for WTGs because of long
lead times
Capacity expansion

Step 2 - Enhancing gearbox capacity


Integration

Step 3 - Internal sourcing of gearboxes from Hansen


 Suzlon to start sourcing gearboxes
Hansen in FY08 with 8 % , 25 % and 35 %
of Hansen’s sales going to Suzlon in FY08E, FY9E and FY10E
 Vertical integration by FY08
 70,000MT of forging & machining capacity,

 120,000MT of foundry & machining capacity

 rotor blade testing facility


Suzlon World No 2 in terms
of Vertical Intregation
Vertical Integration
Matrix
Integrated Manufacturing
Capability
 Support high growth regions-India, China and the US by
increasing its in-house manufacturing capabilities
 Lowering wind turbine costs
 By gaining greater control over the supply chain,

 By enabling quicker and more efficient assembly and faster

delivery times to customers


 Allows to cut logistics and transaction costs since fewer
parties are involved along the chain
 Strong access to local networks
SUZLON – RE Power
Integration
• News –
On 1 September, Tanti struck
a deal to buy Martifer Group’s
22% stake in Repower Systems
AG, the last step to complete
acquisition, giving Suzlon a 90%
holding and access to the
German wind turbine maker’s
technology which it needs

• Mr. Tanti said, “ Suzlon has a clear advantage over rivals


because, unlike other wind turbine companies that are either
assemblers or manufacturers, it is vertically integrated. With
access to RE power’s technology , Suzlon can take a shot at
becoming one of the world’s top three firms in wind energy”
RE Power
• Leading turbine producers in the German wind energy
sector
• Market share in excess of 10% (third-largest in Germany).
• It develops, produces, and installs wind turbines.
• Its product range comprises of 1.5 to 5MW turbines
• Technical strength for offshore wind development sites
• 5 MW - The largest wind turbines in the world.
• Technologically advanced wind turbines
• Comprehensive expertise in planning and constructing
turnkey wind farms.
RE Power - A strategic fit
for Suzlon
• Access to the
– World’s largest market in installed capacity,
– Superior R&D technology
– Established infrastructure and customer base,
– Technology for offshore development

• Suzlon, with its existing infrastructure base and R&D


capabilities, could have easily taken three-four years to
significantly penetrate the European market.

• Also, large number of projects are expected to come in the


offshore market and this acquisition gives Suzlon the
technology break through to enter the segment
Problematic Strategies

 Dependence on U S markets

 USwind turbine sales are dependent


upon Production tax Credits (PTC)
Dependence on US
markets
PTC non extension effect
 The US Energy Bill has extended production tax credits

(PTC) till 31st Dec 2009 only, creating uncertainty for wind

farm developers

 In the past, US wind markets have reacted negatively to PTC

not being extended

 Renewable Energy Portfolio Standard: by 2020 utilities in all

US states source 15 %-20 % of power from clean sources


PTC driven US wind
market
Financial and Operational
Analysis
Scale of Operations

• Presently the company is running an order book backlog of 817MW (Rs 4,000
crores)

•Suzlon will have to increase the capacity of its plants from 1.5MW - 2MW to
3.5 MW
- 4 MW to compete with its global peers

•Inspite of rising inputs the company enjoys pricing power which is indicated
by the continuous price increases over the past few quarters
Operational Efficiency

•The revenues are growing •The dip in margins in 2007 is


therefore the dip signifies a due to an increase in opex and
substantial improvement higher interest expense
expected in efficiency. •Decreasing trend in operating
•For this the company is margins led to dip in return
pursuing a lot of initiatives ratios
Operational Efficiency

•The total assets are growing at a faster rate compared to EBIT. Hence
there is a continuous decrease in ROTA

•The company has tried to improve the ROTA through sale and leaseback
however:
•Sale and leaseback of land highly limited due to regulations and multiple
ownerships
•Cancellable lease on WTGs
•Lease rentals not fixed but dependent on the output

•On further analysis we find the figure of sundry debtors in the doubtful
category, is increasing YOY
Operational Analysis

•Declining fixed asset turnover


led to decrease in operating
margins and ROCE

•Suzlon has set up manufacturing facilities in


the US, China, and Europe to be close to its
customers; thus, helping it improve its cash
conversion cycle
Flow of Funds
Cashflow Analysis

•The cashflow seem unstable due fluctuations in capex

•The operating cashflows however are improving

•The sudden increase in cashflow from financing is due to long term


borrowings in 2007 and fresh issue of shares and debentures in 2008
Financial Leverage

Six units of Suzlon Energy were downgraded from stable to negative by crisil on basis of high D/E
and the impact of global slowdown

Increased borrowings to fund acquisition of Hansen in FY07 raised debt equity and led to a dip in
interest coverage and DSCR

Loan book increased sharply. However, borrowing cost dipped due to low cost borrowings on
account of ZCCB
Financial Leverage -
Impact
Profitability Analysis
•ROCE has seen a decline inspite of YOY growth in
PAT due to increases YOY capex for capacity
building
•Also PAT has been affected by increased costs of
shipping and loss in unhedged forex exposure and
credit crunch
•There has also been exceptional expenses to

Growth in NW:
•The company raised INR 21.8 bn through a follow-
on offer of equity to selected QIBsat an issue price
of INR 1,917 per equity share of INR 10
•The effective 100% holding in Hansen, a
subsidiary, was diluted during the year to71.3%
which led to a gain of INR 12.0 bn
•Investments increased to INR 31.4 bn in FY08 as
against INR 0.2 bn in FY07 due to investments in
REpower.
•Cash and bank balances stand at INR 69.6 bn in
FY08 as compared to INR 15.4 bn in FY07. The
increase was mainly due to increase in term
deposits with banks, placed from QIP, Hansen IPO
Profitability Analysis
 The decline in profitability has been a concern in

the board room too and some measures have

been already taken

Control inventory

Better collection

Improve COGS
In the Market

The volume trend is an expression of :


•Change in dividend payout policy owing to
high growth trajectory planned
•Falling ROE
•Recent Negative impact events
•Downgrading of ratings
•Impact of global slowdown
Falling prices make them vulnerable to being
overtaken
SWOT Analysis
Strengths
 Integrated Business Model
 In-house Technology and Design Capabilities
 Market leadership in India and Global presence
 Growing at 29% CAGR for past 10 yrs, higher than industry growth rate
 Prudent acquisitions and alliances
 Cash flows
 Global Production
 Strong Management
 Pricing Power
 Diversified Product Line
Weakness
 Operational risk
Cash conversion
Growth in Assets overweighing Growth in Profits

 Financial performance
Value to share holders
Profitability
Stock price
Leverage
Ratings
Opportunities

Environmental awareness and government initiatives


Favourable Tax Exemptions
Untapped Offshore market
Steady source of demand
Other renewable energy opportunities seem bright 
Alliances with Power Sector
Vast coast lines of India and low cost
Threats
 Intense competition

 Over dependence on US

 Foreign exchange risk

 Technology risk

 Expiry of Federal Production TAX credits in USA may slowdown the

growth
Strategies Going Ahead
Future strategies
•Continuing Rapid Growth
•Being in the profitable sectors - US and Europe
•Manage risks of over dependence
•Improve value to share holders
•Improve operational efficiency
•Manage Backlogs
•Improve Industrial Relationships
•Solar Energy

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Conclusion

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In Focus

• Positive growth path


• Prudent investments
• Focus on RnD
• Strategic alliances
• Strengthening brand image
• Scope of diversification
• Maintain profitability
Thank You