Chennai, Nov.

22 When Suzlon Energy bought the Belgium-based Hansen Transmissions from a clutch of private equity firms in March 2006, it appeared at that time the right step to take. The wind turbine manufacturer was keen to have an integrated manufacturing base producing most of the critical components for the turbines in-house and having control over a global leader in gearbox manufacturing was a part of that strategy, according to wind industry experts. At that time, they say, the wind turbine industry globally faced a shortage of critical components. By buying Hansen, a leading gear box manufacturer, Suzlon was securing the supply of at least one major part of a wind turbine. However, with the economic slowdown and with financing becoming difficult for wind energy projects in the US and Europe (two of the largest markets), components supply is no longer an issue, according to the experts. They do not foresee any problems for Suzlon even if it were to sell its remaining 26 per cent stake in Hansen at a later date. Enormous value creation Suzlon bought Hansen Transmissions for about Rs 2,500 crore, after which it diluted its holding in the Belgian company, first through a listing on the London Stock Exchange in December 2007, bringing down its stake to around 71 per cent. It then sold a 10 per cent stake to Ecofin Ltd, an investment firm, in January 2009. Sources say that Suzlon raised nearly Rs 2,300 crore by listing Hansen on the LSE and got about Rs 600 crore through the deal with Ecofin. The latest equity dilution, when it sold a 35.22 per cent stake through an issue of depository interests to raise about Rs 1,735 crore, has brought down Suzlons holding in Hansen, through its subsidiary AE-Rotor Holding BV, to 26.06 per cent. After this issue, Suzlons Chairman and Managing Director, Mr Tulsi Tanti, was quoted in a release as saying that its acquisition of Hansen was guided by long-range strategic interests. Since then, it had seen enormous value creation in Hansen, he was quoted in the release. Just six months prior to the Hansen acquisition, Suzlon Energy had completed a public issue in September 2005, with its shares (of face value Rs 10) priced at Rs 510 each, being oversubscribed nearly 46 times. The company raised Rs 1,364.90 crore through the issue. Suzlon, a leading wind turbine manufacturer with aggressive growth plans, has repeatedly emphasised its plans to have an integrated manufacturing base, with most of the key components such as rotor blades, generators, gearboxes, control panels, towers, nose cones and nacelle covers manufactured in-house. Meltdown impact The Suzlon groups manufacturing footprint includes wind turbines (in India, China and Germany), rotor blades (in the US, India and China), gearboxes (Belgium, India and China), forgings and castings (India).

However, since the Hansen acquisition and the purchase in May 2007 of REpower of Germany, which makes wind turbines of higher capacity, Suzlon was hit by the global economic meltdown from the second half of 2007. Since its acquisition by Suzlon, Hansen has expanded its manufacturing capacity for gearboxes in Belgium and also set up plants in India and China, both of which have begun commercial production. At the time of its acquisition by Suzlon, Hansen had a capacity of 3,600 MW of gearboxes for wind turbines and 3,000 units of industrial gearboxes, a year. Due to the slowdown, even this capacity has not been fully utilised. Revenue decline For the half-year ending September 30, 2009, Hansen reported revenues of 285 million, down three per cent over the same period in the previous year and a loss of 8.9 million (against a profit of 21 million in the previous year). The company has said that the revenue decline was entirely in wind gearboxes, the segment from which it gets almost 85 per cent of its revenues. Hansen has said that its under-utilised capacity and one-time restructuring costs brought down its EBITDA (earnings before interest, tax, depreciation and amortisation) margin to 6 per cent compared to 15.7 per cent for the same period in the previous year. Hansen, which supplies gearboxes to leading turbine manufacturers such as Vestas, Gamesa and Siemens (apart from Suzlon and REpower), had outlined its plans to increase its gearbox manufacturing capacity to 14,300 MW in two years, from 7,300 MW as at March 31, 2009. The expanded capacity will include 6,700 MW in Belgium and 4,300 MW in Coimbatore, India, and another 3,300 MW in the Tianjin facility in China. Industry watchers wonder whether the planned capacity expansions will be completed as scheduled. Suzlon, according to information available on its Web site, sources a third of its gearbox requirement from Hansen. Its other suppliers are Winergy AG of Germany and Winergy Drive Systems India (P) Ltd. Suzlon spent nearly Rs 10,000 crore on buying Hansen and REpower, both acquisitions happening within the space of a year. Its consolidated debt at the end of the first half of this year stood at Rs 13,762 crore. In presentations to analysts and investors, Suzlon has said that it is continuously looking to reduce its debt and has replaced a part of its high-cost loans with fresh, low-cost ones. Suzlons shares of face value Rs 2 each ended last week at Rs 73.35, nearly half the 52-week high price of Rs 145.70.