Suzlon Energy Analysis

Table of Content

SUZLON ENERGY LIMITED A Business Report Submitted in partial fulfilment of the requirements of the course WRITTEN ANALYSIS AND COMMUNICATION-II TO Instructor: Prof. Meenakshi Sharma Academic Associate: Mr. Saurabh Shukla By A. Arun Kumar Puneet Srivastava Rahul Dalia Ayush Bhutani Vikram Kumbhare Nishit Kumar On 3rd March, 2013 INDIAN INSTITUTE OF MANAGEMENT, AHMEDABAD LETTER OF TRANSMITTAL Date – March 3, 2013 Mr. Tulsi Tanti, Chairman and Managing Director, Suzlon Energy Limited. Subject: Analysis of decisions taken by Suzlon after the financial crisis explaining the current situation and suggesting future course of action.

Dear Sir, This is with reference to your request for advice on the best course of action for Suzlon. Please find an enclosed a detailed report which includes the concerns before the financial crisis, analysis of decisions taken over the last 4 years, current issues and recommendations for future. We recommend strategies for improving the financial position of Suzlon by sale of non critical assets and reducing operational, entering into new economies especially China through alliances, improving customer relationships and restoring its lost credibility among the stakeholders.

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Yours sincerely, WIMWI Consultants Enclosure: A detailed report on subject “Suzlon Energy Limited” Executive Summary With the rising oil, gas and coal prices, the global economy was constantly on a lookout for alternative sources of energy to boost industry production and achieve growth. Wind energy was one of such alternative sources of energy and there was a huge growth potential in the wind energy industry. Moreover there were a series of government regulations such as tax incentives, carbon credits etc which supported production of wind energy.

Owing to the high growth potential and full fledged government support, many major players such as Suzlon, Enercon, Vestas etc had entered into this sector. Before the financial crisis of 2008, Suzlon had concerns such as continuously increasing raw material prices, uncertain supply from suppliers and a huge debt on balance sheet. Moreover integration of different technologies, cultural integration among various locations, quality talent acquisition, complaints from customers and high risk in sustainability of growth were some of the other concerns faced by Suzlon.

There were some quality issues also in the supply of turbine parts to Edison Mission Energy. It looked as if Suzlon had expanded too much and it was becoming difficult for it to manage such a huge business. After the financial crisis the demand of wind turbines reduced drastically. Decisions such as moving towards emerging markets and into low and mid wind sites were essential to counter immediate effects of the crisis. Sale of Hansen was important for financing the debt repayment but divestment of Chinese plant (Tianjin) which was a critical part of Suzlon’s Chinese strategy was a debatable one.

Decision to acquire 100% stake in REpower was the right decision and was imperative for Suzlon’s future growth. Instead of defaulting on FCCB instalment, promoters should have infused more equity in the company and paid the debt. Because of market conditions and the impact of above decisions, Suzlon currently faces weak financials and its image has also taken a hit because of its default on debt. Moreover, uncertain demand in light of slow economic growth, low margins and highly competitive market has added to the woes of Suzlon.

It is proposed that all new plants should be set up through alliances to allow revenue growth with much lesser capital expenditure than before. Specifically Suzlon should form an equity alliance with Chinese local firm to tap the most promising wind turbine market. In addition, REpower should make an alliance with existing oil and gas firm to set up offshore wind farms. Also, non-critical assets can be sold to reduce the debt-equity ratio and improve the financial situation of the company. More efforts should be made to increase operational efficiency by reducing the employee headcount.

Long-term relationship must be developed with customers because they are the source of new orders. By these recommendations, we intend to address issues such as uncertain demand in wind energy, improve weak financial situation of Suzlon, lower down its high debt to equity ratio and also restore Suzlon’s lost credibility among the shareholders. (Word Count: 492) ? Contents Introduction1 Wind Industry Analysis1 Issues concerning Suzlon till 20084 Evaluation of Decisions taken post 20085 Issues and Concerns as of February 20138 Recommendations9 Action Plan11 Exhibits13 References21

Introduction Despite current economic downturn, global wind market is expected to grow by 5. 5%(1) in 2013. Suzlon Energy Limited is a major player in wind energy sector and holds an 8 percent share in wind market. FY’13 has not been particularly good for Suzlon. Revenue and profit of Suzlon has been highly volatile in recent years [Exhibit 1]. However, with an order book position of about $ 7. 7 billion(2), prospects for Suzlon appear better in FY’14. However, with high debt to equity ratio and low working capital, Suzlon is facing an uphill task of overcoming liquidity constraints.

But because of its concerted efforts, Suzlon is approaching its target to achieve 20%(3), net working capital ratio by FY13. At the same time, REpower, a Suzlon group company, continues to grow at a healthy pace with 58%(4), increase in YoY revenue. With operations in more than 30 countries and installations of 21 GW(5), across the world, economic downturn provides an opportunity to Suzlon to abandon its policy of aggressive growth for the time being and consolidate its current business. Wind Industry Analysis

With the rising oil, gas and coal prices, the global economy was constantly on a lookout for alternative sources of energy to boost industry production and achieve growth. There is also a move towards renewable energy to have clean energy and to combat climatic change. Wind energy presents an attractive opportunity to fulfill the global energy demands. As of 2012, there is 282,482 MW of total installed capacity in wind energy. The breakup of the installed capacity in different geographies is shown in Exhibit 2. Offshore Wind Market

Due to growing problem of land acquisition, requirement of shorter transmission lines, ease of power accessibility and proven technology of offshore wind power there is a huge demand in off shore wind market. But only some players have the technology to develop off shore wind turbine generators. UK and Germany have a offshore wind generation target of 10GW and 18 GW respectively by 2020(6). The grid connected offshore market is growing at the rate of 38. 4% year on year in Europe. As the land available is less, Europe has to go for offshore wind farms to achieve its 20% energy from renewable energy by 2020(7).

China has set a target of 5 GW by 2015 and 30 GW by 2020(8). Government Regulations & Involvement In order to promote wind energy, governments of different countries have taken substantive measures such as providing fees in tariffs, tax incentives, purchase of green certificates, carbon credits etc. US government provides production tax credit for renewable energy. The production tax credit that comes in discrete cycles is expected to encourage wind energy production and bring about an increase in the order book value for the year 2014.

In India, government allows accelerated depreciation and easy formation of independent power projects. Moreover, the new budget for the forth-coming year proposes incentives on the basis of power generation. Wind energy generation is further incentivized as the Renewable Energy Certificates (REC) market has stabilized and the renewable power obligation (RPO) of 10% has been made mandatory for all the distribution companies. In China, 90% of the wind turbines are state owned. Moreover Government also provides huge incentives to wind generated power.

It has also regulations in place to make grid connectivity feasible. From the above analysis, it can be inferred that wind energy producers would be incentivized to enter countries like US and China where government provides full fledged support. Some of the other factors used to analyze the wind energy are mentioned below: Bargaining Power of Buyer (Low) The buyers of wind energy include electricity utility companies, state and federal municipal utilities of power and private power producers. Due to high switching costs, buyers prefer long-term contracts with the suppliers of wind energy.

This potentially reduces their ability to switch to other suppliers of energy. As wind energy is the cheapest source of renewable energy, it remains attractive to buyers as compared to other sources of energy. Hence bargaining power of buyers is low in the wind industry. Bargaining power of Supplier (Low to moderate) The firms manufacturing raw material required in the wind industry are large in numbers. The switching cost for wind energy producers is low. Further, some components, such as the cooling system, are manufactured by few companies. This leaves wind energy producers in a weak position to negotiate prices.

Moreover, many of the wind energy producers have started integrating backwards and either started producing some of the components in-house or have started acquiring suppliers. This has put suppliers in a weaker spot than wind energy producers. Still, most of the wind energy producers are hugely dependent on their suppliers for timely delivery of raw materials. Hence the bargaining power of suppliers is low to moderate. Rivalry between competitors (Moderate to High) After making great investments in the form of turbines and other equipments, it becomes difficult for companies to exit the market easily.

Against this backdrop, the companies are likely to stay and fight for their share of the market. Moreover, small companies of certain countries (e. g. USA, UK and China) are investing heavily in R&D to snatch market share from global players. Small players are also developing new technologies to cater to new markets. For example, Clipper Wind, a small player in the UK, is developing a 7. 5 MW turbine for the US market. Hence, overall rivalry between competitors is moderate to high. Threat of new entrants (Moderate) The wind energy industry is highly capital intensive due to the high costs of turbines.

Significant investments are also needed in R&D to become successful in this market. Hence, it would be very difficult for a small player to enter this industry. However, the governments are supporting wind energy players by way of feed-in tariffs, public tendering, and tax incentives etc. to facilitate their entry into the market. Hence, some of the big players in related energy industries could be incentivized to enter the wind industry. Overall, the threat of new players entering the wind industry is moderate. Threat of substitutes (Moderate to High)

Conventional energy sources such as oil, gas and coal are still considered more effective sources of energy when it comes to power delivery compared to wind energy. Moreover, they are readily available. Other energy sources such as nuclear energy and solar energy are credible substitutes for wind energy as they have the same value proposition of being clean source of energy. However, with the increasing level of pollution, there is already a loud clamor for a shift to renewable sources of energy. This acts as an argument in favor of wind energy. Overall, threat of substitutes in this industry is moderate to high.

Issues concerning Suzlon till 2008 While expanding its geographical reach and product portfolio, there were several impediments in Suzlon’s way which needed to be addressed in order to maintain a sustainable growth. As it had involved itself in manufacturing of turbines, rising raw material costs of turbine parts was proving to be economically unviable. Moreover, even after several acquisitions, sometimes it was difficult to get complex parts of a wind turbine on time and thus supply side constraints could not be fully resolved. Also, acquisitions of REpower and Hansen had added huge debt on Suzlon’s balance sheet [Exhibit 3].

As a result, its cost of capital was quite high and in order to sustain such high debt levels it had become mandatory for Suzlon to increase its operating profits. As Suzlon could not always be sure of increase in operating profits, its business had become somewhat risky. Suzlon had expanded rapidly in various geographies through inorganic growth by acquiring different companies which adopted completely different technologies. Thus, in order to maintain profitability of all the companies, achieving technological integration had become a necessity. Moreover, many of these firms had diverse work cultures and varying focus on R&D and innovation.

Thus, it had become a big challenge for Suzlon to manage these diversities, ensure cross cultural integration and goal congruence between all the firms and grow in a holistic manner at the same time. Suzlon needed to identify new sites for wind farms in newer geographies. Getting land acquisitions from farmers and fulfilling government regulations in each of the countries was another challenge which Suzlon had to cope with. With increased focus on controlling climate change and adopting renewable sources of energy, there was a surge in wind energy demand and supply was not able to match demand.

Thus, despite the fact that wind industry was highly capital intensive, many big players were incentivized to enter this business. This meant increased competition in this sector which put pressure on Suzlon to further increase its efficiency in order to remain competitive. Moreover, it required a skilled and talented workforce which could adopt itself to the dynamic technological changes, give Suzlon operational excellence, an edge over its competitors and support Suzlon in its aggressive growth plans. Suzlon wanted to include full range and sizes of turbines in its product portfolio.

Moreover, each country had its own customised requirements. Manufacturing these products and managing the entire supply chain distribution at the same time was a cumbersome task. Expanding into so many geographies and venturing into so many products and services had made it very difficult for Suzlon to concentrate on the quality of its products. This was evident from the fact that many of the turbines supplied to Edison Mission Energy were found defective and Suzlon had to recall those parts. It resulted in a huge financial loss for the company and dealt a major blow to its reputation at the same time.

The global financial crisis proved to be another bolt from the blue for Suzlon. As a result of the crisis, almost all the orders for wind turbines dried up. This meant a major reduction in Suzlon’s revenues which was already reeling under the burden of huge debt level. There was a lot of attrition at the senior management level because of dwindling profits. Overall, it can be inferred that perhaps Suzlon had expanded beyond its capabilities and thus it was getting difficult to manage such a huge business.

It had assumed a lot of risk while adopting such aggressive growth policy and the risk quadrupled because of the uncertain financial environment. A proactive response from Suzlon had become necessary if it wanted to stay afloat amidst the recessionary global trends. Evaluation of Decisions taken post 2008 After the financial crisis, Suzlon was compelled to modify its strategy in order to adapt itself to the changing industry trends. Some of the decisions taken by Suzlon have been evaluated below: Entry into low and mid wind speed sites

Suzlon moved into low and mid wind speed sites in India and emerging markets. The intention was to avail new opportunities in setting up wind farms without any competition in the said locations. They had also developed new generation 9X turbines, exclusively for low and mid wind zones. It also gave Suzlon a first mover advantage over other players who till now were focusing on high wind speed sites and would move into low and mid speed wind sites later. The unique business model of Suzlon of providing turnkey solution kept it the only player in the low and mid wind speed sites in India.

But this decision had shortcomings also. In high speed wind sites the potential for power production is greater than that in low or mid wind speed sites. Moving to low wind speed sites required a lot of effort to convince the clients as the Return on Investment was less. Entry into emerging economies The demand of wind energy in developed countries had dried up. Due to increased environmental awareness and pressure from global community to reduce emissions, emerging markets like Asia, Africa etc were increasingly making regulations favourable towards renewable energy.

Considering the low demand in developed countries and growth opportunities in emerging economies, Suzlon shifted its focus from US and Europe to emerging markets of Asia, Latin America and Africa in order to gain an edge over its competitors in these emerging geographies. But venturing into these new economies lowered the margins for Suzlon from 25% to 20% [Exhibit 4]. Moreover, as the wind market was uncertain, Suzlon would be exposed to further risk in case it was not able to successfully establish its business in these economies. MoU with Gujarat Government

Continuing its aggressive growth strategy, Suzlon entered into an MoU with Gujarat government in 2009 for a 1500 MW(9) wind power project. This 1500 MW order from Gujarat has consolidated Suzlon’s position as the major player in the Indian wind industry. The order was a substantial one as it contributed almost 15% of Suzlon’s order book value of 7 GW at that crucial juncture. Selling of Stakes in Hansen Transmission International Suzlon sold its stakes in Hansen in three phases which generated Rs. 534 crores [Exhibit 5]. Suzlon made use of this amount to buy the remaining 5% stake in REpower and could thus gain full control over it.

It provided Suzlon access to REpower’s advanced technology. Moreover, since the risk of debt of foreign loan was higher, the remaining cash generated from Hansen’s sale was used to repay a part of the foreign debt. Other than the monetary benefits, the association with Hansen Transmission had given Suzlon cost benefits and had also ensured consistent supply of gearbox and associated raw materials. As a part of the sales agreement, Hansen is required to satisfy raw material requirements of Suzlon for 5 years after the sale. After the agreement ends, it remains uncertain whether Suzlon would continue to get the above benefits.

Buying full stake in REpower Under German regulations, a company cannot share its technological knowhow till it is acquired completely. Therefore in order to get access to advanced technology of REpower, Suzlon decided to buy 100% stake in REpower. In order to accomplish this task, they bought stake of REpower from AREVA and Martifer and bought the remaining 5 % by exercising “squeezing out”. The product portfolio and the core geographic presence of Suzlon and REpower does not have much overlap. Even the technology and focus area of Suzlon and REpower is diverse and both form perfect complements as shown in Exhibit 6.

Moreover, with REpower’s expertise in offshore wind farms, Suzlon has access to world class offshore wind turbine technology which it can use for building wind farms in emerging offshore wind markets such as China. By acquiring REpower, Suzlon’s market share has increased considerably. The acquisition of REpower was an ambitious decision as Suzlon did not have financial resources. Suzlon had to take a debt for acquiring REpower which worsened Debt to equity ratio from a healthy 1. 08 to 2. 71 [Exhibit 7]. Selling of Tianjin manufacturing plant in China

Suzlon’s decision to sell off Chinese manufacturing plant (in Tianjin) for Rs 340 million and subsequently Chinese subsidiary as a step towards letting go of non-critical assets has been a surprising one. The decision comes in the backdrop of cash requirement for working capital, slowing down of Chinese wind market in recent years and shifting of the demand towards bigger turbines which Suzlon’s plant cannot produce currently. However, since China is the world’s largest wind power market, this decision could have negative impacts on Suzlon’s future.

A major part of the world’s future demand would be coming from China. Thus, having a foothold in China becomes necessary for a company with global ambitions. Default on FCCB debt amount due in October 2012 Because of REpower’s acquisition, Suzlon faced a huge liquidity crunch which was evident from its falling working capital [Exhibit 3]. Finally, under a huge financial pressure, Suzlon defaulted on foreign currency convertible bonds (FCCB) in October 2012. Because of earlier unpaid loans, it was unlikely that Indian banks would help Suzlon in paying back FCCB debt.

Other options were to payback the debt after receiving payments from Edison unit, to infuse cash equity from the promoter Tanti family or to sell off capital assets of Suzlon. It also had an option to sell its stakes in REpower but it chose not to do so. Most of the Indian banks considered Suzlon as a non performing asset because of this payment default. This debt default resulted in Suzlon losing its reputation in the market and the trust of the shareholders. Had Tanti family chosen to infuse more equity into Suzlon right from the beginning instead of taking debt, things would have been better for the company.

It would have signaled continuing trust in the company’s growth opportunities. Also, it would have avoided the criticism Suzlon received from the international press. Decentralization of Organizational Structure Initially, whenever Suzlon moved into a new geography, an employee from an existing location was sent to head the new location. But in 2009, Suzlon decided to decentralize its organization structure and started recruiting its country head locally. This decision had become imperative as Suzlon had expanded aggressively and it was very difficult to manage all the operations centrally.

Local expertise and contacts of these business heads were instrumental in generating new orders for Suzlon. This decision also enabled each division to customize its offerings according to local needs and requirements. But on the flip side, with decentralization it became very difficult to achieve cultural integration within the organization. Core values and work culture in each country was different and thus goal alignment with the Suzlon’s aspirations became an issue. Issues and Concerns as of February 2013 The decisions taken by Suzlon have been analyzed and its implications have been identified.

As a result of the above decisions, some of the current concerns being faced by Suzlon are mentioned below: Weak financials: Suzlon has a debt of 14,069 crores [Exhibit 3], almost three times its equity, which is not sustainable in the long term. Moreover, it has also defaulted on its payments. Thus in order to reduce its debt levels, there is a pressing need for corporate debt restructuring. Also, there is a need to cut down costs. Reputation: Due to the recent losses, weak financial position and default on its payments, Suzlon has lost its reputation of a fast growing company it once held.

Its stock has also plunged by more than a third following the news that its management has sold off shares to fund a debt restructuring. Uncertain Demand: Due to uncertain economic conditions, the demand for wind energy has been uncertain. Hence, there is always a risk attached with the expansion plans as demand may vary and Suzlon’s expansion into new economies may prove uneconomical. Low Margins: Suzlon has been struggling with low margins for the past 4 years. This has eroded the company’s ability to conceive future expansion plans, fund its operations and take up potentially profitable activities.

Human Resource Issues: With the need to cut down operational costs, reduction in workforce is required. Moreover, as it had expanded to different geographies, cultural integration is also necessary. REpower ring-fenced by German banks: Currently REpower is controlled by German banks. As a result, Suzlon is not able to utilize the huge cash pile lying with REpower. This huge cash pile can be very beneficial for Suzlon at this time when it is burdened with huge debt levels. Competition: Given the high competition in the industry, Suzlon may be tempted to cut corners to gain an advantage over its competitors.

It may also reduce its prices, which will in turn reduce margins. The different competitors in the wind energy sector are shown in Exhibit 8 Recommendations Keeping in view the findings from the industry analysis, SWOT analysis [Exhibit 9] and above mentioned concerns of Suzlon, following are the proposed recommendations 1. Expansion through alliances: Due to the weak financials, Suzlon is not in a position to expand through organic growth. Therefore, any new plants that Suzlon sets up to meet existing or new orders should be through alliances.

Although it will decrease the margins that Suzlon can earn from these plants, but it would help in meeting book orders which were difficult in the past. Thus, with the help of alliances, Suzlon would be able to cater to a larger market without any need of additional capital expenditure. 2. Strengthening of Financials: In order to reduce its huge debt levels and consolidate its financial position, Suzlon should sell off some of its non critical assets. This would generate enough cash for Suzlon and help in the repayment of debt. With the reduction in debt to equity ratio, its

credibility in the market would increase and trust with the shareholders would be restored. 3. Enter into non-equity alliance with a local Chinese Manufacturer for manufacturing – China has huge growth potential in wind energy market. Therefore it would be beneficial for Suzlon to enter into a non-equity alliance with a local manufacturer such as China Power New Energy Development Company. Suzlon can share its expertise in Wind Resource Assessment, Infrastructure Development and Installation & Commissioning while the partner company can manufacture turbines.

This would reduce capital expenditure requirements of Suzlon while having presence in China onshore wind market. Moreover, because of less fixed costs, it would be easier for Suzlon to scale up or down depending on its requirements. The Chinese onshore wind market is expected to reach 220 GW annual installation capacity by 2020 A partnership with local Chinese manufacturer can help Suzlon get order book value of $ 2. 7 billion by 2020 as shown in Exhibit 10. 4. Entering into a joint venture with oil and gas companies for offshore wind farms – REpower already has wind farms in European markets.

With Chinese government’s target of achieving offshore wind power capacity of 5 GW by 2015 and 30 GW by 2020[reference], Chinese offshore wind market presents a huge future potential for REpower. REpower should enter into a joint venture with oil and gas companies in China such as China National Offshore Oil Corporation. REpower can leverage its cutting edge 6 MW offshore wind turbines technology. With a cash surplus and advanced technology, REpower’s investment can be considered a long term plan to increase Suzlon group’s footprints in Chinese wind market.

This can help REpower to generate order book value of $ 2. 03 billion by year 2020 as shown in Exhibit 11. Similar joint venture opportunities should be sought after in US and some of the emerging economies like Asia, Latin America etc. 5. Reduce operational costs – Suzlon should reduce employee headcount to reduce operational expenses. Suzlon should also restructure employee pay packages to include more variable component linked to company growth, and reduce fixed component. As the headcount of REpower is increasing by 21%

YOY, Suzlon should transfer low skill and less involvement tasks such as data management and R&D back office analysis of REpower to Suzlon India to take advantage of labor arbitrage. 6. Replacement of old turbines: In main high wind sites of India, the wind farms were commissioned in the 1990s. The turbines in the farms are old and inefficient. Since the demand for new turbines is expected to decrease in India in coming years, Suzlon should approach these farms proactively and get their offers for advanced new turbines in their product portfolio.

Suzlon can also suggest clients for higher MW turbines according to the wind farm potential(10). 7. Improve Customer Relationship: As most of the new orders come from Suzlon’s existing customers, it needs to work very closely with them. Concerns such as those raised by Edison should be handled at the company level and quality should not be compromised in the quest for reducing costs. 8. Getting more Government projects: Suzlon should concentrate on getting government projects. Suzlon has proved its technical expertise and feasibility with its MoU with Gujarat for 1500 MW and timely completion of 1000 MW.

Suzlon should try enter into similar contracts with governments of other states with high wind energy potential such as Tamil Nadu, Andhra Pradesh, etc. The wind farms project allocated from government also eases out land acquisition for implementation of the project. Action Plan 1. In order to raise working capital, Suzlon should complete sale of Chinese manufacturing plant as soon as possible. This will generate $ 340 million of cash. 2. As per the Exhibit 7, Suzlon has a huge Debt/Equity ratio of 2. 71. The corporate debt restructuring also mandates gradual reduction in the present debt level. Hence, Suzlon should sell some of its assets.

For example, Suzlon can sell Suzlon Electricals and a sizeable stake in SE Forge. Other non profitable subsidiaries should also be identified and sold off in a phased manner. However, Suzlon should retain REpower with 100% stake as operational control and technology transfer is possible only with a fully owned subsidiary. Other subsidiaries of Suzlon with strategic geographical presence, such as in Australia and Brazil, should also be retained as they help to get more orders in the respective locations. 3. Suzlon should find alliance partners in emerging markets who have capabilities to manufacture wind turbines.

It can share the technology with these partners and help them develop advanced wind turbines to be supplied to Suzlon’s customers. Once the alliance is formed, installation and operations would be managed by Suzlon. Moreover, for each alliance, an alliance manager should be appointed who would coordinate between Suzlon and the respective alliance and help to solve any potential conflicts. 4. Suzlon should enter into non-equity alliance with local Chinese manufacturers by offering its project services such as wind resource assessment, infrastructure development and installation & commissioning.

Suzlon should enter into such alliances by the end of FY14. 5. To get into joint venture in China, REpower should actively start due diligence of oil and gas companies in China which are interested in having offshore wind farms. REpower should identify potential joint venture partners by Q2 of FY14. Thereafter, REpower should finalize deals with an aim to achieve a 10% share of Chinese offshore wind market by the end of FY16. 6. In order to reduce operational costs, Suzlon should reduce employee headcount by about 20% by the end of 2014. Meanwhile, Suzlon can transfer low skill and less involvement tasks of REpower to India.

Moreover, low performing employees must be identified and laid off in a phase wise manner. The aim should be to increase ‘total income to compensation to employees’ of Suzlon Energy ratio to 28 by FY15 from its current level of about 21 [Exhibit 12]. 7. Suzlon should make efforts to increase its lost credibility among the stakeholders. Consolidating its businesses and controlling its growth plans would give a positive signal to the market that Suzlon is making efforts to reduce its debt levels. 8. Each customer should be allotted a specific employee who would take care of him..

The person would assume the role of middle manager and would proactively communicate with the customers understanding their concerns and helping Suzlon serve them better. (Total Word Count: 492 + 4496) Exhibits Exhibit 1: Revenue and PAT of Suzlon for the last five years. Exhibit 2: Global Cumulative Installed Wind Capacity (MW) in 2012 (All figures are in Rs Crores) Mar 08Mar 09Mar 10Mar 11Mar 12 Total income14,10226,53121,27418,26821,712 Sales13,67926,08220,63818,09021,359 Income from financial services295272112160353 Change in stock6681,086-165-577-450 Total expenses13,75327,18822,09919,00721,735

Raw materials, stores & spares9,68218,24813,61611,95813,750 Power, fuel & water charges4692856680 Compensation to employees1,0432,1662,1451,6762,009 Indirect taxes1522381444 Selling & distribution expenses8852,1321,5411,0081,134 Interest paid5329011,1951,1361,379 Depreciation289576674657661 Profits PBDITA2,2892,9151,7171,2152,364 PBDITA net of P&E&OI&FI2,1372,8771,0801,0822,025 Profit after tax (PAT)1,017429-990-1,317-473 PAT net of P&E1,192840-1,373-1,291-459 Total liabilities26,59737,84729,28129,32932,748 Net worth9,12610,9406,9306,7355,183 Paid up equity capital299300311355355 Reserves and funds7,8028,2326,2906,2084,864

Tangible net worth7,7023,505411-368-3,131 Borrowings9,93514,87012,66812,26414,069 Current liabilities & provisions7,32811,5939,4989,93612,946 Total assets26,59737,84729,28129,32932,748 Net fixed assets4,56813,28110,16110,91912,233 Investments3,14251,09296797 Current assets15,75819,42015,42012,89514,270 Loans & advances1,8252,9012,1083,8775,677 Gross fixed assets5,60015,10211,53812,85214,792 Working capital6,6107,3927,6637,4985,322 Exhibit 3: Consolidated Income statement and Balance Sheet for Suzlon Energy Limited Exhibit 4: Difference in Gross margins for Suzlon in developed and developing economies

Timeline% stakeAmount in INR Crore AcquisitionJan-0671%2656 Timeline% stakeAmount in INR Crore Sale of stakeJan-0910%600 Nov-0935%1700 Oct-1126. 06%890 Total71%3190 Net difference between sale and acquisition534 Exhibit 5: Suzlon’s Acquisition and Sale of stake in Hansen Transmission International SuzlonREpower Wind turbine manufacturer & Turnkey solutions providerWind Turbine Manufacturer Geographical PresenceAsia, USA, Australia, Europe, Latin AmericaEurope, China, Canada, USA Product PortfolioLow to Medium capacity WTGsMedium to High capacity WTG (600kW- 2. 1 MW)(1. 5 MW-6MW)

CategoryOn shoreOff shore & On Shore Exhibit 6: Comparison of Suzlon and REpower (Source:http://www. suzlon. com/images/investor_annual_result/10_Suzlon_AR_2009-10. pdf) Debt (in Rs. Crores)Equity (in Rs. Crores)D/E ratio Present situation14,06967352. 71 After sale of Suzlon Electricals and 30% stake of SE Forge12,50067351. 86 Assumption: Non-critical assets such as Suzlon Electricals and SE Forge valued at Rs. 15000 Crore Exhibit 7: Effect on Debt- Equity ratio after sale of non-critical assets Exhibit 8: Market shares of top 10 companies in global wind energy industry by 2012

Exhibit 9: SWOT analysis of Suzlon as of 2013 20132014201520162017201820192020 Total Wind Market in China (GW)87. 8104. 5124. 3136. 8150. 4165. 5182. 0200. 2 Suzlon’s share in wind market* (GW)0. 91. 01. 21. 41. 51. 71. 82. 0 Suzlon’s order book value *(in $ bn)1. 21. 41. 71. 82. 02. 22. 52. 7 *Exclusive of REpower’s market share and order book value Note: Chinese wind market to reach 125 GW by 2015 and 200 GW by 2020 according to Global Wind Energy Council Assumptions Assumption 1 – Chinese wind market to grow at 19% till 2015 and then at 12% CAGR till 2020 Assumption 2- Suzlon’s able to achieve 1% market share

Assumption 3 – 1 GW installed capacity can generate order book value of $ 1. 35 bn Exhibit 10: Estimate of Suzlon’s wind market share and order book value in China 20132014201520162017201820192020 Total Offshore Wind Market in China (GW)2. 253. 755. 007. 0011. 0018. 0024. 0030. 00 REpower’s share in offshore wind (GW)0. 110. 190. 250. 350. 550. 901. 201. 50 REpower’s order book value (in $ bn)0. 150. 250. 340. 470. 741. 221. 622. 03 Note: Chinese offshore wind market to reach 5 GW by 2015 and 30 GW by 2020 according to Global Wind Energy Council Assumptions

Assumption 1 – Chinese offshore wind market to grow at 70% till 2015 and then at 44% CAGR till 2020 Assumption 2- Suzlon’s able to achieve 10% market share Assumption 3 – 1 GW installed capacity can generate order book value of $ 1. 35 bn Exhibit 11: Estimate of REpower’s offshore wind market share and order book value in China Efficiency ratios (times)Mar 07Mar 08Mar 09Mar 10Mar 11Mar 12 Total income / total assets0. 9850. 7340. 4810. 2280. 2720. 379 Total income / compensation to employees49. 60951. 56437. 25622. 16621. 92221. 394 Exhibit 12: Efficiency ratios of Suzlon Energy ? References Linked to report

[1]“Suzlon Energy Limited Q3 FY13 earnings presentation”, p 3, February 14, 2013, (http://www. suzlon. com/pdf/Q3-FY13-Investor-presentation. pdf), accessed March 3, 2013. [2]“Suzlon Energy Limited Q3 FY13 earnings presentation”, p 5, February 14, 2013, (http://www. suzlon. com/pdf/Q3-FY13-Investor-presentation. pdf), accessed March 3, 2013. [3]Ibid. [4]“Suzlon Energy Limited Q3 FY13 earnings presentation”, p 12, February 14, 2013, (http://www. suzlon. com/pdf/Q3-FY13-Investor-presentation. pdf), accessed March 3, 2013. [5]“Suzlon Energy Limited Q3 FY13 earnings presentation”, p 20, February 14, 2013, (http://www.

suzlon. com/pdf/Q3-FY13-Investor-presentation. pdf), accessed March 3, 2013. [6]“Suzlon Energy Limited Q3 FY13 earnings presentation”, p 21, February 14, 2013, (http://www. suzlon. com/pdf/Q3-FY13-Investor-presentation. pdf), accessed March 3, 2013. [7] “Company Profile Suzlon Energy Limited”, p 23, April 9, 2012, accessed March 3, 2013. [8]“China Wind Energy Outlook 2012”, p 16, 2012, (http://www. gwec. net/wp-content/uploads/2012/11/China-Outlook-2012-EN. pdf? ), accessed March 3, 2013 ? [9]“Company Profile Suzlon Energy Limited”, p 7, April 9, 2012, accessed March 3, 2013.

[10] Farooq Abdullah, “India Wind Energy Outlook 2012”, p 10, November 2012, (http://www. gwec. net/wp-content/uploads/2012/11/India-Wind-Energy-Outlook-2012. pdf), accessed March 3, 2013. Other references [1]http://en. wikipedia. org/wiki/Feed-in_tariff [2]http://en. wikipedia. org/wiki/Renewable_portfolio_standard [3]http://en. wikipedia. org/wiki/Green_certificate [4]http://en. wikipedia. org/wiki/Renewable_Energy_Certificate_(United_States) [5]http://www. forbes. com/2011/11/21/forbes-india-reviving-suzlon-tulsi-tanti_2. html [6]http://www. worldenergy. org/documents/pgp2010061010. pdf [7]http://en.

wikipedia. org/wiki/Capacity_factor#Reasons_for_reduced_capacity_factor [8]http://en. wikipedia. org/wiki/Availability_factor [9]http://www. gwec. net/wp-content/uploads/2012/06/glob_inst_wind_power_cap_MW_reg_distrib. jpg [10]http://en. wikipedia. org/wiki/List_of_wind_turbine_manufacturers#Top_10 [11]http://www. ft. com/intl/cms/s/0/6c04fd48-81a7-11e2-904c-00144feabdc0. html#axzz2MRIyQa51 [12]CMIE report on SEL Financials [13]http://www. gwec. net/wp-content/uploads/2012/11/GWEO_2012_lowRes. pdf [14]http://forbesindia. com/blog/business-strategy/suzlons-china-sale-why-the-largest-wind-market-just-got-tougher/a

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