21 September 2015
Suzlon Energy
spotlight
The Idea Junction
Stock Info
Bloomberg
CMP (INR)
Equity Shares (m)
M.Cap. (INR m)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
SUEL IN
22
4,825.8
106.2/1.6
31/11
-7/-13/10
Poised for a Turnaround
Multiple tailwinds at play
Suzlon Energy (SUEL) is poised for a turnaround. Sale of its German subsidiary, Senvion
for USD1.2b and preferential issue of INR18b to Dilip Shanghvi and Associates (DSA)
should help deleverage its balance sheet and reduce interest costs.
Wind energy presents a strong growth opportunity. The government targets to install
60GW wind power capacity by 2022. The market is likely to expand from 2.3GW in
FY15 to 4-5GW per annum in the medium term, aided by restoration of incentives like
accelerated depreciation (AD) and generation-based incentives (GBI).
We expect SUEL to turn profitable at 1,300MW volume sales, which we believe will be
achieved in FY18.
Financials & Valuation (INR b)
Y/E March
Net Sales
EBITDA
Adj PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2015
199.5
3.2
-28.5
-10.2
-16.7
-26.1
38.8
-5.5
NA
NA
2016E 2017E
76.5 93.8
6.3 10.3
-5.3 -1.5
-0.9 -0.3
-91.3 -71.3
-5.8 -6.1
15.2
4.2
9.0 18.9
NA
NA
NA
NA
Putting house in order:
Over the last few months, SUEL has taken several steps
to put its house in order. These include: (a) stake sale in overseas subsidiary,
Senvion for USD1.2b (INR72b); it intends to use INR60b to repay high cost debt
and the balance INR12b for working capital, and (b) bringing in strategic partner,
Dilip Sanghvi and Associates, who would infuse INR18b by subscribing to a
preferential issue of 1b shares; the cash infusion would help scale up the business.
Post the Senvion sell-off, SUEL is focusing on the domestic market and should
regain market share in India, given its strong execution track record (installed
base of 10GW) and client relationships. Given the balance sheet resurrection
measures and prevailing favorable industry dynamics, we believe SUEL is poised
for a turnaround in FY18.
Enabling industry environment:
The wind energy sector in India had witnessed a
sharp fall in capacity addition from 3.2GW in FY12 to 1.2GW in FY13, led by
withdrawal of key incentives like Accelerated Depreciation (AD) and Generation-
Based Incentives (GBI) in March 2012. However, renewable energy is now a key
focus area for the government, which has ambitious plans to set up an installed
capacity base of 60GW in the wind energy segment by 2022 (versus 23GW as at
end FY15). We believe there are multiple tailwinds that will help drive the size
of the Indian wind energy market from 2.3GW in FY15 to 4-5GW in the medium
term.
Expect PAT breakeven in FY18:
SUEL is a turnaround story, given the company's
recent steps to deleverage its balance sheet (offloading overseas business,
infusion of equity through strategic partner, and focus on domestic business)
and the government's thrust on renewable energy. Though the management is
guiding breakeven in FY17 versus a loss of INR92b in FY15, we expect SUEL to
break even in FY18 at 1.3GW, which implies 29% market share in India installations.
The stock currently trades at an EV of 19x FY17E EBITDA.
Shareholding pattern (%)
As on
Jun-15 Mar-15
Promoter 21.8
28.4
DII
15.6
21.8
FII
12.5
14.9
Others
50.1
35.0
Jun-14
38.8
23.4
6.4
31.4
Notes: FII includes depository receipts
Stock performance (1 year)
Interesting: Currently, the analyst
believes that this is an interesting
stock based on its fundamental
strength
Cautious: Currently, the analyst
does not have adequate
conviction based on fundamental
assessment of the stock
In Transition: Currently, the
analyst thinks that the stock is in
transition from "Cautious" to
"Interesting"
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Spotlight
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used or relied upon as investment advice.
1
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.
Amit Shah
(Amit.Shah@MotilalOswal.com); +91 22 3029 5126
Ankur Sharma
(ankur.vsharma@MotilalOswal.com); +91 22 3982 5449

spotlight
| Suzlon Energy
Steps in the right direction
Initiatives to put house in order
The sale of Senvion has infused INR72b, helping to deleverage SUEL’s balance sheet.
Debt should reduce from INR163b to INR103b.
DSA’s fund infusion through the preferential route (INR18b) and non-fund based
working capital support would help SUEL to expand the business.
FCCB conversion (USD436m) would further deleverage the balance sheet by INR25b.
Over the last few months, SUEL has taken several steps to put its house in order. It
has sold stakes in non-core businesses, introduced a strategic partner, and is
refocusing on India markets. These steps, together with the government’s policy
thrust on renewable energy should help the business to scale up.
Efforts on to improve balance sheet quality
SUEL has taken measures to improve its balance sheet through the sale of its
German arm, Senvion, and equity infusion by strategic investor, Dilip Sanghvi and
Assocites (DSA).
Senvion sale:
SUEL sold its German arm, Senvion for USD1.2b (INR72b) to private
investment firm, Centerbridge Partners. Of the sale proceeds, it intends to use
INR60b to repay debt and infuse the balance INR12b into the business to support its
working capital requirement. SUEL currently has total debt of INR163b (including
FCCBs of USD436m and credit enhanced bonds of USD647m).
Exhibit 1: Deal specifics
Details
Immediate cash
Earn out
Licensing Agreement
India-offshore
US-S111
Amount
EUR1b
EUR50m (subject to conditions)
Suzlon to get offshore technology license for India market
Senvion to get Suzlon's S111 license for US market
Source: Company, MOSL
Equity infusion:
DSA will infuse INR18b into SUEL through a preferential allotment
of 1b shares at INR18/share. SUEL will use these funds to expand. SUEL also intends
to develop 450MW of wind farms in JV with DSA over the next two years and will
infuse ~INR4b as its share in the business. DSA will also help SUEL to procure
additional non-fund-based working capital facilities for smooth operation of the
business. Post the deal (assuming complete FCCB conversion), DSA will hold 16.7%
in SUEL, while promoter’s stake will reduce from 30.9% to 17.5%.
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Exhibit 2: Equity share base post dilution (m)
Exhibit 3: Shareholding pattern post dilution (%)
Tanti Family
1,584
1,000
5,987
3,403
47.7
21.5
30.9
DSA
FCCB conversion
Diluted
Current
36.9
16.6
22.7
23.8
Post New Equity
12.2
16.7
17.5
Fully Diluted
Source: Company, MOSL
53.6
DSA
Lenders
Public
Current
Source: Company, MOSL
Potential FCCB conversion can further ease pressure on balance sheet
To fund its business operations, SUEL had issued FCCBs worth USD575.7m (3.3%
coupon rate), with an option for conversion into equity shares at a price of INR15.5
each. FCCBs worth USD248m have been converted into equity shares, enabling SUEL
to reduce debt by INR15.7b. Of the balance FCCBs worth USD327.6m, FCCBs worth
USD28.8m are due for conversion by April 2016 and the remaining USD298.8m are
due for conversion by July 2019. If lenders agree to convert their bonds into shares,
SUEL will be able to reduce its debt by INR21b.
Exhibit 4: FCCB conversion details
April 2016 Series
July 2019 Series
248
546.9
298.8
28.8
Post Restructuring
28.8
Current Outstanding
Source: Company, MOSL
Conversion till date
Debt reduction along with equity infusion to help focus on business
SUEL has taken several measures like (a) sale of its subsidiary Senvion, (b) FCCB
conversion, and (c) equity infusion / working capital support by DSA, which will help
it to focus on its core business activity. The government’s thrust to develop the
renewable energy sector through its policy initiatives coupled with SUEL’s lean
balance sheet and refined technology will help it to compete in the domestic market
and achieve PBT breakeven at 1,300MW. We expect SUEL to have order inflow of
1,200-1,500MW per year, with annual market size of 5,500MW.
Proven technology to aid scale up of business
SUEL has a comprehensive product portfolio and can manufacture wind turbines
ranging from 600KW to 2.1MW. SUEL has a range of WTG models that allows it to
supply types of WTGs that can suit the needs of its customers in terms of both cost
and wind conditions at a proposed WTG site. SUEL launched the S9X platform in
2013 and has installed over 900MW of S9X turbines. It has introduced S111, which
is specifically designed for low wind sites. These turbines help generate better
21 September 2015
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| Suzlon Energy
output at low wind speed sites, and it has entered into a licensing agreement with
Senvion to cater to the US market. SUEL has also entered into a licensing
agreement with Senvion to supply the latter’s offshore wind turbine technology in
India. SUEL launched a new 120-meter hybrid tower, which is a combination of
tubular and lattice towers. This enables it to save on production costs and its
height ensures better wind capture. SUEL has been able to command premium
pricing, given its superior technology product.
Exhibit 5: Introduction of new, technologically improved
products
Source: Company, MOSL
Exhibit 6: SUEL - a market leader in India; 60% market share Exhibit 7: SUEL’s market share declined to 17% in FY14 due to
in 2007 (%)
the liquidity crises it faced (%)
Vestas, 4
Leitwind, 3
Enercon, 23
Gamesa,
0.4
Vestas, 9
Vestas RRB,
8
Other India,
12
other, 2
Suzlon, 60
Gamesa, 19
Suzlon, 17
Windworld
India, 18
Regen
power
Tech, 13
GE wind, 12
Source: Company, MOSL
Source: Company, MOSL
21 September 2015
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| Suzlon Energy
Exhibit 8: Key WTG manufacturers in India with installed capacity of ~10GW
Company
Gamesa Wind Turbine Private Limited
GE India
Inox Wind Ltd.
Kenersys India Pvt. Ltd.
Leitner Shiram Manufacturing Ltd.
ReGen Powertech Pvt. Ltd.
Suzlon Energy Limited
Vestas Wind Technology India Pvt. Ltd.
WinWinD Power Energy Pvt. Ltd.
Installed Capacity
(MW)
Product Range
(KW)
Technology
tie-up
Gamesa
1,500
800/850/2,000
GE
450
1,500/1,600
1100
2,000 AMSC- Austria
Kenersys
400
2,000
250
1,350/1,500 WindFin B.V.
750
1,500 VENSYS Energy
3,700 600/1,250/1,500/ 2,100 Suzlon Energy
1,000
1,650/1,800/2,000 Vestas Wind
WinWinD,
1,000
1,000
Source: MOSL, Company
OMS business to provide stability to overall cyclical business
Operations and maintenance services (OMS) present a huge opportunity. Just over
314GW of onshore wind capacity, requiring service and maintenance, was installed
by CY13, representing 98% of global wind turbine generating capacity. More than
half that total is out of warranty. Market demand from owners for OMS supplied
by original equipment manufacturers (OEMs), independent service providers (ISPs)
and specific technology specialists is expected to grow by 40GW a year to 2018.
OMS represents a huge wind power business separate from that of manufacturing
wind turbines and constructing wind farms.
SUEL offers OMS for its WTGs, which include round-the-clock remote and on-site
monitoring, and maintenance and repair of WTGs. Its service package includes
preventive and planned maintenance of WTGs, transformers and related
structures. SUEL provides free repair and maintenance services for periods ranging
from one to three years after the WTGs’ commissioning. The OMS business has
shown robust revenue CAGR of 20% over FY12-15. SUEL has a strong renewal track
record of 100% and the business boasts strong contribution margin of 50%+. OMS
forms 30% of its total revenue.
Exhibit 9: OMS business’ contribution (INR M)
1,355
1,085
846
1,454
FY12
FY13
FY14
FY15
Source: Company, MOSL
21 September 2015
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| Suzlon Energy
Long term business drivers robust
Offshore wind:
MNRE issued its draft policy for development of offshore wind
energy in 2013, which aims to deploy wind farms within territorial waters (12
nautical miles). Preliminary assessments indicate that the coastlines of Tamil Nadu
(Rameshwaram and Kanyakumari) and Gujarat have reasonably high offshore wind
potential. A recent study conducted by WISE estimates Tamil Nadu’s offshore wind
potential at 127GW at 80 meters height, although this is yet to be corroborated by
other studies (MNRE, 2013E). A separate study also estimates that India has the
potential to develop 350GW of offshore wind energy (PIB, 2013). Offshore wind
energy offers a strong business opportunity for SUEL, which has entered into a
licensing agreement with Senvion to provide its offshore wind energy in India.
Repowering:
Repowering low capacity and aging wind turbines to improve
efficiency, grid integration and higher energy yield could be a big business
opportunity in India. At present, Germany, Denmark, the US and the Netherlands
are at the forefront of repowering movement. India’s current repowering potential
is estimated at ~2,760MW (GWEC, 2012A), but there are many practical challenges
(involving land ownership, lack of supporting state policies or economic incentives),
which hinder realization of this potential. Tamil Nadu, having several aging wind
farms (older than 15 years) located in wind-rich districts, is a state with high
repowering potential. Gamesa is the first company to implement a wind repowering
project in India—“Project Avatar” in Tamil Nadu in 2011 (MNRE, 2011A).
Hybrid:
Land availability and grid connectivity remain key bottlenecks for
incremental renewable energy installations. To overcome these bottlenecks, SUEL is
currently considering hybrid development of wind and solar at the same site. SUEL
has an effective customer base of ~9GW of wind installations in India and is planning
to approach its existing customers for renting out existing wind sites for installing
solar panels. This could mean a big business opportunity for SUEL – it could leverage
on the synergies in terms of O&M cost, grid infrastructure and land.
Exports:
SUEL currently plans to focus on the domestic market and leverage the
government’s thrust to install 60GW by 2022. However, with its financial condition
improving, it could also leverage its global market experience and take up orders
from regions like LatAm, US and Europe to ramp up capacity utilization.
21 September 2015
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| Suzlon Energy
Expect 39% revenue CAGR over FY15-17
PAT breakeven possible at 1,300MW
We expect SUEL to report 39% revenue CAGR over FY15-17, largely supported by
volume growth of 57%.
Operating profit is likely to witness 81% CAGR over FY15-17, led by margin expansion
of 940bp during the period.
Given the current cost structure dynamics, PAT breakeven is possible at 1,300MW.
Revenue to grow at 39% CAGR over FY15-17
We expect revenue to grow at 39% CAGR over FY15-17, driven by 57% volume CAGR
and demand improvement, given the government’s aggressive target to have 60GW
of installed capacity by 2022 and restoration of key incentives like Accelerated
depreciation (AD) and Generation based Incentives (GBI).
Exhibit 10: Revenue to witness 34% CAGR, led by volume growth
Revenue
38.6
-39.4
-4.8
9.0
-67.7
Growth YoY
74.3
56.7
22.7
-13.2
18.0
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
Source: Company, MOSL
Operating margin to reach normalized levels by FY17
Operating margin collapsed from peak of 16.7% in FY08 to minus 17.1% in FY15.
Operating loss was mainly on account of fall in sales volumes, led by weak domestic
market, SUEL’s inability to execute due to freeze on working capital facility, and
other liquidity constraints. Poor execution led to poor cost absorption, impacting
margins. Delays in execution also led customers to impose damages, which further
impacted its EBITDA margins. With execution improving, led by easing liquidity
constraints, we expect margins to recover to 11% in FY17.
Exhibit 11: Operating margins to expand, led by cost rationalization efforts
14.9
9.9
(0.2)
1.8
Operatig Profit
6.5
Margins
8.2
11.0
12.5
(23.4)
FY08
FY09
FY10
FY11
FY12
FY13
FY14
(17.1)
FY15
FY16E
FY17E
FY18E
(64.1)
Source: Company, MOSL
21 September 2015
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spotlight
| Suzlon Energy
De-leveraging to help reduce interest burden
Recent initiatives to improve the quality of the balance sheet through infusion of
equity by DSA, and FCCB and loan conversions will lead to significant reduction in
debt from the current INR165b to INR76b in FY17. Further, normalization of
business and generation of FCF will also drive further deleveraging, which in turn
should lead to lower interest burden.
Exhibit 12: Recent deleveraging to significantly reduce interest burden
Interest cost
47.5
13,740
8,580
4,603
4.0
FY08
5,680
3.6
FY09
8.9
9,488
10.3
13.7
as a % to sales
17,850 17,660
36.2
8,611
11.3
9,042
9.6
9,494
8.6
15,320 31.7
FY10
FY11
FY12
FY13
FY14
FY15
FY16E
FY17E
FY18E
Source: Company, MOSL
PAT breakeven possible at 1,300MW
While the company is guiding for PAT breakeven by end-FY17E, we believe this is
possible at 1,300MW given the current cost structure, which we expect Suzlon to
achieve in FY18. However management’s effort to improve volumes coupled with
ongoing cost rationalization efforts could lead to SUEL having breakeven point at
1,200MW.
Exhibit 13: PAT breakeven in FY18
PAT
9.9
11,305
FY08
5.3
8,430
FY09
(14.4)
FY10
(13,840)
(9.1)
(10.4)
(53.1)
FY11
FY12
FY13
FY14
(8,318) (10,440)
(118.4)
(23,760)
(29,890)
(38,220)
Source: MOSL, Company
(48.7)
FY15
Net Profit Margin
(6.9)
(1.6)
1.2
1,277
FY16E FY17E FY18E
(5,283)
(1,518)
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Exhibit 14:
Comparative numbers
INR M
Revenues
Less: COGS
Gross Profit
Employee Expenses
Other expenses
Exchange (Loss) / Gain
EBITDA
Other Income
EBIDTA incl Other Income
Depreciation
EBIT
Interest Expense
PBT
Adjusted PAT
Gross Margin (%)
EBIDTA Margin (%)
EBIT Margin (%)
WTG Sales (MW)
- India
Realization (INRM/MW)
Revenues (INR M)
Installed (MW)
O&M Revenues (INR M)
FY11
91,750
59,700
29,405
8,746
18,962
0
1,697
610
2,307
3,410
- 1,103
9,488
(10,591)
(8,318)
32%
2%
1%
1,521
955
56
84,650
11,541
7,100
Suzlon Wind
FY12
FY13
100,030
32,280
63,920
26,160
36,110
6,120
10,270
8,330
18,890
15,980
430
2,500
6,520 (20,690)
0
0
6,520 (20,690)
3,890
4,280
2,630 - 24,970
13,740
15,320
(11,110) (40,290)
(10,440) (38,220)
36%
8%
6%
1,583
1,161
58
91,570
13,124
8,460
19%
-52%
-80%
252
415
85
21,430
13,376
10,850
FY14
FY15
56,270
48,830
43,351
31,380
12,919
17,450
7,874
7,470
15,870
13,360
2,326
4,950
(13,151) (8,330)
0
0
(13,151) (8,330)
3,745
3,760
- 16,896 - 12,090
17,850
17,660
(34,746) (29,750)
(29,890) (23,760)
23%
-14%
-27%
722
403
59
42,720
14,098
13,550
36%
-3%
-17%
454
442
76
34,290
14,552
14,540
FY11
719
518
202
38
46
0
118
10
128
39
88
44
45
54
28%
16%
12%
14
14
Inox Wind
FY12
FY13
6,216 10,589
4,318
7,731
1,898
2,858
146
250
334
644
0
0
1,418
1,965
4
48
1,422
2,012
76
89
1,346
1,923
152
388
1,194
1,536
1,007
1,503
31%
23%
22%
120
120
6,107
164
27%
19%
18%
198
198
54
9,485
318
33
FY14
15,668
12,131
3,537
384
1,390
0
1,762
91
1,854
116
1,738
460
1,278
1,322
23%
11%
11%
330
330
53
13,730
468
39
FY15
27,099
20,347
6,753
549
1,629
0
4,575
143
4,718
204
4,514
623
3,892
2,964
25%
17%
17%
578
578
50
24,772
742
159
Source: Company, MOSL
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| Suzlon Energy
Favorable industry dynamics
Multiple tailwinds; market size to double over FY16-22
The wind energy sector in India had witnessed a sharp fall in capacity addition from
3.2GW in FY12 to 1.2GW in FY13, led by withdrawal of accelerated depreciation (AD)
and generation-based incentives (GBI) in March 2012.
However, renewable energy is now a key focus area for the ruling BJP-led government,
which has ambitious plans to set up an installed capacity base of 60GW in the wind
energy segment and 100GW in the solar segment by 2022.
We believe there are multiple tailwinds that will help drive the size of the Indian wind
energy market from 2.3GW in FY15 to 4-5GW in the medium term.
Favorable regulatory changes to boost wind energy investment
India is the fifth-largest wind power producer in the world after China, the US,
Germany and Spain, with a current installed capacity of 22.4GW. Installed capacity
for wind energy has witnessed a CAGR of 24% since FY02. According to the Center
for Wind Energy Technology, India has the potential to install over 100,000MW of
wind turbines. However, due to adverse policy changes in FY13 (withdrawal of AD
and GBI), FY13 and FY14 saw a muted average addition of 1.9GW per annum, down
from 3GW addition in FY13. Renewable energy is a focus area for the BJP-led
government, which has restored old incentives to stimulate growth in the wind
energy segment. We expect the Indian wind market size to grow from 2.3GW in
FY15 to 4-5GW in the medium term.
Exhibit 15: Slow growth in FY13/14 due to adverse policy Exhibit 16: Top-5 states account for more than 90% of the
changes
installations (December 2014) (%)
Total Installed capacity (MW)
44.0 47.2
32.2
14.5
32.6
23.4
16.9 16.3
18.9 22.6
6.3
Growth YoY
Gujarat,
15.9
Others, 6.7
9.8 11.0
Rajasthan,
13.6
,0
Tamil Nadu,
32.9
Karnataka ,
Maharastra 11.3
, 19.5
Source: Industry, MOSL
Source: Industry, MOSL
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Exhibit 17: Evolution of wind financing policy
Source:Industry, MOSL
India has significant untapped wind potential
According to the Center for Wind Energy Technology (C-WET), India has the
potential to install over 100,000MW of wind turbines at 80meters hub height,
implying an untapped wind power potential of 78GW. Based on C-WET estimates,
India has explored only 22% of its wind power potential. This indicates strong long
term business opportunity for domestic WTG manufacturers.
Exhibit 18: Potential v/s currently installed capacity (mw)
State / UTs
Andhra Pradesh
Gujarat
Jammu & Kashmir
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Odisha
Rajasthan
Tamil Nadu
Uttarakhand
Uttar Pradesh
Others
Total
Installable Potential
@50 m
5,394
10,609
5,311
8,591
790
920
5,439
910
5,005
5,374
161
137
489
49,130
@80 m
14,497
35,071
5,685
13,593
837
2,931
5,961
1,384
5,050
14,152
534
1,260
1,833
102,788
Installed
Capacity
913
3,581
-
2,549
35
567
4,370
-
3,053
7,394
-
-
-
22,462
Source: Company, MOSL
An enabling environment is in place
There are multiple factors supporting India’s wind energy segment: (a) the central
government’s ambitious plans (60GW of wind energy capacity by 2022), backed by
fiscal and regulatory incentives (AD and GBI), (b) finalization of feed-in tariff and
regulatory support provided by state governments, (c) inclusion of renewable
generation obligation (RGO) in the Electricity Act, (d) untapped wind power
potential of 100GW (CWET study), and (e) long-term opportunities arising from
offshore wind power installation and repowering of old WTG sites. We expect the
Indian wind market size to grow from 2.3GW in FY15 to 4-5GW in medium term.
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Exhibit 19: Net wind energy capacity addition to improve, led by government’s push
Net capacity addition (mw)
3,198
1,716 1,742 1,664 1,481 1,668
2,247
1,700
2,090 2,300
3,600
4,000
242
615
1,112
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Source: CEA, MOSL
Exhibit 20: Key regulatory incentives provided by central government
Accelerated Depreciation (AD)
Overview and Policy
Withdrawn in Mar 2012, reintroduced in Jul 2014 and notified in
September 2014
Impact:
Brings back SME interest, Captive demand
Overview and Policy
Generation Based Incentives
(GBI)
Withdrawn in Mar 2012, reintroduced in Mar 2013 and notified
in Sep 2013
INR0.50/unit incentive to generators with a cap of INR1 cr/MW,
up from Rs.0.62 cr/MW for 4-10th year
Impact:
IPPs to focus on setting up new capacities
Overview and Policy
National Clean Energy cess doubled to INR200/mt
This Fund to be used for GBI, low cost funding and green
Impact:
Higher corpus available to facilitate growth
Overview and Policy
Mandatory CSR (Renewable)
Access to low cost funding
Under new Companies Act, eligible companies have to spend
2% of its average net profit on CSR activities
Renewable energy / WTG qualifies under mandatory CSR spend
Impact:
Demand from Corporates / PSUs to strengthen
Overview and Policy
Renewable Purchase Obligation
Distribution companies are required to procure a percentage of
all electricity from renewables
Fast tracking of implementation of Green Corridor will address
evacuation constraints
Long term funding to infrastructure projects (up to 25 years)
4% SAD on parts and raw material for WTG manufacturing
Source: Company, MOSL
Impact:
Aids to meet the renewable energy sourcing target of 15%
Other incentives
State governments also encouraging wind energy
State governments hold the key for successful implementation of the central
government’s ambitious capacity installation plan of 60GW. They play a key role in
land allocation for the wind sites, evacuating power and providing grid connectivity
to the power generated from the wind sites. States have provided incentives over
and above the central government’s sops to attract investments in wind energy.
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Key incentives provided by states
Feed in tariffs:
Developers who avail MNRE’s GBI of 0.50 per kilowatt-hour can
additionally receive a preferential tariff from the state distribution company to
which they sell electricity. State electricity regulatory commissions (SERCs) had
declared a preferential feed in tariff as of 2013. Several states have also increased
wind power tariffs by 2-15% to attract investments. This subsequently shifted wind
power projects from resource-rich states like Tamil Nadu and Gujarat to low wind
density states like Rajasthan, Madhya Pradesh and Maharashtra.
Exhibit 21: Preferential feed in tariff (FIT) provided by states
State
Andhra Pradesh
Gujarat
Chattishgarh
FiT (INR/KWh)
4.7
4.15
WPD >200w/m2:6.25
WPD 201-250w/m2:5.68
WPD 251-300w/m2:5.00
WPD 301-400/m2:4.17
WPD>400/m2:3.91
4.15
WPD 201-250w/m2:5.81
WPD 251-300w/m2:5.06
WPD 301-400/m2:4.31
WPD>400/m2:3.88
CUF20% 5.80
CUF22% 5.27
CUF25% 4.64
CUF30% 3.87
CUF32% 3.62
4.2
4.77
5.92
WPD 200-250w/m2:5.7
WPD 250-300w/m2:5.01
WPD 300-400w/m2:4.18
WPD>400w/m2:3.92
4.48
5.8
5.12 (for projects in Jaisalmer, Jodhpur and Barmer districts)
5.38 (for others)
3.51
WPD >200w/m2:5.0
WPD 201-250w/m2:4.45
WPD 251-300w/m2:3.80
WPD 301-400/m2:3.05
WPD>400/m2:2.80
3.21; escalation of 5.71 for 10 years
Tariff cap of 5.71 for 10 years
Source: Company, MOSL
Gujarat
Haryana
J&K
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Orissa
Punjab
Rajasthan
Tamil Nadu
Uttarakhand
Uttar Pradesh
West Bengal
Reduced or no VAT:
Several states including Tamil Nadu, Karnataka, Maharashtra
and Gujarat have policies that eliminate or reduce value-added tax (VAT) for wind
turbine components.
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Exhibit 22: VAT benefit provided to attract investment in states
State
Tamil Nadu
Karnataka
Gujarat
Maharashtra
VAT rates
Reduced VAT from 14.5% to 5%
5.50%
5%
5%
Source: Company, MOSL
Wheeling and banking:
For wind power, wheeling charges (paid to the distribution
company to use transmission infrastructure to send power from offsite locations)
for different states are in the range of 2% (Madhya Pradesh and Maharashtra) to
7.5% (West Bengal). Of the total wind energy fed to the grid in a financial year, Tamil
Nadu allows 5% and Karnataka 2% as banked energy that can be accessed any time
during the financial year.
Capital subsidy:
Maharashtra has provision for a capital subsidy of 11% for wind
energy project developments. Rajasthan provides soft loans equaling to one-third of
the capital cost at low interest rates.
Green cess fund:
The Maharashtra Energy Development Agency (MEDA) has created
a green cess (tax) fund. A part of this fund is used to create infrastructure for grid
connectivity with proposed wind farms. Strong evacuation infrastructure promotes
investments in wind.
Land facilitation policy:
State governments like Rajasthan, Madhya Pradesh and
Gujarat have formalized land facilitation policies to expedite wind energy projects.
Major projects get delayed, mainly on account of the land acquisition delay.
Exhibit 23: Land facilitation policy
State
Rajasthan
Land Facilitation Policy
Government land at concessional rates -- 10% of DLC rates, with maximum allocation of 5 Hect./MW.
The conversion charges (private land to industrial use) will be 10% of charges levied for industrial purposes under the
relevant rules.
Madhya Pradesh
Gujarat
Maharashtra
Government revenue land use permission at INR1/-(token) premium per year (as per circular No. F-16-3-93-VII-2A, dated
06-09-2010 and No. F-6-53-2011-VII-Nazool, dated 08-08-2011)
WTGs may be set up on private land, or revenue wasteland / GEDA land, if available
Developer/Investor can be allotted Govt barren land (permissible for industrial use), at declared windy sites, on lease
basis with 30 yrs agreement
Each eligible developer may be allocated available Govt. land to harness up to a maximum of 200mw of wind power
initially. After commissioning of 100 MW capacity Wind farms in 1st stage in the allocated Govt. land, the Government
may allocate land for another 100 MW capacity Wind Farms. The application from the developers for Government land
will be considered on a first-cum-first-served basis.
Source: Company, MOSL
Andhra Pradesh
Launch of National Wind Energy Mission to expedite wind power
development
MNRE announced plans to launch a National Wind Energy Mission (NWEM). Under
the proposed action plan, MNRE will play the role of a “facilitator” to strengthen
grid infrastructure for wind power, identify high wind power potential zones, clear
hurdles for land issues and regulate wind power tariffs. In the draft mission
document, the government aims to have a generating capacity of 60GW of wind
power by 2022. The proposed NWEM intends to address financing issues for wind
power projects and could turn India into a global leader in wind energy production.
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Risks and concerns
Capital intensive nature of industry
The WTG business in India requires high working capital; setting up a 1MW wind
farm typically requires INR40m of working capital.
Change in regulatory policies
In the past, withdrawal of accelerated depreciation (AD) and generation-based
incentives (GBI) had led to a sharp decline in wind energy capacity addition. Any
such adverse policy changes in the future can impact the business.
Non-availability of grid connectivity
Inadequate grid infrastructure is another key issue that needs to be addressed
urgently. Across most states with significant wind potential, the grid does not have
sufficient spare capacity to evacuate ever-increasing amount of wind power. The
state distribution utilities are, therefore, reluctant to accept more wind power
generation and tend to prefer thermal power generation.
SEBs’ weak financial health might impact wind power demand
State electricity boards (SEBs) and government distribution companies own nearly
95% of the distribution network. According to Power Finance Corporation,
aggregate SEB losses in 2011-12 were around INR63.5b and are projected to reach
INR116b by 2014-15. The cost of wind power at INR3.7-6/kWh is higher than coal-
based conventional power (Rs3.5/kWh). SEBs’ weak financial condition might deter
them from purchasing expensive wind power, impacting wind power demand.
Exhibit 24: Commercial losses up sizably from
FY08 (INR
b)
Source: Company, MOSL
Non-availability of land can act as a deterrent for WTG industry
The wind energy business is land intensive—2MW of turbines require 40 acres of
land, of which actual used is 2.5 acres. To achieve annual capacity addition of 4GW,
the industry would require ~80,000 acres of land every year. However, this won’t be
easy as land availability for wind farms is a contentious issue in most states. Even for
the available privately-owned land, change of land use status from agricultural to
non-agricultural is time-consuming. Further, one needs clearances from authorities
if the land is in proximity to a protected area or forest; this is again time-consuming.
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Competitive intensity
The WISE Report estimates the aggregate WTG manufacturing capacity in India at
12GW as of August 2014 and expects the Indian wind power market to witness
annual installations of 3-5GW over the coming years. There exists intense
competition in the WTG segment. In the last few months, SUEL has taken several
steps to put its house in order by selling stakes in non-core business, inducting a
strategic partner and refocusing on the Indian market. SUEL has historically been the
market leader, with ~50% market share. Post its recent restructuring and liquidity
infusion, it will again attempt to achieve its earlier market share.
Exhibit 25: Top five players commanded 87% of market in FY15
150.0%
100.0%
50.0%
0.0%
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Source: MOSL, Company
Vestas
RRB
Wind World
Suzlon
Regen
Inox
Others
Gamesa
RPO compliance might remain weak
Under the Renewable Purchase Obligation (RPO), state electricity regulatory
commissions (SERCs) are obligated by law to buy a certain percentage of electricity
from renewable energy sources. The guidelines issued in 2010 by Central Electricity
Regulatory Commission (CERC) recommended a standardized RPO target of 5% in
every state, with linear increase of 1% annually till 2020 to achieve the NAPCC target
of 15%. However, many SEBs are actually not complying with the renewable
portfolio obligations, given their poor financial health. A few SERCs have also
lowered the non-solar RPO obligation owing to the difficulty of the states in meeting
the earlier targets. SERCs specify targets for respective states based on the
renewable energy potential.
Exhibit 26: State-wise RPO compliance data
FY13
9.0%
6.4%
7.0%
7.8%
4.8%
3.4%
2.8%
RPO Target
FY14
9.0%
7.0%
7.0%
8.5%
4.8%
5.0%
4.7%
3.4%
Achieved
FY15
10.0%
17.0%
10.0%
14.0%
7.5%
10.0%
8.0%
7.5%
8.5%
8.5%
4.8%
5.0%
5.5%
2.0%
6.0%
3.0%
3.8%
1.5%
Source: MOSL, Industry Data
TN
Karnataka
Rajasthan
Gujarat
Maharashtra
Andhra Pradesh
Uttar Pradesh
Madhya Pradesh
Punjab
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Company background
Suzlon Energy (SUEL) is the fifth-largest wind turbine manufacturer in terms of
cumulative installed capacity and market share as at end-2013. Its global presence
extends across Asia, Australia, Europe, Africa, and North and South America. Over
the past two decades, SUEL has built its presence in over 31 countries and has
achieved a milestone by crossing 25,000MW of wind power installations globally. It
offers a wide range of global products that allowed it to maintain a strong market
position even during adverse phases such as an economic downturn. SUEL’s client
portfolio includes companies from a range of industries, including private and public
sector companies, power utilities and independent power producers.
SUEL pioneered the 'Concept to Commissioning' model in the wind energy industry,
opening the market to new customer segments. Its services range from feasibility
studies, complex front-end engineering design, manufacturing of wind turbines and
components, construction, installation and commissioning of wind farms, long-term
operation and maintenance of turbines, as well as the breadth and depth of
customer requirements across the wind energy value chain.
In India, SUEL has been the market leader for 15 consecutive years with more than
8,000MW of installed capacity, and a new capacity being added every day. It is
credited with developing one of the world's largest operational onshore wind farms
in the western Indian states of Gujarat and Rajasthan. The Kutch and Jaisalmer wind
farms have a till date cumulative installation capacity of over 1,000MW (1gw) each
and the capacity build-up is ongoing.
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Board of Directors
Mr Tulsi Tanti, Chairman
Mr Tulsi Tanti, a Mechanical Engineer, is SUEL’s Founder and Chairman. Mr Tanti has
driven SUEL by using latest wind technology to help mitigate the global climate
crisis.
Mr Girish R Tanti, Non-Executive Director
Mr Girish R Tanti has an extensive experience of 11 years in business management.
Since 1995, he played a vital role in the growth of the business and in building the
Suzlon
brand. Mr Tanti works in a strategic, supervisory role as a mentor and is a
member of the board.
Mr Jha has been working with Power Finance Corporation (PFC) since March 1997.
He has 23 years of experience. He currently holds the position of Additional General
Manager (Projects), PFC and is the contact point for the state utilities in Haryana and
Punjab. He handles the renewable energy portfolio of PFC.
Mr Rajiv Ranjan Jha, Independent Director
Mr Marc Desaedeleer, Independent Director
Mr Desaedeleer is the Chief Investment Officer of Citi Venture Capital International
(CVCI). Prior to his current role, Mr Desaedeleer led CVCI’s business in CEEMEA and
India. He was also a senior manager of Citibank’s Corporate Banking business in
over 20 countries, focusing on Central Europe and Russia.
Mr V R Tanti, a civil engineer, has been with SUEL since its inception in 1995. In his
27 years of industry experience, he has handled diverse portfolios largely on a
conceive-design-build-operate and transfer model. His past experience includes
project planning, detailed wind mapping and micro-siting for wind projects carried
out by SUEL.
Mr V R Tanti, Non-Executive Director
Mrs Medha Joshi, Independent Director
Mrs Medha Joshi started her career with ICICI Projects and then moved to IDBI
Bank.. She is currently Chief General Manager - Retail Banking (Corporate Centre).
She is also responsible for overall policy formulation/product guidelines for IDBI
Bank’s retail vertical.
Ms Bharati Rao, Independent Director
Ms Bharati Rao has over 40 years of experience in Banking and Finance. She joined
the State Bank of India in 1972. Since then, she has held both domestic and
international positions, covering areas such as project finance, credit and risk
management, development of foreign offices, human resources and mergers and
acquisitions.
Mr Ravi Uppal, Independent Director
Mr Ravi Uppal is a Mechanical Engineer from the Indian Institute of Technology,
Delhi, an alumnus of the Indian Institute of Management, Ahmedabad and has also
completed his Advanced Management Program at Wharton Business School, US. He
21 September 2015
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has been responsible for driving L&T’s rapid growth in the power generation
business, where he joined as President (Power) & Wholetime Director and served till
September 15, 2012.
Mr V Subramanian, Independent Director
Mr V Subramanian is a retired officer of the Indian Administrative Service. He joined
IAS, the premier service of the Government of India, in 1971. Till his retirement in
June 2008 as the Secretary to the Government in the Ministry of New and
Renewable Energy, he occupied vital positions in the Government of West Bengal
and Government of India.
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Financials and valuations
Income Statement
Y/E March
Total Revenues
Change (%)
Raw Materials
Staff Cost
Other Expenses
EBITDA
% of Total Revenues
Other Income
Depreciation
Interest
Exceptional Items
PBT
Tax
Rate (%)
Adjusted PAT
Extra-ordinary Income (net)
Reported PAT
Change (%)
Adj. Consolidated PAT
Change (%)
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Pref Shares issued by subsidiary
Share application Money pending allotment
Minority Intetest
Loans
Deferred Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Goodwill
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Other Current Assets
Current Liab. & Prov.
Creditors
Other Liabilities
Net Current Assets
Application of Funds
E: MOSL Estimates
2013
189,135
-11.5
136,396
21,327
44,377
-12,965
-6.9
1,522
7,405
18,549
6,430
-43,826
3,493
-8.0
-47,320
6,430
-40,890
492.7
-40,810
478.2
2014
204,029
7.9
144,354
22,314
38,251
-890
-0.4
715
7,769
20,700
4,873
-33,517
1,444
-4.3
-34,961
-34,961
-14.5
-30,327
-25.7
2015
199,544
-2.2
136,187
22,275
37,926
3,157
1.6
533
8,088
20,647
63,117
-88,161
3,173
-3.6
-28,460
-91,577
161.9
-28,460
-6.2
2016E
76,494
-61.7
53,308
6,731
10,176
6,279
8.2
500
3,050
8,611
-12,890
8,008
400
5.0
-5,283
7,607
-108.3
-5,283
-81.4
2017E
93,833
22.7
66,109
7,131
10,243
10,350
11.0
525
3,279
9,042
0
-1,445
72
-5.0
-1,518
-1,518
-119.9
-1,518
-71.3
(INR Million)
2018E
110,696
18.0
78,493
7,638
10,754
13,811
12.5
551
3,525
9,494
0
1,344
67
5.0
1,277
1,277
-184.1
1,277
-184.1
(INR Million)
2018E
11,974
-47,015
-35,041
2013
3,555
-351
3,204
59
5,817
781
152,284
5,486
167,630
155,028
34,272
120,757
3,063
357
0
167,885
52,638
64,960
19,591
22,211
8,484
124,431
48,511
75,920
43,454
167,630
2014
4,976
-10,415
-5,439
59
1,620
584
170,957
7,381
175,162
176,220
41,075
135,145
4,334
7,067
0
156,059
40,329
60,140
24,480
23,630
7,479
127,443
54,956
72,487
28,616
175,162
2015
7,415
-98,638
-91,223
59
18,000
636
153,623
6,489
87,585
61,170
34,107
27,063
3,561
2,657
31,372
152,393
33,608
27,545
25,429
17,600
48,212
129,459
45,562
83,897
22,933
87,585
2016E
11,974
-46,774
-34,800
2017E
11,974
-48,291
-36,317
0
76,254
0
41,454
40,000
25,000
15,000
0
0
0
105,541
24,730
38,436
14,083
26,197
2,096
79,086
42,233
36,853
26,454
41,454
0
76,494
0
40,177
42,500
28,279
14,221
0
0
0
120,332
29,564
45,863
11,228
31,106
2,571
94,376
49,610
44,767
25,955
40,177
0
77,244
0
42,203
45,000
31,803
13,197
0
0
0
137,808
33,360
52,588
12,434
36,393
3,033
108,801
57,044
51,757
29,007
42,204
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Financials and valuations
Ratios
Y/E March
Basic (INR)
Adj EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO Income
CF from Oper. Incl. EO Items
(Inc)/Dec in FA
Investment in liquid assets
CF from Investments
(Inc)/Dec in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2013
-23.0
-21.5
1.8
0.0
0.0
-1.1
-13.8
0.9
14.4
0.0
-1,273.7
-12.1
125.4
101.6
93.6
1.1
47.5
2014
-12.2
-10.6
-2.2
0.0
0.0
-0.8
-121.3
0.8
-4.5
0.0
557.6
-4.9
107.6
72.1
98.3
1.2
-31.4
2015
-10.2
-7.3
-26.1
0.0
0.0
-2.2
64.8
1.0
-0.8
0.0
38.8
-5.5
141.7
120.0
196.0
2.3
-2.2
2016E
-0.9
-0.4
-5.8
0.0
0.0
-24.9
30.9
2.5
-3.8
0.0
15.2
9.0
183.4
118.0
192.0
1.8
-2.2
2017E
-0.3
0.3
-6.1
0.0
0.0
-86.8
19.0
2.1
-3.6
0.0
4.2
18.9
178.4
115.0
190.0
2.3
-2.1
2018E
0.2
0.8
-5.9
0.0
0.0
103.2
14.2
1.8
-3.8
0.0
-3.6
25.7
173.4
110.0
185.0
2.6
-2.2
(INR Million)
2018E
1,344
3,525
9,494
67
-1,846
12,449
0
12,449
-2,500
0
-2,500
750
9,494
0
-8,744
1,205
11,228
12,433
2013
-37,397
7,405
18,549
3,493
19,015
4,078
6,430
-2,352
-6,477
616
-5,862
12,242
18,549
0
1,480
-6,733
26,325
19,592
2014
-29,165
7,769
20,700
1,444
19,727
17,587
4,873
12,714
-22,463
-6,710
-29,173
20,568
20,700
0
21,349
4,889
19,591
24,480
2015
-25,044
8,088
17,463
3,173
2,093
11,192
0
11,192
-6,898
-976
-7,874
-8,117
10,105
0
-1,988
1,330
24,480
25,429
2016E
-4,882
3,050
8,611
400
-11,278
-4,899
0
7,991
79,863
0
79,863
-81,281
8,611
0
-88,258
-404
14,487
14,083
2017E
-1,445
3,279
9,042
72
-2,356
8,446
0
8,446
-2,500
0
-2,500
240
9,042
0
-8,802
-2,855
14,083
11,228
21 September 2015
21

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