Tailwinds imminent at Suzlon Energy

The Pune-based wind turbine maker is gearing up for growth as it repairs its balance sheet and brings in operational improvements

Published: Jun 1, 2016 07:23:11 PM IST
Updated: Jun 2, 2016 02:27:28 PM IST
Tailwinds imminent at Suzlon Energy
Image: Vikas Khot
Tulsi Tanti, chairman and MD of Suzlon Energy

The wind in Suzlon Energy’s sail appears to be back as the Pune-based wind turbine-maker reported its first annual net profit in seven years, when it announced its FY15-16 earnings late on Monday evening.

With robust growth across operating revenues and profits in fiscal 2016, a gradual process of recovery is unfolding at Suzlon, just as the company’s chairman Tulsi Tanti said it would when he spoke to Forbes India last year (Suzlon's rise from the ashes).

Owing to a combination of global and local factors such as the financial crisis in Europe, a slowdown in the wind power sector in India, and aggressive international expansion leading to a highly leveraged balance sheet Suzlon became the largest defaulter on repayment of foreign currency convertible bonds (FCCBs) in India, from being one of the world’s largest wind turbine makers at one time.

For the financial year ended March 31, 2016, Suzlon Energy posted a standalone turnover of Rs8,259 crore, up 69 percent year-on-year. The company’s normalized Ebitda (earnings before interest, tax, depreciation and amortization) stood at Rs1,295 crore verus a loss of Rs166 crore in FY15. The normalized Ebitda reported by the company is adjusted for foreign exchange loss and liquidated damages, wherever applicable. Consequently, Suzlon’s operating profit margin in FY16 stood at a healthy 15.7 percent.

The company reported a net profit of Rs539 crore in FY2016, compared to a loss of Rs9,355 crore in FY2015. The net profit reported by Suzlon was largely a result of a one-time gain of Rs1,039 crore, on account of the sale of Senvion, the company’s German subsidiary, in 2015. Suzlon’s acquisition of Senvion (executed in phases between 2007 and 2011), a German wind turbine maker, was one the reasons it landed in the debt conundrum that hampered Suzlon’s growth.

Without the one-time gain, Suzlon reported a net loss of Rs24 crore, a considerable improvement over the loss of Rs2,376 crore reported by the company in FY15.

On the debt front, Suzlon’s consolidated long-term, rupee-denominated stood at Rs3,033 crore, compared to Rs10,100 crore as on March 31, 2015. As far as the company’s dollar-denominated debt is concerned, the outstanding FCCBs on the company’s books has come down to $249 million from $328 million in FY15. The credit enhanced debt taken by the company (backed by a standby letter of credit from State Bank of India) remains at the same level as last year at $647 million, but significant repayment on this debt doesn’t fall due before FY2023. Kirti Vagadia, Suzlon’s chief financial officer told Forbes India that the company had reached an agreement with lenders to extend the maturity of this debt till 2022-23 (from 2020-21 earlier). Consequently, a bullet payment of $657 million on this debt, which the company was supposed to make in FY18, needs only to be made in FY23 now, Vagadia said. He also added that the company was in talks with lenders to assess if it can repay this debt in larger instalments ahead of the due date, instead of coughing up the entire $657 million at one go.

Managing to successfully work with lenders to restructure outstanding debt, as well as bringing in Dilip Shanghvi, chairman of Sun Pharmaceutical Industries, as a white knight investor (in February 2015, Shanghvi invested Rs1,800 crore for a 23 percent stake in Suzlon and also agreed to extend additional working capital to the company)  has worked well for Tanti as his company has been able to focus on growing volumes again in FY16, after operations came to a near standstill.

Suzlon delivered wind energy equipment to support 1,131 MW of power generation in FY16, two-and-a-half times of what it did in the previous fiscal, and commissioned wind power projects, on behalf of clients, worth 900 MW in India, double of what it did last year. With the level of wind power generation capacity that Suzlon helped commission in India in 2015-16, its market share in India has risen to 26 percent from 19 percent in FY15. Simultaneously, the company took fresh orders for 1,251 MW in FY16, a little more than triple of what it did in fiscal 2015.    

But fiscal 2016 hasn’t only been about kickstarting volume growth again after addressing liquidity challenges via fresh fund infusion and debt restructuring to ensure that the significant repayments do not begin till at least three years later. The company has also utilized the crisis to bring in better operating practices, prudent working capital management strategies and strengthening the management team to ensure future growth, according to Vagadia.

“The entire organization has been trained to regain credibility across stakeholders. Giving a commitment to a customer and not honouring is not acceptable any longer,” Vagadia said.

With most of the liquidity challenges behind it, Suzlon is focused on executing orders in a timely and profitable manner, Vagadia said. “We no longer accept orders that do not match our threshold of profitability, or which are cash flow negative,” he added.

Even after the encouraging financial performance exhibited by the company in FY16, years of strain have led to a negative net worth of Rs7,077 crore for the company as on march 31, 2016. The company aims to recoup this net worth over the next three to five years on the back of greater estimated operating profits, further conversion of FCCBs into equity shares, and some amount of long-term capital to be raised at the level of some group companies at a cheaper cost of borrowing.     

The company has also made two key hires in the recent past. It appointed JP Chalasani, the former CEO of Punj Lloyd and Reliance Power as group CEO; and brought in Rakesh Sarin, a former senior executive at Watsilla Corp as the CEO of its international business and global service division.

Analysts were particularly impressed with Suzlon’s earnings for the January-March 2016 quarter. The company reported a consolidated turnover of Rs3,240 crore during the quarter, up 423 percent year-on-year, with an Ebitda of Rs450 crore versus a loss of Rs220 crore in the year-ago period.

“We remain confident on Suzlon Energy regaining market share leadership in FY17,” an HSBC research report dated May 31, 2016 noted. The reported stated that Suzlon had an order backlog of 1,200 MW and “potential catalysts” in the form of an improved balance sheet; potential expiry of generation-based incentives for wind power developers in FY17 leading to a rush for such assets; and greater faith reposed by independent power producers in the company would help drive growth.     

Whether Suzlon’s FY16 financial performance is an indicator of a full recovery remains to be seen. But Vagadia is confident that in FY17, Suzlon will be able to report a net profit purely on the back of its operational performance – without any exceptional gains – as it will execute a higher quantum of order than it did in FY16.

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