Budget 2016: Expect to turn profitable by end of FY16, says Suzlon's Tanti

Tulsi Tanti, CMD, Suzlon Energy is confident that the company will turn profitable by end of FY16. This is attributed to the recent sale of their German subsidiary, Senvion. Apart from that, they won a renewed order worth 71 megaWatt from Gujarat Power Company. He expects around 16-18 percent operating profit margins from the order.Tanti forecasts a growth of 30 percent for the Indian wind sector, but he says Suzlon is going to do better than that. Tanti feels the the goals and targets set by the centre should be well aligned with that of the state government. The central government has given a directive to the states to have 40 percent of their energy requirements being fulfilled by renewable sources by 2030. But this will not be achievable if the states don't start working towards its execution from today. A big challenge for the sector is the acquisition of land from where the renewable energy can be extracted. So he feels the government should earmark such areas before hand.Below is the transcript of Tulsi Tanti’s interview with Ekta Batra and Anuj Singhal on CNBC-TV18. Anuj: We have seen clear focus on the renewable energy, but do you think more needs to be done and if you could give us some moves that you are expecting in the Budget or outside of Budget to help renewable energy? A: Government has set a very clear focus and ambitious target. Now, the challenge on execution part and also in the consistency of the momentum. So, we strongly believe is that whatever the fiscal benefit like Generation Based Incentives (GBI), accelerated depreciation, some import tax benefits and other things, I strongly believe it should be continued for the next five years. It should not be a one year policy or anything. Our target is 2022, 275 gigawatt, we have to deliver, that fiscal benefit should be continued, number one. Number two, there is a huge discrepancy between the wind and solar is there. Ultimately both are renewable. We believe is the uniform incentive or fiscal benefit for wind and solar should be available so that the momentum of both the sector is required because it is a huge complementary energy source to add in the energy portfolio. Ekta: We will get back to the Budget expectations. I just wanted to ask you about the news of Suzlon winning an order from 71.4 megawatts from Gujarat Industries power company. It was just announced. If you could fill us in on the details. How much is the quantum, when do you start execution, addition to margins? A: This project we have to deliver in the next financial year by December, 2016. This will be executed in Gujarat, this 71 megawatt project which is a state PSU and they have given the repeat business to us. And, the margin point of view, as you know, we are already running on 16-18 percent, between that, each project is, the earnings before interest, taxes, depreciation and amortisation (EBITDA) margins we are driving. And this is a good project, is coming in the state of Gujarat, because there is a good wind sites are available. No doubt, the tariff level is low, but it is a PSU perspective, for their requirement, it is a very good investment for the PSU state. Anuj: With the current order book and the kind of visibility that you have, do you think by FY17, you will be able to come back to profit? A: The current financial year, we will come to profit. Next year, anyway it will be more profit, because the last financial year, we have done just 400 megawatts of the delivery of the projects and the current financial year almost 2.5 times our growth is coming which is quite a good momentum, because we have just received in the first quarter, our money of the sales of the German subsidiary. So, we have just to perform in the three quarters. But within three quarters, we are very aggressively executing the projects. We have reduced our some fixed costs. We have announced our contribution margin or EBITDA margin. So, all these put together, it is giving he profitable situation in the current financial year. The industry is growing almost 30 percent growth is coming from this year. But we are growing more than 30 percent and the next financial year, again, the Indian market for the wind sector will do 30 percent growth from three gigawatts to four gigawatts level. It will move, but we will grow more than 30 percent. So, that is the momentum is there and we are well established player in the domestic market working in all the states. And the very competitive product and technology and end to end solution provider. So, we have an opportunity for growth, and to unlock our margin. Ekta: Coming back to the Budget, how much of an incentive do you possibly expect for discoms when it comes to Renewable Purchase Obligations (RPO) and how much of a pickup do you possibly see in FY17? A: I think whatever the RPO is set by the central government for all the states, by 2020 we have to achieve the certain percentage and by 2030 it should be 40 percent renewable. I think that roadmap for each state should be rolled out that these are the targets for 2020 and these are the targets for 2030 so that the momentum of the purchase obligations should continue because currently it is up to 15 percent level of the clarity of the state level is there. We have to deliver that but I am confident the center government is working on that and maybe next financial it will be rolled out, I don’t see it part of the Budget process. Anuj: You said some more steps are needed on the execution, if you could give some more clarity on that? A: I think most important alignment between the central government targets was versus the state government target because ultimately the execution and delivery of the projects are coming on the state level. So, requirement of the investment on the infrastructure particularly the grid infrastructure which is extremely important to execute the project of the wind and solar, I think that momentum has to come from the state government with the center government support. The second thing is the biggest challenge is always to execute the project for the acquisition of the land and other things. So, we have to allocate the certain area where the good windy site is there, where good sun is there. Those sites should be earmarked which is not good and suitable for agriculture sector because we have to give highest priority to agriculture sector; that allocation of the site should be done and that is the required for the five year planning where our 175 gigawatt of the projects will come in the country. We have set the target, now it is execution plan and planning is extremely important for the state level so that we are able to rollout our executions and we can work on a alignment, number one. Number two is whatever the systems are there in the wind, every year its renewal is coming. So, what is happening is there it is not giving good visibility for the any manufacturing capacity investment in the state. It should be require five years policy framework clarity for the regulator that these are my first year pricing is there and every year this much reduction will come in the fifth year you have to reduce certain percentage of the tariff and that should be the clarity now you should go and invest in the manufacturing so that the manufacturing base can grow because a huge capex investment is coming in manufacturing and visibility is not more than the one year. I think these are some of the areas improvement is required to bring the momentum because I am confident 10 gigawatt of wind and 10 gigawatt of the solar in one year is possible to execute, let us see the China, in one year they are delivering the 35 gigawatt wind and solar. Why we cannot able to deliver 20 gigawatt?