Harsha Jethmalanimoneycontrol.com
Suzlon Energy is betting big on the offshore wind market with its German subsidiary Senvion Systems SE. The company is confident of tapping this market especially in Europe via Senvioin, which produces 6.15MW turbine and is the third-biggest supplier of offshore turbines.
Wind farms which are constructed in water bodies to generate electricity from wind are known as offshore wind power. Suzlon is present in the offshore segment since 2004 and has 100 offshore turbines with more than 600MW installed. The company supplies turbines to its offshore customers while other infrastructure facilities have to be created by the latter.
Suzlon‘s Finance Group Head, Kirti Vagadia said that the company has order backlog of worth USD 1.2 billion in the offshore segment. “When compared to the onshore, the plant load factor (PLF) and costs for offshore are double, but this option is commercially viable. Also, this market has huge untapped potential and as of now there are only few players in offshore. We expect to benefit from our early entry in this segment,” he said in a recent interaction with the press. The offshore market is expected to grow by a compound annual growth rate (CAGR) of over 31 percent between 2011 and 2016.
In the current fiscal year (FY15) the company is likely to execute only a small part of the offshore orders, but from FY16 onwards revenue of 2 billion euro per megawatt is likely to start flowing into the company’s books, he said.
Light at end of tunnel
Once the darling of investors, Suzlon Energy’s fall from grace was equally swift. The company came out with an IPO at Rs 510 per share (Rs 10 paid up) in October 2005, and went on to hit a record high of Rs 2185 by January 2008. But the stock has been on a downward spiral since then and is currently ruling at Rs 21 a share. When compared with Sensex returns, the stock has tanked 77 percent while the benchmark has gained 68 percent in the last five years. The reason for this sharp fall is a combination of internal and external factors.
The company defaulted on USD 221 million worth of foreign currency convertible bonds (FCCBs), India’s biggest convertible-bond default, maturing on October 11, 2012, after it failed to get an extension from bondholders. This caused huge stress on its financials with the company posting losses since FY10 and attracting huge debt. Global slowdown, high interest cost and removal of tax concessions for wind power in India added to the pain.
But, the wind turbine maker is now gearing up for a turnaround and is on a debt reduction spree. It aims to repay Rs 8,000 crore in FY15. Its Q1FY15 losses narrowed to Rs 750.74 crore from Rs 1,058.90 crore in the same period a year ago, mainly on the back of higher income. In the last one year, the stock has risen 239 percent while Sensex has gained 43 percent.
Reiterating that FY15 will be a turnaround year for the company, Vagaria said that the company’s debt in terms of rupee is likely to be at Rs 1,000 crore by March next year. “There was repayment pressure due to defaulting on FCCBs, but now the situation has improved and the debt overhang from Suzlon will be removed,” he added.
Suzlon has already completed operational restructuring and is currently working on capital restructuring. “We target to complete capital restructuring in this financial year. We have liabilities worth Rs 9,000 crore. We would be transferring Rs 4,000 crore high cost rupee debt to euro debt and would be raising a similar sum of amount from the European equity market via Senvion as well,” he added.
Further, sale of non-core assets program is on track and the company has already sold non-core assets worth Rs 700 crore, he said. Within a time frame of nine-12 months, Suzlon is looking to offload non-core assets like component manufacturing units, old manufacturing units, which fetch good realty value and office complexes. The company has more than 25 old manufacturing units at multiple locations.
The policy push
Suzlon also aims to cash-in on the slew of measures that were announced in PM Narendra Modi’s maiden Budget in July. According to Vagaria, re-introduction of accelerated depreciation (AD) has bought back SME and captive demand. Secondly, generation based incentives (GBIs) which provide Rs.0.50/unit incentive to generators with a cap of Rs 1 crore/MW, up from Rs 0.62 crore/MW, and will lead to setting up of new capacities by IPPs. GBI was withdrawn in March 2012, reintroduced in March 2013 and notified in September 2013. Though Vagaria sees some teething issues but is hopeful of the system coming on track.
The National Green Energy Fund for which the cess has been doubled to Rs 100/mt is also a big positive for the sector, he added. Also, fast tracking of implementation of Green Corridor, removal of 4 percent SAD for WTG manufacturing and making 2% CSR in renewable energy mandatory are the other key triggers for Suzlon’s growth going ahead, he said.
harsha.jethmalani@network18online.com
Disclaimer: The correspondent's trip to Bhuj was organised by Suzlon Energy Ltd
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