Suzlon Energy Turnaround: Can Demonstrate Profitability In The Coming 2 Quarters Says Experts
Backed by the buoyancy in the wind sector and a historic debt restructuring experts believe Suzlon can demonstrate profitability this quarter.
Suzlon back in Business said a tweet from the company’s twitter handle on July 2nd, a couple of days back June 30th marks a very historic day for Tulsi Tanti the Chairman and MD of Suzlon Energy, he pulled a rabbit out of the hat for all the stakeholders of Suzlon by concluding a historic debt restructuring exercise that allows Suzlon to tide over the debt challenges which has plagued the company for nearly a decade. The question everyone asking is can Suzlon turnaround from here?. as this is the second lease of life that the bankers have given to the company. Tanti has already mentioned in interviews that Suzlon can generate profits in the coming 12 months.
IndiaRenews interviewed wind energy experts and analysts to ascertain if it really is a turnaround story in the making of a case of false optimism. Mr. Vilhelm Roa, Partner, and Advisor with NordicGust a wind energy consultancy believe India has an opportunity to be the leading force in Renewable energy, and this augur well with the OEM ecosystem. In the last 5 years, solar energy got a lot of traction with cheaper imports from China. The new import tariffs regime will give a push for domestic OEMs, he believes the Wind OEM ecosystem is much more evolved than solar with up to 90% indigenous manufacturing capability. This will mean a lot of Solar skewed projects might increase the weightage of wind energy.
The impetus is coming from 2 recent announcements from the leading wind generation states Gujarat and Andhra Pradesh which announced some path-breaking policy changes. Gujarat is in the final stages of coming out with a land pocket for 30 GW of renewable energy projects in the district of Kutch
The Andhra Pradesh Renewable Energy Export Policy states it is applicable to solar/wind/ wind-solar hybrid projects to unlock the State’s potential for renewable energy, the State Government has notified the new policy that allows export of power outside the State without any obligation for DISCOMS to procure power. This will attract large-scale development of renewable energy projects and facilitate the lease of 5 lakh acres of potential land in Andhra Pradesh to renewable energy export project developers. Both these states account for the majority of the RE projects and will speed up the projects as land acquisitions and selling of power to other states has been a major bone of contention between State and the power generators. This will open up a huge market for wind in the state, which Suzlon can capitalize on with its majority current project being in AP.
According to Mr. Thyagarajan Perumal Analyst at Pristine Energy Securitas an investment advisory for clean energy believes the domestic captive market will be a huge opportunity and Suzlon will go all out to claw back the lost market share predominantly due to the debt issues the company had over the years. The finance cost was a substantial 25% of the revenues to the tune of INR 1200 crores annually which is being cut to INR 360 crores.
The operational capacity and the deleveraged balance sheet now give Suzlon to focus on the business generation and scale up the order book which stands at 1.5GW, 857 MW Signed PPAs, and 700 worth of pending PPA, which he expects will now speed up with the governments renewed focus.
The Operations and maintenance arm has been the shining star which is projected to get a topline of INR 2000 crores at a healthy margin of 45%, he believes Suzlon could survive these last 2 years of intense liquidity challenges just because of its strong Operations and Maintenance business.
Digitization of maintenance business which Suzlon has been pioneering for the last 5 years has helped the company reap benefits during this pandemic and tide over the lockdown with more than 95% of sites running and facing no downtime. This signifies that the Q1 OMS business contribution will be healthy.
It has optimized the cost of the operation and has significantly lowered it which can impact profitability. Even executing the current order book can contribute to a topline of INR 6000 Crs and operations and Maintenance arm chipping in another 2000 crores as per the numbers in the investor presentation Suzlon has shared with the analysts.
Based on the past performance with a moderate operational activity Suzlon can hit close to INR1400 Crores revenue forecast for the quarter ending June 30th and could draw INR 2000 Crores in July to September quarter. With the revised cost structure this leaves considerable room for profitability.
Over the years the Research and development have been Suzlon’s focus which will help the company launch new products. “We will be launching a larger wind turbine which is best suited for low wind sites,” Mr. Tanti quoted in an interview to Businessline. The 2.8–3 MW machine with a sweep area of about 14,000 sq meters is designed to work for Indian climatic conditions and lower tariff regime.
Debt and liquidity crisis which held back the business under control and decent order book and the government’s push for renewable energy collectively will help Suzlon turnaround and get into profitability.
*with Inputs from our EU and India Team