We plan to raise Rs 1,500 cr by selling non-critical assets

Written by Subhash Narayan | Updated: Mar 2 2014, 05:02am hrs
Pune-based Suzlon Energy reduced its net loss to Rs 1,075 crore in the quarter ended December 2013 from Rs 1,155 crore a year ago on better project execution. The company's total income in the third quarter rose to Rs 5,052 crore from Rs 4,048 crore a year-ago. The wind maker, which has a debt of over R14, 000 crore on its books, has been successful in getting Rs 9,500 crore of its debt restructured and has also got a relief on the FCCB defaults. In an interview with Subhash Narayan and Kirtika Suneja, Suzlon Group chairman

Tulsi Tanti says efforts to make the company profitable will bear fruit in 2014-15. Excerpts:

How is the energy sector performing globally and where does India stand

From our experience in 33 countries where we are present, it is clear the situation in India is comparatively dismal. We arent improving and correcting things fast enough to salvage the situation. We are not adding sufficient capacities in renewable energy sectors like wind and solar, and even in hydropower sector.

As far as the thermal sector is concerned, costs have gone to a very higher level and the unstable fuel situation and lack of enough global funds have been constraints too. In the power sector, we require structural improvement and long-term solutions related to the policy framework (including for fuel imports), grid infrastructure and financial institutions support. Of course, efficient execution of projects is crucial.

You had recently said the worst is over for the global wind industry.

Yes. The financial year 2012-2013 had been a very bad year for the wind industry and it experienced a negative growth. Most of the wind companies globally suffered losses. Now, in 2013-14, there has been a (positive) change and the global economy is believed to have grown 3.7-3.9 %. Most economies are stabilising and not seeing uncertainties. The wind-energy market has seen a 25 % growth globally from 38 GW in 2012-13 to an estimated 48 GW in 2013-14. In India, we expect a robust 40% growth this year.

How much is Suzlons share in this growth

There is a minimum 25% growth assured for Suzlon this year. We have seen a 25% growth in the order book to $7.7 billion so far this year and the cumulative order book position is likely to be $8 billion by the end of the year. In last three years, CAGR of orders has been around 12%. In 2012-13, we implemented around 2,000 MW capacity. In India, our order book is set to reach 800MW by the end of the year.

What is the status of the CDR process and where does your subsidiary REpower fit in the entire process

We have completed our CDR and now things have stabilised. In 2013-14, we will enter the growth cycle. The situation is that we have our assets in Germany of, say, around R10,000 crore where the debt is mostly in India. We are currently in the process of consolidating our operations to strengthen our balance sheet.

REpower has seen profits for five years and even in 2012-2013, when most companies were in the red, it was the only company in the sector to generate profits. We have also changed its name to Senvion as REpower was a licensed name owned by a Swiss utility company. The licence is expiring and since we are in the process of consolidation, it makes sense to change the name. We plan to see profits this year and the next for that we do not require any additional capex. We already have a huge capacity which has to be leveraged. Volume will increase and that will help us generate more cash.

How will the consolidation process take place

REpower is strong in offshore wind technology and there are only two major players Siemens and REpower. Suzlon has a strong supply chain. The installed base of both REpower and Suzlon is 24,000 MW which is a good revenue for the company. Therefore, if we can consolidate at the group level, we have a huge competitive edge. For this, we will require both German and Indian banks to support our structural plan. It may take 3-4 months. I would have loved to do this earlier but our industrial position was weak.

After selling assets in China, are there other assets on the block

We plan to raise up to R1,500 crore this year by selling a host of non-critical assets, including five manufacturing sites in India and Edisons rotor blade facility in Mid-West, USA. These non-critical assets in India include the facilities in Maharashtra, Mangalore, Puducherry, Coimbatore and Vadodara. These facilities are not required now as they are into manufacturing old technology equipment and also the sites are not suitable for manufacturing now. But these are valuable assets from real estate point of view.

How sustainable is the business model today considering accelerated depreciation of plant, and even machinery is no longer available for wind power

There are a few interesting aspects here. First, cost of producing wind energy is lower than that from a new coal-based power. Cost of producing energy through wind is below R5 per unit, whereas cost of producing energy through coal is more than that. We have now entered the industrialisation phase without any risk of technology or performance. Similarly, cost of finance is also crucial. While rate of interest is India 13% , same in the US is 3-4 %.

The most important aspect is that wind industry is capital-intensive, hence, the manufacturing base has to grow. China realised it required a low cost energy, a larger manufacturing base and no carbon emissions. Hence, heavy investments in wind followed. It is currently producing 15,000-18,000 MW a year, whereas India has implemented 20 GW in around 25 years. The difference is stark.