I am sitting, precariously, on the top of a windmill. The massive 5-tonne blades swish slowly, at my back as I shoot a small prayer to the god, to keep me from plummeting nearly 82 meters to the ground the equivalent of a 30-floor building.
The windmill I am currently atop is owned by Pune-based Suzlon Group. The company, which manufactures wind turbines, owns about 1,280 windmills which are stretched across 800 kms on the western Gujarat coast.
The Kutch is a desert-like place punctuated by strong colours which the locals, known as Kutchis, wear. The road taken to reach this particular place, Nani Sindhori, is well-paved dotted by sparse vegetation.
At the base of the tower, we are outfitted in a climbing gear and acrophobic-me is nervously sweating waiting for others to take the lead and later remark nonchalantly, Its easy. That didnt happen.
The first 65 meters are traversed using a lift. Calling it a lift would be a generous usage of the term. Its a metal cage, which just about accommodates two people. Its suspended on a thick cable and as it starts its upward journey, it announces its annoyance for bearing two individuals by creaking and swinging. Rest assured, the motions were not helping me forget that the cage was not anchored on anything more than a cable.
At the 65-meter-mark, the cage halted, where we were anchored to another cable and we started to climb a ladder fixed at a 90-degree angle. It may seem to be an easy task, just climbing a ladder. Its not.
The ladder opens up into the hub of the windmill the small protrusion to which the fan blades are attached. I balanced myself on the hub and held the opening resolutely cringing at the fact that my lift-partner was casually lounging opposite me, oblivious to the fact that a slight slip and gravity would cheerfully do the rest.
Its after I get over the fear that I start appreciating my surroundings and rather unique point of view.
View from the top
Suzlon, founded by Tulsi Tanti, went public in 1995. At that time, India was just waking up to the possibility of renewable energy. Galvanised by a nascent market, favourable policies and almost zero competition, Suzlon took off with a bang. To consolidate its global presence, the Pune-based company bought wind Belgian gearbox manufacturer Hansen in March 2006 for 0.5 billion euros and, German wind turbine manufacturer REpower for 1.2 billion euros in June 2007. Analyst reports then had indicated confidence in the companys growth trajectory with Suzlon ranking as the third largest wind equipment manufacturer globally.
With Suzlons presence in all high-growth markets (including China), we expect the company to post a top-line growth of 46% CAGR over next four-years, IDBI Capital analysts wrote in a report on March 9, 2008.
The company had an order book of 3,040 mw or Rs 16,491 crore as of July 30, 2008, excluding that of Hansen and REPower. It had revenue of Rs 6,268 crore for the half year ended September 30, 2008, and an Ebitda of Rs 715 crore.
The companys share touched a life-time high of Rs 454.71 on January 8, 2008, almost 4.5 times more than its IPO price of Rs 102.
Suzlons downward spiral was heralded by the crash of the iconic bank the Lehman Brothers in September 2008. The global economic crisis punctured the wind market with banks stepping back from their lending-happy stance.
Post-Lehmans bankruptcy, there was a freeze on financing for the wind sector as investors became risk averse and banks refrained from lending. The impact of this was seen in 2010 when global installations registered a decline, for the first time, on an absolute basis mainly on the back of the US and Europe witnessing installations falling by 49% year-on-year and 8% y-o-y, respectively, Ambit Capital analysts said in a report on March 17, 2011.
While companies in the sector across the world lost the wind in their sails, Suzlon suffered more than its international peers Vestas, Gamesa and Nordex.
Analysts pegged a combination of aggressive guidance, a series of promoter stake sales and a weak balance sheet all contributed to the company underperforming its peers. Suzlon also had to deal with cracks reported in the blades in 31% of its FY09 installations which resulted in a 95% decline in its y-o-y orders in international market in FY09.
The companys debt started accumulating with the net debt jumping almost 68% to Rs 6,083.6 crore in FY08 almost doubling to Rs 12,478.9 crore in FY09.
In October 2012, Suzlon defaulted on paying interest on roughly $209 million debt the biggest convertible note default by an Indian company. Following that, Suzlon approached lenders seeking to restructure its debt. In January 2013, a consortium of 19 banks approved a $1.8 billion restructuring plan, which had a two-year moratorium on principal and interest payments. The promoters would also bring in equity worth Rs 188 crore.
Back from the brink
On May 30, 2014, the company reported its Q4FY14 results, where it turned Ebitda positive for the first time in seven quarters. It repeated the feat for the first quarter of FY15. So is it finally rebounding
Suzlon CFO Kirti Vagadia certainly believes that. Vagadia gave a 75-minute presentation on the companys strategies over a video-conference to journalists sitting in the companys office in Bhuj while he himself was at the groups office in Pune. He had returned from a trip to Singapore where he had been negotiating with potential investors.
We have already completed our operational restructuring; we are leaner now in Suzlon as well as Senvion. We have restructured our liability with a longer repayment period and lower interest burden, Vagadia said.
He said the company is working on rebalancing its capital structure.
We have a Rs 9,000-crore liability and about $1.3-billion debt. We are transferring a part of our rupee debt to a low-cost euro debt, by which we will be saving on interest cost and we will be pushing the maturity of that debt to a longer tenure, Vagadia said.
He proposed a scenario in which if the company was able to achieve its restructuring plan, then by March they would be able to raise Rs 8,000 crore which would result in rupee debt falling to Rs 1,000 crore. Foreign currency debt would rise to $1.7-$1.8 billion. He added that FCCB can be converted to equity as well, which is roughly around $600 million.
Suzlon has been talking of divesting its non-core assets since the beginning of its restructuring plan. The company said it planned to raise Rs 1,000 crore in the exercise in FY14.
The possible targets for sale are three the component manufacturing business, old manufacturing units which have a good real estate value and some of the offices. We have more than 25 manufacturing units across India. The offices which we plan to sell are those where we can run on rented properties rather than ownership, Vagadia said.
The company has been talking for almost a year now on the potential listing of Senvion. Vagadia hinted at it again during the meeting.
We will also be leveraging on opportunity on equity at Senvion level to reduce debt and create value, he said, but refused to elaborate citing regulatory restrictions.
He said that while company is currently exploring options to divest some arms of its business to Senvion, it had not finalised on it. Senvions strengths are is turbine and WTG service so it would be best to transfer these two businesses to Senvion as it would result in greater synergy.
The company is also benefiting from having a renewable power-friendly Prime Minister. Finance minister Arun Jaitley had announced a slew of benefits for the renewable energy sector which may provide the much needed tailwind that Suzlon is looking for.
Annual Budget for FY15 brought accelerated depreciation (AD) and generation-based incentive (GBI) back in the policy structure two laws that had provided a lot of impetus to the company, but was withdrawn in 2012. While AD is expected to usher in SME interest and spur captive demand; GBI is expected to encourage independent power producers to set up new plants. There were also custom duty benefits on parts and raw materials for wind turbine manufacturing.
We expect the new government to provide a boost to the countrys renewable sector. This will help improve liquidity at Suzlon, thereby, supporting the companys turnaround, HSBC Global Research analysts wrote in a report on June 6, 2014.
Suzlon expects demand for wind installations to jump from 2,077 MW in FY14 to 4,000 MW in FY17, terming it as the resurging wind story. It also expects global installations to grow 40% in the same period.
However, the policies which it expects to capitalise upon are the ones eyed by its competitors as well.
Spanish wind turbine maker Gamesa Corporacin Tecnolgica highlighted the policy changes in India in a recent investor presentation on July 24. A Bloomberg market intelligence report dated July 25 says India's share of sales rose to 30% in the first half of 2014, from 16% in the same period in 2013, as improved government policy drove higher demand.
Danish peer Vestas Wind Systems A/S President for Vestas Asia Pacific & China, Chris Beaufait, also said in a May 8 Bloomberg interview that India is also a priority for Vestas.
However, Vagadia rejects competition fears.
We have been operating in India for more than 18 years. We dont see a situation where older players or even the new players entering the market will change the equation. Indian market is large and there is a space for everyone. Everybody operates on different business models, he said.
On September 11, the company announced it will be propose to raise Rs 5,000 crore at its annual general meeting on September 25. The company wants the option to raise the capital through a host of options including ADR, GDR and FCCB. The amount would be utilised to, provide a platform to the company to meet to its fund requirements and improve (its) financial leveraging.