Suzlon Energy Analysis

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SUZLON ENERGY LIMITED

A Business Report

Submitted in partial fulfilment of the requirements of the course

WRITTEN ANALYSIS AND COMMUNICATION-II
TO
Instructor: Prof. Meenakshi Sharma
Academic Associate: Mr. Saurabh Shukla
By

A.Arun Kumar
Puneet Srivastava
Rahul Dalia
Ayush Bhutani
Vikram Kumbhare
Nishit Kumar

On
3rd March, 2013

INDIAN INSTITUTE OF MANAGEMENT, AHMEDABAD
LETTER OF TRANSMITTAL
Date – March 3, 2013

Mr. Tulsi Tanti,
Chairman and Managing Director,
Suzlon Energy Limited.

Subject: Analysis of decisions taken by Suzlon after the financial crisis explaining the current situation and suggesting future course of action. Dear Sir,
This is with reference to your request for advice on the best course of action for Suzlon. Please find an enclosed a detailed report which includes the concerns before the financial crisis, analysis of decisions taken over the last 4 years, current issues and recommendations for future. We recommend strategies for improving the financial position of Suzlon by sale of non critical assets and reducing operational, entering into new economies especially China through alliances, improving customer relationships and restoring its lost credibility among the stakeholders. Yours sincerely,

WIMWI Consultants

Enclosure: A detailed report on subject “Suzlon Energy Limited”
Executive Summary
With the rising oil, gas and coal prices, the global economy was constantly on a lookout for alternative sources of energy to boost industry production and achieve growth. Wind energy was one of such alternative sources of energy and there was a huge growth potential in the wind energy industry. Moreover there were a series of government regulations such as tax incentives, carbon credits etc which supported production of wind energy. Owing to the high growth potential and full fledged government support, many major players such as Suzlon, Enercon, Vestas etc had entered into this sector. Before the financial crisis of 2008, Suzlon had concerns such as continuously increasing raw material prices, uncertain supply from suppliers and a huge debt on balance sheet. Moreover integration of different technologies, cultural integration among various locations, quality talent acquisition, complaints from customers and high risk in sustainability of growth were some of the other concerns faced by Suzlon. There were some quality issues also in the supply of turbine parts to Edison Mission Energy. It looked as if Suzlon had expanded too much and it was becoming difficult for it to manage such a huge business. After the financial crisis the demand of wind turbines reduced drastically. Decisions such as moving towards emerging markets and into low and mid wind sites were essential to counter immediate effects of the crisis. Sale of Hansen was important for financing the debt repayment but divestment of Chinese plant (Tianjin) which was a critical part of Suzlon’s Chinese strategy was a debatable one. Decision to acquire 100% stake in REpower was the right decision and was imperative for Suzlon’s future growth. Instead of defaulting on FCCB instalment, promoters should have infused more equity in the company and paid the debt. Because of market conditions and the impact of above decisions, Suzlon currently faces weak financials and its image has also taken a hit because of its default on debt. Moreover, uncertain demand in light of slow economic growth, low margins and highly competitive market has added to the woes of Suzlon. It is proposed that all new plants should be set up through alliances to allow revenue growth with much lesser capital expenditure than before. Specifically Suzlon should form an equity alliance with Chinese local firm to tap the most promising wind turbine market. In addition, REpower should make an alliance with existing oil and gas firm to set up offshore wind farms. Also, non-critical assets can be sold to reduce the debt-equity ratio and improve the...
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