January 29, 2009
Suzlon Announces Financial Results for Q3 FY2008-09
Consolidated Financials Q3-vs-Q3
o Revenues grew from INR 3,169.76 cr. to 6,893.04 cr., a growth of 117%
o EBITDA grew from INR 396.22 cr. to INR 724.66 cr., a growth of 83 %
o PAT (before exceptional items, minority interest and associates profit)
grew from INR 150.20 cr. to 413.95 cr., a growth of 176%
Consolidated Financials YTD-vs-YTD
o Revenues grew from INR 8,755.68 cr. to INR 17,277.15 cr., a growth
o EBITDA grew from INR 1,160.18 cr. to INR 1,959.45 cr., a growth of
o PAT (before exceptional items, minority interest and associates profit)
grew INR 605.19 cr. to 1,025.33 cr., a growth of 69%
o Suzlon in negotiations for over 2,000 MW of orders across USA, Europe
China and Australia, of which a potential 1,000 MW are likely to be
closed over the next six months.
o This is in addition to Suzlons existing order-book of 1,916 MW
(excluding Hansen and REpower)
Blade retrofit program 30% complete, full completion by June, 2009
The long term fundamentals of the wind industry remain strong. We see an
upswing in the industrys growth from 2010. We expect the new US
administration to provide a strong boost for renewables, said Mr. Tulsi Tanti,
CMD Suzlon Energy Ltd.
Operating margin and efficiencies have improved this quarter and we believe
that this will continue into Q4 and FY10. The blade retrofit project is on track
and will be complete by June, 09. said Mr. Sumant Sinha, COO - Suzlon
Mumbai: Suzlon Energy Limited (SEL), the worlds fifth leading and Indias largest
wind turbine manufacturer, reported consolidated revenues of INR 6,893.04 cr. in Q3 FY09,
a 117 % growth over corresponding period of the previous year. Profit after tax (before exceptional items,
minority interest and associates profit) stood at INR 413.95 cr. The Suzlon Wind Group
(which excludes Hansen and REpower) order-book stood at 1,916 MW (98 MW
domestic, 1,818 MW international) and INR 10,387 cr., as on January 26, 2009
(excluding Hansen and REpower). Additionally the order-book for the component
business stood at INR 1,080 cr.
Speaking on the companys outlook, Mr. Sumant Sinha said: We have seen a
reduction in commodity prices, logistics costs, inventory, and overall project costs in
the wind sector. This will translate into cost reductions for customers, interest cost
reductions, and higher IRR on projects, which make the industry outlook favourable
from FY10. The overall attractiveness of the industry has also improved for lenders due
to higher security cover from better returns, and more secure cash flows.
The company is in negotiations with existing and prospective customers for projects
totalling over 2,000 MW across USA, Europe China and Australia, of which 1,000 MW
are likely to be closed over the next six months.
1. Blade Retrofit Program
The company completed a full Root Cause Analysis and implemented Corrective Action
after completion of validation testing program at a third party facility on the S88 V2
blade. The planned retrofit and replacement program to strengthen all V2 blades is
underway and on schedule, with 85% of the project scheduled to be completed by
March 2009, and the remainder by June 2009. A provision of INR 170.88 cr. in FY09
has been made to cover additional costs arising from the project.
The S88 V2 blade was phased out by the next generation V3 blades in early 2008. 342
units of the S88 V3 have been commissioned till date in USA and Australia. [See
Appendix A for additional information]
2. Optimizing Operating Efficiencies
The company has undertaken several key initiatives to increase operating efficiencies:
focus on working capital reduction, freeze on capex plans, constant monitoring of raw
material procurement and prices; continuous performance monitoring and operating
The company also restructured senior management responsibilities with the aim of
achieving greater consolidation and operational efficiencies as a Group. Mr. Tulsi Tanti
took over direct charge of the companys operations while continuing his role as the
Groups strategist. Mr. Sumant Sinha - COO, took over the day-to-day operational
management of Suzlons wind energy business.
3. Capitalizing on Opportunities
Speaking on the outlook for the sector, Mr. Tulsi Tanti said: The wind industry
has enjoyed a period of uninterrupted growth at over 34% CAGR over the past five
years. But with the impact of the credit crunch on the global economy, the wind
energy sector is likely to witness subdued growth rates in the coming year. The
fundamentals of the industry, however, remain strong with energy security,
sustainable energy sources and climate change high on the public agenda.
3.1 Focus on renewable energies in key markets
The long term outlook for the industry remains highly robust. Industry forecasts point
to an upswing by 2010 with easing credit, and reducing costs backed by existing
drivers such as renewable energy targets in Europe, China and India; the US tax credit
system and the Repower America program providing a steady pipeline for growth.
3.2 Strategic Group Synergies
Initiatives are underway to achieve synergies at the group level. The company is
working towards accelerating REpowers volumes and improving margins through
Suzlons supply chain linkages. The initiatives will reduce REpowers external
dependence for supply of rotor blades, gear box, generator, control panel, forging and
casting parts, converters etc. These initiatives offer the potential of reducing COGS for
REpower through sourcing and scale economies.
In a similar manner, Suzlon will pursue closer supply chain linkages with Hansen
Transmissions, plugging a gap in Suzlons supply chain for gearbox and technology,
and with SE Forge supplying forged and cast steel components to Hansen.
With Hansens expansion in Belgium, China and India, the synergies also create a
long-term growth driver for Suzlons component business, while the closer functioning
of all three companies offers the opportunity to integrate turbine technology with
component technology and design, to develop the next generation of robust, cost
efficient wind power solutions.
3.3 Changing Business Dynamics
Over the coming year, with easing commodity prices and supply chain bottlenecks the
industry is expected to enter a period of consolidation, emerging with streamlined
supply chains, and a customer base dominated by large utilities.
Suzlon and the Martifer Group entered into an agreement on a revised payment
schedule for Martifer's 22.4 percent stake in REpower. As per the terms, Suzlon
acquires the stake in three tranches by payment of Euro 65 mn in December 2008,
Euro 30 mn in April, 2009, and the final tranche of Euro 175 mn in May 2009, which
will take Suzlons ownership level to approximately 91% in REpower. Suzlon already
holds 91% voting rights in REpower through an existing agreement with Martifer.
Suzlon completed the acquisition of the first tranche of shares in December, 2008,
taking the companys holding in REpower to 73.71%.
Suzlon successfully completed the sale of 10% equity in its subsidiary Hansen
Transmissions International NV to Ecofin Limited, a London-based specialized
investment firm, for INR 500 cr. Following this disposal, the Suzlon Group will retain a
voting and economic interest in Hansen of approximately 61.28%.
3. Components Business
SE Forge, Suzlons forging and foundry unit, established high precision forging and
machining facilities of 70,000 MT p.a. capacity in Vadodara. The facility will
manufacture components such as tower flanges, bearing rings, gear rim and ring
gears, and has the capacity for rings of 5m diameter, the largest size made in India.
SE Forge also established a 120,000 MT p.a. casting and machining unit in
Coimbatore, with a 50 MT per-piece capability, the largest in India. The facility will
manufacture rotor hubs and other spherical castings, rotor shafts, main frames and
casings with product applications across industries such as wind, oil and gas, material
handling, aerospace, defence, construction equipment, bearings and heavy machinery.
The facility has started commercial production, supplying Suzlon, Hansen and other
Suzlon is also in the process of establishing verticals for rotor blades, electricals and
towers as part of its component manufacturing strategy.
Suzlon The Road Ahead
Suzlon over the past five years achieved meteoric growth, growing at twice as fast as
the industry on an average. The company in the period emerged as a global player,
integrated the full value chain establishing 5,700 MW of manufacturing capacity, and
made two major international acquisitions.
The changed market dynamics will allow the company in the coming year to
consolidate its growth focusing on overcoming short term challenges, integrating
group strategy, technological improvements, improving returns for customers on wind
projects, and expanding the component business.
The Suzlon Edge
With the global wind industry shifting focus to shorter-term order visibility, the
company is well positioned with a strong pipeline of potential customers. Suzlon
retains the edge in tough market conditions with a combination of well established
strengths - cost competitiveness, vertical integration, expanded scope of services,
well-diversified market reach, and a focus on key markets and customer relationships
dominated by utilities and financially sound developers.
Appendix A: Suzlon S88 2.1 MW V2 Blade Retrofit Program Synopsis
Issue: Suzlon encountered the appearance of cracks in the V2 version blades of its
S88 2.1 MW turbines in USA and Portugal. Cracks have occurred in 172 blades out of
a total population of 1,251 sets of blades. The cracks occurred in the transition area of
the blade, approximately five meters from the root of the blade.
Root Cause Analysis: The company immediately instituted a (now complete) Root
Cause Analysis (RCA) program to determine the exact cause of the problem and
The reason for cracks was determined to be a high stress concentration causing initial
damage in the core of the blade shell. The problem was encountered only in the V2
blades (phased out by V3 model blades).
Solution: The analysis determined a strengthening of the affected region of the blade
would prevent the cracks by reducing stress levels from blade loads in the core of
transition area of the blade.
Validation: A full scale dynamical blade test was conducted on V2 rotor blades by
Wind turbine Materials and Constructions (WMC), Netherlands using a realistic load
spectrum. The retrofitted blade designated V2A passed a life-cycle test of one million
test cycles, validating the retrofit solution and blade quality.
Retrofit: An immediate retrofit program was instituted to strengthen all V2-type
blades. The Retrofitting involves providing additional reinforcement in the critical
transition region of the rotor blades, both from inside and outside of the blade, to
comply with the revised design standards of V2 rotor blades.
The program is progressing as scheduled, with 85% of the project scheduled to be
completed by March, 2009 and remainder by June, 2009. A provision of INR 170.88 cr.
in FY09 has been made to cover additional costs arising from the project.
Product Evolution - The S88 V3: The development of the V3 blade was a product
evolution from the V2 for improved aerodynamic performance, in process before V2
crack issue surfaced. The V3 structural design has adequately addressed the blade
crack issue observed on the V2 blade.
The S88 turbine with the V3 blade incorporates an improved wind turbine and rotor
blade design, drawing on the experience from installing and running the S88 turbine
with the V2 blade. The new version has shown consistently better performance in
major operating parameters over the previous version.
342 units of the S88 V3 have been commissioned till date in USA and Australia. No
blade cracks have occurred on V3 blades till date, and V3 turbines in Australia have
demonstrated over 97% availability in majority of the turbines.
Future product development
Suzlons next generation blade development effort is already working on - High energy
yield blade designs; Innovation in composite technology; Cost reduction through lower
material usage; Low wind speed technology and Regulation and generation system