Tulsi Tanti hopeful of Suzlon’s profits in 12 months

The Chairman and Managing Director of the wind turbine manufacturer, Suzlon Energy, has said that the company could turn in a profit “within the next 12 months”.

Tanti told BusinessLine today that the “only problems” that Suzlon faced were debt and the attendant liquidity issues. With the lenders agreeing to restructure the debt, the company’s balance sheet has improved.

“This is a year of consolidation and we hope to turn profitable within the next 12 months,” Tanti said, noting that the government’s policy of self-reliance, Aatmanirbhar, which essentially means more emphasis on local manufacture, would be a big help to Suzlon.

New product launch soon

Soon, the company will be coming out with new products. “We will be launching a larger wind turbine which is best suited for low wind sites,” he said. Suzlon’s latest corporate presentation mentions a 2.8 - 3 MW machine – its 66.5 meter-long blades will sweep an area of about 14,000 sq meters. (In the wind power business, the larger the swept area, the greater the potential for generating electricity.)

Industry observers, however, feel that while the debt restructure has given a new lease of life Suzlon, the company has still some more distance to travel before it turns profitable. Much would depend upon the market for wind turbines, which in turn is greatly predicated upon the government’s capacity auctions. There are indications that the central and state governments would auction 50 GW in the next five years, but in the last three years, project implementation has been beset by several issues—but mainly Gujarat government’s reluctance to allocate windy sites to projects that would sell power to other States.

Industry in doldrums

One industry insider, who asked not to be named, observed that the listlessness in the market in the last three years has resulted in several turbine suppliers disappearing. Companies such as Inox, ReGen Powertech, and the Chinese Envision have all but vanished; the German company, Enercon, is yet to make a meaningful entry into India. Vestas, observers say, seems to be more focused on using its manufacturing base in India to export.

That practically leaves three players to cater to the Indian market – Siemens Gamesa, Suzlon and GE. Suzlon is therefore well positioned to grab a chunk of the market, but the market itself will have to grow.

Post restructure

Suzlon says its post-restructure operations costs would come down to ₹1,192 crore in 2020-21, compared with ₹1,406 crore in 2019-20. The company has spoken of selling off assets to raise ₹950 crore to bring costs further down.

With wind tariffs falling to ultra-low levels, margins for turbine manufacturers have also shrunk. One industry source said that today a wind turbine manufacturer gets about ₹25-30 lakh per MW, compared with ₹1 crore up till 2016.

So, one can do the math about how many MW Suzlon would have to sell to cover the operating costs, but then, the company also makes profits on its ‘operations and maintenance’ business. Suzlon has 16 GW of turbines under O&M contracts (2.5 MW of which are overseas). In 2019-20, this business yielded revenues of ₹1,995 crore. As a thumbrule, the margins in the O&M business are around 20 per cent.

In sum, observers note that while the debt restructure has given Suzlon some breathing space—bringing down interest costs by 70 per cent to about ₹370 crore, and assuring availability of working capital—the company’s fortunes depend a lot on the volume of government’s capacity auctions.

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