Drops Savings and Investments recommends investments in Suzlon Energy with a long term perspective

12 December 2009
Current Market Price: INR 83.10

Suzlon Energy, incorporated in 1995, is Asia's leading manufacturer of wind turbine generators (WTGs). It is the first Asian company to manufacture WTGs, which have MW and multi-MW capabilities. The products manufactured by Suzlon include rotor blades, control panels, nacelle cover and tubular towers. The company had recently acquired the Belgian Hansen Transmissions, which is one of the three major multi-MW gearbox suppliers in the world. Suzlon has to its distinction the setting up of the largest wind power project in India. The project is located at Vankusawade Wind Park in Maharashtra and has a total capacity of 210 MW. The company enjoys cost advantages over its global competitors by way of operating manufacturing capacities in India. Also, the company has a subsidiary for technology development in Germany and an R&D facility in the Netherlands for rotor blade molding and tooling.

The Industry

The world is now looking for the energy security with the governments, looking to diversify energy source, to mitigate the geopolitical risk around oil and gas supplies.

The wind is a promising and fastest growing renewable energy source. Wind energy has the potential to power the future in all Critical Success Parameters like Cost Competitiveness, Established Base, Resource Availability and Magnitude. It has compelling growth dynamics with reference to various concern such as climate change and global warming, energy security, increased electricity demand and cost competitiveness.

The wind industry has enjoyed a period of uninterrupted growth of 34% CAGR over the past 5 years. The year 2008 was another record year for the industry, with global annual installations growing by 36% to over 27 giga watts (GW). The global installed wind power capacity grew by 28.8% to reach 120.8 GW, making wind power one of the fastest growing sources of utility-scale electricity generation. This reflects a huge and growing global demand for emissions-free, sustainable and local sources of power generation (source Global Wind 2008 Report: Global Wind Energy Council).

By 2012 it is expected that total annual new installations will grow from today's level of 28,500MWto 51,000MW. In the next four years, the US is likely to overtake most European nations, to become the leading country in terms of annual installations. In Asia, strong growth is expected in China and India, new capacity additions are expected to be around 2,000 MW every year. Cumulative annual growth rate for new installations up to 2012 are expected to be 16%.

Company Performance

Suzlon's market share (combined with REpower) rose to 12.3% thereby making Suzlon the 3 largest wind turbine manufacturing company in the world. Suzlong energy is having over 45% share of India's domestic installations in FY08. On a cumulative basis, Suzlon has installed around 8,500 MW of India's total wind power capacity. As at the end of March 2008, the company was the fifth largest manufacturer of Wind Turbine Generators (WTG) globally in terms of annual installed capacity. During the period between FY05 and FY08, Suzlon has grown its revenues and net profits at compounded rates of 91% and 41% respectively.

Sales increased by 90.7% to Rs 26,082 crore in 2008-09 from Rs 13,679 crore in 2007-08 registering a compounded annual growth rate (CAGR) of a staggering 91.4% over the past 5 years. The increase in financial year ended March 31, 2009, was primarily due to consolidation of REpower sales amounting Rs 7,125 crore.

Vertical integration of Wind Turbine Generator (“WTG”) Supply Chain give Suzlon a competitive advantage. Suzlon got strong international client base in key markets. Suzlon has geographical presence across the globe. The 91% subsidiary RE Power is Recognized as technology leader with strong presence in Europe. 26% subsidiary Hansen Transmissions is 2nd Largest globally in Wind gear-boxes.

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