• FIC Hansraj

The curious case of Suzlon Energy

BACKGROUND

Who knew the world’s fifth largest wind turbine manufacturer would end up becoming a stock that’s not even worth Rs.10? What started as a textile company soon turned into a global energy provider that harnessed the power of the wind to provide electric supply to its customers, and later succumbed to crippling debt and the unpalatable ambitions of its promoters.


The need for a quality uninterrupted power supply inspired a man named Tulsi R Tanti to bring into existence, Suzlon energy, in 2001. Tulsi R Tanti, a commerce graduate and a holder of a diploma in Mechanical Engineering, would later become the fourth richest Indian behind Premji, Ambani and Lakshmi Mittal with the listing of the energy company on the stock markets.


Suzlon energy was listed on the stock market in 2005, with its shares being oversubscribed 51 times. The shares debuted at Rs. 692 a piece making Tulsi’s stake of 69.78% worth billions and the man, an instant billionaire. By 2008, both Tulsi and Suzlon were even bigger. It acquired the German-based Senvion and become the fifth largest wind turbine manufacturer in the world. All was going great until turbulence stuck…


THE CRISIS

1. The Lehman Brothers Collapse


Suzlon’s order book comprised mainly of orders from foreign countries such as the US, UK, Germany, Brazil and so on. Thus, when the Global Financial Crisis of 2008 set in and the whole world prepared itself for a recessionary phase, orders from the two biggest energy markets of the world, Europe and the US, paused completely and indefinitely.


With losses and debt rising significantly to around $1.3 billion, the company decided to sell 35% of its stake in Hansen for $370 million, as part of its debt restructuring program. Suzlon’s flawed business model required only 25% of the cost upfront from the consumers,

While the other 75% was financed through bank loans, resulting in a highly leveraged balance sheet. Thus, when the liquidity crunch came into existence, the company couldn’t find the right time to participate in stake sales and asset monetization to reduce its debt burden.



Source: ndtv.com


2. Neglecting India for unpalatable ambitions


Suzlon’s promoters had been ambitious from the start. Tanti never really considered India to be a prospective market for wind energy. Every time, he was asked about it, the general excuse was that there were no sufficient incentives given by the government. In Tanti’s interview with Forbes Magazine, he was himself heard saying, “three years ago, I did not put up a single turbine for Madhya Pradesh because it was not a priority for me. At that time, opening up another country was my priority.”


Thus, when the company was investing significantly in other developing countries such as Brazil, India was ignored blatantly. With time, the company lost its top spot in the Indian market to companies like Gamesa, GE, Vestas and so on. While Suzlon was flirting with customers overseas, global MNCs like GE worked to develop wind turbines tailored to fit India’s conditions. As debt started to accumulate, the company continue to find itself short of cash to fulfil even the existing orders, let alone take new ones resulting in the organisation’s downfall.


What does the future look like?

Things have improved a bit for Suzlon Energy but not so significant to tantamount a turnaround for the company. The investment by Dilip Shanghvi (founder of Sun Pharmaceuticals) to purchase a 23% stake in the energy provider for $258 million along with the sale of the company’s stake in Senvion, the debt restructuring has helped the company stay afloat but the question of its sustainability remains.


The global market outlook for renewable energy looks highly positive as countries target to reach net zero by the end of this century. Moreover, with PM Modi’s push to improve the renewable energy sector’s infrastructure in India, will Tanti be able to ride the winds and capitalise on it or is Suzlon Energy a thing of the past now?


Sources:

Why Suzlon failed - Shashwat DC

Economictimes.indiatimes.com

Livemint.com


Author: Neeraj Agarwal

Illustration by: Divya Jha