Suzlon Energy Acquisition of Repower

Indian textile manufacturer Tulsi Tanti founded Suzlon in 1995.

To avoid having to rely on India’s notoriously unpredictable and expensive electric power grid to power his family’s textile operations.

After commissioning two wind turbines, Tanti

discovered that wind energy was an even better business than textiles.

IPO in 2005, 43 times oversubscribed

Market Capitalization (1,297,228,341*8.85) Rs.11480470817.8

Face value of share Rs.10 and Citibank was the underwriter.

Steps of Suzlon in Global Markets In 1996 Tanti secured the rights from German turbine

manufacturer, Sudwind, to sell its turbines in India. But before receipt of his first order, Sudwind went bankrupt. Seizing the opportunity, Tanti bought the global rights to Sudwind machines, hired the manufacturer’s engineers, and acquired its research and development centre in Germany.

In 2003 internationalized its operations through securing a contract with DanMar & Associates for a 24-turbine wind farm in Minnesota and targeted the Sillicon valley.

In 2006, Suzlon bought Hansen Transmissions, a Belgian manufacturer of wind turbine gearboxes

In 2007, Suzlon purchased REpower, a German manufacturer of large wind turbines, for $1.8 billion.

REpower is a German wind turbine company founded in 2001, which was subsequently acquired in December 2009 by Suzlon Energy Ltd.

Its product range comprises several types of turbines with rated outputs of between 1.5 and 6.15 megawatts. It created the 5M, in 2005. REpower's 1.5-megawatt range of turbines is one of the most successful turbines in its class.

In 2002 REpower launched its 2-megawatt range, currently popular in series of production.

REpower is one of the leading players in the fast-growing worldwide wind energy sector, specializing in high output turbine technology particularly suitable for offshore turbines.

REpower has established a strong presence in a number of key European markets and is pursuing promising development plans in China, India and the USA.

In May 2007  Suzlon Energy of India acquired the majority shareholding in REpower for €1.3 billion.

The deal was structured in such a manner to allow Suzlon to purchase Martifer's stake (22%) within two years for a fixed price of €265 million.

Suzlon's total investment of approximately US$ 1.6 billion gives it a holding of 66%, with the next largest shareholder being Martifer of Portugal.

Suzlon subsequently strengthened its position by buying the remaining 30% Areva stake in June 2008 for more than €350 million.

Areva went on to purchase the majority holding in 5MW rival, Multibrid.

 In 2009 Suzlon raised its share to 92% of REpower.[As of 31 March 2012, Suzlon Energy now owns 100% of Repower.

Impact of Acquisition on Share price

Share Price Movement since IPO

Share Price Movement 2007

Rationale Behind the Acquisition

The combination brings together strong R&D, excellent technology teams and access to European markets with a vertically integrated supply chain, global market reach, strong technology and manufacturing base and financial muscle

The combination promises to be a technology powerhouse capable of delivering and sustaining high growth with high margins

The REpower –Suzlon combination has the potential to become the world leader in wind power solutions

The partnership will create the most reliable product with the best life cycle cost

Key Financial Ratios* Mar '07 Mar '06 Mar '05 Mar '04 Mar '03

Investment Valuation Ratios        

Face Value 10 10 10 10 10

Dividend Per Share 5 5 4 10 5

Operating Profit Per Share (Rs) 43.28 32.62 53.4 60.05 45.26

Profitability Ratios        

Operating Profit Margin(%) 23.14 24.75 24.2 18.48 16.56

Gross Profit Margin(%) 22.72 25 23.45 17.31 17.03

Net Profit Margin(%) 19.41 21.28 18.62 18.14 12.5

Return on Long Term Funds(%) 32.63 31.89 43.24 28.58 16.75

Liquidity And Solvency Ratios        

Current Ratio 1.49 2.47 1.43 1.4 1.74

Quick Ratio 2.4 2.05 1.59 1.57 1.87

Debt Equity Ratio 0.31 0.12 0.54 0.59 0.31

Long Term Debt Equity Ratio 0.04 0.07 0.27 0.3 0.19

Debt Coverage Ratios        

Interest Cover 14.09 22.61 14.04 7.53 10.06

Total Debt to Owners Fund 0.31 0.12 0.54 0.59 0.31

Management Efficiency Ratios        

Inventory Turnover Ratio 3.98 3.49 3.92 3.99 4.05

Debtors Turnover Ratio 3.03 3.35 3.86 2.81 1.44

Fixed Assets Turnover Ratio 14.07 15.32 12.41 7.48 5.84

Ratio Analysis of Suzlon Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

Investment Valuation Ratios        

Face Value 2 2 2 2 2

Operating Profit Per Share (Rs) 4.85 1.51 -1.26 5.77 10.71

Profitability Ratios        

Operating Profit Margin(%) 12.55 6.16 -5.57 11.92 23.09

Gross Profit Margin(%) 9.89 2.56 -9.18 10.55 21.85

Net Profit Margin(%) -7 -3.95 -37.89 -6.34 20.09

Return On Capital Employed(%) 8.62 3.35 -0.71 6.52 16.21

Return On Net Worth(%) -9.19 -2.74 -25.3 -7.24 20.39

Liquidity And Solvency Ratios        

Current Ratio 0.87 1.31 1.14 0.82 1.46

Quick Ratio 1.07 1.91 2 2.19 2.12

Debt Equity Ratio 1.17 0.99 1.36 1.13 0.44

Long Term Debt Equity Ratio 0.82 0.81 1.02 0.53 0.29

Debt Coverage Ratios        

Interest Cover 1.29 0.78 -0.14 2.39 12.97

Total Debt to Owners Fund 1.17 0.99 1.36 1.13 0.44

Management Efficiency Ratios        

Inventory Turnover Ratio 4.87 4.5 4.67 5.45 4.71

Debtors Turnover Ratio 2.4 1.65 0.91 1.8 2.63

Fixed Assets Turnover Ratio 4.56 3.57 2.97 8.91 9.65

Total Assets Turnover Ratio 0.58 0.33 0.27 0.53 0.7

Ever since September 2008, when the financial crisis struck, Suzlon had faced an uphill struggle to even stay afloat.

Suzlon was grappling with a product recall crisis, an over-leveraged balance sheet.

A messy acquisition of German wind energy major REpower Systems.

A spate of senior level exits

As credit markets froze, the market for wind turbines all but dried up.

Reasons behind Suzlon’s slowdown

Future Prospects

Rising Demand for Electricity. Global warming become a warm issue and trend is shifting towards green and clean energy projects, Suzlon has the future.

The Suzlon has very high correlation with the Industrial production. So Suzlon is eagerly waiting for breakthrough from recession.

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