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EXECUTIVE SUMMARY

Suzlon Energy is a wind power company based in India. The Company is engaged in the

manufacture of wind turbine generators of various capacities and its components. Its other

operations include sale/sub-lease of land, infrastructure development income, sale of

gearboxes, sale of foundry and forging components, and power generation. The Company

operates in India, Europe, United States and China.

This report looks into Suzlons Annual Report and performs a study of the specific aspects

of its financial performance and finally providing a conclusive summary of the findings


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CONTENTS

1. INTRODUCTION 3

2. INDUSTRY DETAILS 3

3. FINANCIAL ANALYSIS 4

3.1 UNDERSTANDING SUZLONs PROFITABILITY 4

3.1.1 REVENUE GENERATION BY ASSET 4

3.2 UNDERSTANDING SUZLONs EFFIECIENCY. 4

3.2.1 OPERATIONAL EFFICIENCY. 5

3.2.2 ASSET EFFICIENCY. 5

3.2.3 EMPLOYEE EFFICIENCY 6

3.3 UNDERSTANDING SUZLONs FINANCIAL STRENGTH... 7

3.3.1 LIQUIDITY. 7

3.3.2 BORROWINGS... 8

4. COMPETITOR REVIEW.. 9

5. CONCLUSION.. 9

6. APPENDIX. 10

7. GLOSSARY. 11

8. REFERENCES .. 12

9. BIBLIOGRAPHY 12


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1. INTRODUCTION:

Suzlon Energy Limited (SEL) began in 1995 after Mr. Tulsi Tanti, the current Chairman and

Managing Director, felt frustrated with Indias shaky power grid and the increasing cost of

electricity that offset the earnings of his textile factory Suzlon and decided to have it fixed.

He initially started supplying his textile company with energy from the two wind turbines he

had ordered specifically for it. Understanding that such a move had dual advantages, both in

terms of cost savings and the environment, he sold of his textiles factory by 2001 and started

focusing on generating energy from wind. Today Suzlons global presence extends to

5 continents and 21 countries. Focusing itself on a series of strategic acquisitions it has

become the 3 rd largest wind turbine manufacturer in terms of global market share and largest

in Asia.

2. INDUSTRY DETAILS:

Wind Energy is a relatively new industry that has found its global acceptance in the recent

decade. The relatively negligible fuel cost, low maintenance cost added to the tax advantages

from governments has made it a highly chosen industry. Currently there are top 10 Wind

Turbine manufacturers, with Suzlon occupying the 3 rd position in terms of market share.

With an eye on global expansion, the company snapped up three large organizations

REpower, Hansen and SE Forge, during its growth pushing its share to 12.3%. With these

acquisitions, Suzlons combined capacity has increased to 5,450MW, which is one-sixth of

the annual global installation of wind power projects.

Fig 1: Top 10 Global Wind Turbine Manufacturers


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3. FINANCIAL ANALYSIS:

3.1 UNDERSTANDING SUZLONS PROFITABILITY:

Suzlon has always been a growth-focused company since its inception in 2001 growing

at a Compounded Annual Growth Rate (CAGR) of 66 % for the last 8 years. Duringthis period the company has gained a global presence by focusing its growth as an end-

toend solutions provider by being a vertically integrated company.

3.1.1 REVENUE GENERATION BY ASSET:

According to the Suzlon balance sheet (2009) its sales increased by 94% from

1.7 bn to 3.3 bn compared to the value generated in 2008. Although during this

same period the Gross Margin has remained fixed at 35% both years with theOperating Margin falling by 5.76 % to 2.7 % in 2009 compared to 2008. On the other

hand the ratio of Cost of Goods Sold (COGS) to the Revenue remained same during

this period shows that the company managed their costs well.

2009 2008

Sales Revenue 3.3 mn 1.7 mn

Gross Margin 35.37 % 35.16%

Operating Margin 2.7% 8.46%

COGS/Revenue 63.54% 63.6%

Table1: Profitability Table for 2008 and 2009 Source: Annual Report

3.2 UNDERSTANDING SUZLONS EFFICIENCY:

The global wind energy industry has doubled it capacity within the last 3 years to

158 GW and hence there is a need within the industry to become a cost competitive

venture considering the large number of players present. Suzlon was able to improve on

its efficiency as a result of strategic acquisitions, continuous R&D, in-house

manufacturing and reducing shipping cost by component sourcing close to its project

sites.


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3.2.1 OPERATIONAL EFFICIENCY:

The operating expense for Suzlon increased enormously by 108 % from 1.6 bn in

2008 to 3.3 bn in 2009. This was primarily due to a substantial increase in the cost

of goods sold (COGS) and due to very high exceptional costs. In 2009 COGS

increased by 96% and exceptional cost by 224% from its value in 2008. The increase

in COGS was due to an additional 3% global market share as a result of the

acquisition of REpower systems. The major chunk, i.e. 54 %, of the exceptional cost

was the result of foreign exchange losses that occurred due to rupee devaluation and

the remaining share of loss due to warranty replacement on the account of damaged

fan blades. Inspite of the above losses, Suzlon was able to effectively maintain their

cost of goods sold as a percentage of revenue similar to last years value of 63%.

2009 (in Mn) 2008 (in Mn)

Revenue 3389.7 1725.4

COGS 2153.8 1097.3

Exceptional Items 114.5 35.3

Operating Expense 3298.1 1579.4

COGS/Revenue 63.54% 63.60%

Table 2: Operational Efficiency 2008 and 2009 Source: Annual Report

3.2.2 ASSET EFFICIENCY:

As a result of acquisition and global demand the inventory grew by 93 % in 2009compared to the same in 2008. The consolidation of REpower Systems and entering

new global markets were the prime reasons for this growth. The Table 3 provides the

breakdown of the Inventory for both the years.


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2009 (in Mn) 2008 (in Mn)

Raw Materials 524.08 236.21

Work-in-progress 434.50 262.77

Land & Lease Rights 4.61 1.5

Stores and Spares 23.25 11.8

Total 986.44 511.72

Table 3: Inventory in 2008 and 2009 Source: Annual Report

Inspite of the very high inventory values Suzlon was able to better the Inventory

turnover compared to 2008. Looking at the Inventory turnover ratio we can see that it

increased by 22 % simultaneously improving the Day Sale Inventory (DSI) by 19 %.

Also the Days Receivable Outstanding (DRO) has improved by 17 % showing that

the company has effectively managed the inventory.

2009 2008

Inventory Turnover 2.99 2.46

Day Sale Inventory 121.89 148.57

Day Receivable Outstanding 91.63 110.82

Table 4: Inventory Ratios Source: OneSource Database

3.2.3 EMPLOYEE EFFICIENCY:

The revenue generated per employee in 2009 has risen enormously by 96 % from its

value in 2008; at the same time comparing 2008 revenue generated per employee to

2007 shows only a 30 % increase. This massive increase has taken place due to the


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addition of REpower employee and revenues into Suzlon account. During 2009 the

EBDITA per employee has fallen by 10.5 % to its value in 2008 due to additional

COGS and exceptional expenses mentioned above.

All amount in Mn 2009 2008 2007

Revenue/Employee 242,125 123,241 94,470

EBDITA/Employee 11,798 13,035 13,375

Table 5: Data Showing employee efficiency Source: OneSource Database

3.3 UNDERSTANDING SUZLONS FINANCIAL STRENGTH:

3.3.1 LIQUIDITY:

Although the Current and Quick ratios for 2009 have fallen compared to 2008 they

are still higher than the industry average. During this same period the Working

capital has improved by 10.5 %. The A/c Receivables remains at an all time high of

747 Bn, which is an 85 % increase from 2008, but as a percentage of sales the

debtors are at 22% for 2009 compared to 24% in 2008, which can be seen as an

improvement.

2009 2008 Industry Average for 2009

Current Ratio 1.89 2.40 1.03

Quick Ratio 0.98 1.64 0.71

Working Capital 1.4Bn 1.3Bn -

A/c Receivable 747Bn 404 Bn -

Table 6: Data showing company liquidity Source: OneSource Database


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3.3.2 BORROWINGS:

The borrowings have increased tremendously in 2009 both as Secured and

Unsecured loans at 59 % and 76 % respectively compared to 2008. These loans were

taken for capital expenditure incurred in setting up manufacturing facilities,

increasing working capital and also consolidation of REpower Systems. The Debt-to-

Equity ratio in 2009 is at an all time high of 1.74 followed by an increased financial

gearing of 0.64 compared to 2008. One of the main reasons for this large amount of

debt is the consolidation of the debts of its 11 subsidiaries into Suzlon Energy. As a

move to retain cash in the books the management has deferred the divided payment

this year promising shareholder value increase.

According to The Times of India (2009), Suzlon has achieved a gross 15% reduction

of its debt by around 217 Mn through its 35% partial stake sale of Hansen

Transmissions. In addition to this it has received a new 5-year $465 Mn loan from

State Bank of India with provision for 2-year moratorium on principal repayment as

well as 2-year holiday on debt covenants. This move would help to it to ease through

the medium term.

Fig 2: Graph showing Financial Ratios


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7. GLOSSARY

1. Compounded Annual Growth Rate: (CAGR) is a business and investing specific term

for the geometric mean growth rate on an annualized basis. It represents the smoothedannualized gain earned over the investment time horizon. CAGR is often used to describe

the growth over a period of time of some element of the business, for example revenue,

units delivered, registered users etc.

2. Cost of Goods Sold: In financial accounting, cost of goods sold (COGS) includes the

direct costs attributable to the production of the goods sold by a company. This amount

includes the materials cost used in creating the goods along with the direct labor costsused to produce the good. It excludes indirect expenses such as distribution costs and

sales force costs

3. Debt-to-Equity ratio: A measure of a companys financial leverage. A higher number

indicates that the company has been aggressively taking in debt. Debt-to-equity ratio

depends on the industry that the company operates. For example: a manufacturing

industry has that ratio above 2.

4.Inventory Turnover: In accounting, the Inventory turnover is an equation that

measures the number of times inventory is sold or used over in a period such as a year.

The equation equals the cost of goods sold divided by the average inventory

4. Interest Cover: It is the ability of a company to honor its debt commitments. It is

calculated by EBDITA divided by total interest payable.

5. Vertical Integration: Vertical integration is the degree to which a firm owns its

upstream suppliers and its downstream buyers.


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8. REFERENCES:

1. Baker, A. (2007). Heroes of the Environment: Tulsi Tanti. Time, [Online] Available

from: http://www.time.com/time/specials/2007/article/0,28804,1663317_1663322,00.html

(Accessed 17 February 2010).

2. Suzlon. (2009). Annual Report. [Online]

Available from: http://globalbb.onesource.com/Web/Reports/AnnualReport.aspx?R

(Accessed 10 February 2010).

3. OneSource. (2010). Annual Ratios. [Online] Available from:

http://globalbb.onesource.com/web/Reports/ReportMain.aspx?KeyID=45975334&Process

=CP&Report=RATIOS (Accessed 18 February 2010).

9. BIBLIOGRAPHY

1. Atrill, P. and McLaney, E. (2008). Accounting and Finance for Non-Specialists. 6th edn,

London: Prentice Hall Publications

2. Ittelson, T. (2009). Financial Statements. New Jersey: Career Press.

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