Winds of change at Suzlon?

PV Powertech's investment in Suzlon would be a shot in the arm for the debt-ridden firm to capitalise on the opportunity in wind power

The wind seems to have changed direction in favour of wind power equipment major Suzlon. Less than a month ago, the company sold its German unit to a private equity firm, and now there are reports that the Tulsi Tanti-promoted group company is in talks with Sun Pharmaceuticals’ Dilip Shanghvi's son, Aalok Shanghvi, for a possible merger or stake purchase with the latter's company, PV Powertech. PV Powertech is not exactly in the wind power space, but it is in the non-conventional energy space as it makes solar energy panels.
 
Coming from unconventional energy space, Shanghvis know the potential that wind power offers in the changing environment. Suzlon, which is crippled by huge debt, offers the best way to ride the boom in the wind power sector.

 
Solar and wind power capacity of 4,000 MW were added in 2013 taking the total capacity to 30,000 MW. This is expected to go up to 55,000 MW by 2017.
 

Most of the additions in renewable energy over the past few years have been in the solar sector. Wind power was affected after the government removed accelerated depreciation norms in 2012 followed by withdrawal of generation-based incentives (GBI) in March 2012. After the removal of these two incentives, installation of wind power in India reduced from 3,179 MW in 2012 to 1,721 MW in 2013.
 
However, the new government with its focus on non-conventional energy has re-introduced these schemes. GBI has been reintroduced with better incentives: the generator will now get an incentive of Rs 0.50 per unit with its ceiling increased from Rs 0.62 crore to Rs 1 crore. As per a Suzlon presentation, installation is expected to increase to 3,600 MW in FY16 and 4,000 MW in FY17.

 
In order capitalise on this opportunity, Suzlon had to bring down its debt. The sale of its German unit to a private equity firm looked like a distress sale. Since the time it acquired the German company REpower, Suzlon increased its revenue fourfold and its profitability by eight times. Yet the unit was sold for Euro 1 billion while its acquisition cost was Euro 1.5 billion.
 
The sale however, resulted in lowering of debt levels, which will help Suzlon finance the opportunity ahead. Though details of the PV Powertech transaction are not public, a stronger company backing Suzlon would give the wind power major the financial muscle to meet the challenges ahead.

 
A relatively new entrant, Gamesa Corp Tecnologica SA of Spain bagged a 300 MW order from Hyderabad based Greenko Group. A well-entrenched player like Suzlon is missing out on such big deals because of lack of financial leg room to bid aggressively for such orders.
 
There will be many such orders coming for wind power companies, especially with investments in wind power being qualified as a CSR (Corporate Social Responsibility) activity. Under the new Companies Act, companies have to spend 2% of their profit on CSR activity.
 
Suzlon just cannot afford to step off the treadmill, and should concentrate only on cutting its flab, lest global players come and seize the opportunity under its nose. For Suzlon, it’s time to pick up the ammunition that PV Powertech offers and grab the opportunity.

 
As for the Sun Pharma group, investors would appreciate if the deal if it is kept at an arms distance with little or no linkages between pharma and power.