Suzlon Energy aims to reduce 40 per cent of Rs 60 billion debt by FY18

Suzlon Energy, the country’s largest wind power turbine maker and again making losses, says it aims to reduce 30-40 per cent of the Rs 60 billion total debt by the end of this financial year.

“We are actually aiming that by Q3 (the third or December quarter, we would be able to pare close to 30 per cent of the debt,” J P Chalasani, group chief executive, told Business Standard.

It reported a net loss of about Rs 3.8 billion in 2017-18, after a profit of Rs 8.5 bn in FY17. Revenue dropped by 35 per cent to Rs 82.9 bn. The change was mostly due to changes in the project award regime and a reduction in orders, it says. The FY17 profit had come after six straight years of losses. Last year, said Chalasani, 1,766 Mw of new projects were commissioned in the country and 626 Mw of that was built by Suzlon. In its quarterly results, it claimed to have 35 per cent market share in India. In 2017, the central government ended  the 25-year-old Feed-in-Tariff (FiT) mechanism for awarding wind energy projects, introducing competitive bidding. Capacity addition fell to a record low of 650 Mw but so did rates, by half, to Rs 2.5 a Mw. Under FiT, the electricity regulator decided the rate.

Chalasani said the falling rates put pressure on operations. He was hopeful that the government would award large projects and this would lead to sustainable growth in the near future for the company. Suzlon feels a wind energy rate of Rs 2.5-2.7 is comfortable, if there are large projects of over 200 Mw. “If the volume is large, it suits a company like us which has a vertically integrated business,” he said. Suzlon has seen the cancellation of many orders. As of end-March, the total of cancellations was 733 Mw.  “Despite that, we have order visibility of 2,000 Mw. We are hopeful of increased orders as more auctions happen,” said Chalasani.

In 2017, while the rate went to a record low of Rs 2.43 a unit, capacity addition was the lowest ever at 1,766 Mw. At the same time, wind turbine manufacturers estimated an unsold inventory of Rs 100 to 150 billion, with no outlook on projects. Leading domestic manufacturers had been expecting close to 5,000 Mw of installations.

  

Tendering has since picked up. Auctions have been completed for close to 7,500 Mw of wind energy projects at central and state levels. Close to 9,000 Mw of bids have been announced and the industry is expecting another 6,000 Mw of projects to come for bidding by the end of this financial year. It typically takes 18 months for an 100 Mw wind project to be commissioned.

Along with others in the segment, after a considerable reduction in their operating earnings (earnings before interest, taxes, depreciation and amortisation or Ebitda) margin, Chalasani said the company had ‘optimised’ the workforce. He said this did not only entail reduction but also using the same strength for more work.

As against the Ebitda margin of 17 per cent during the March quarter of FY17, when Suzlon reported a profit after six years of loss, this is now 14 per cent. A lower Ebitda margin indicates less profitability and tepid cash flow.

“One good thing is that wind energy is getting demand, not only because of the policy push but also it is the cheapest energy source in the country. At the same time, with transmission charges being waived, states which earlier could not meet their renewable energy purchase obligation are now buying wind power easily,” said Chalasani.

Suzlon is also planning to re-enter markets abroad but only as a supply and support contractor. It will foray into  Europe, Southern Africa and some neighbouring countries where there is untapped demand or a big market to explore. The company did not disclose any target for this.