Thursday, March 06, 2025 | 03:26 AM ISTहिंदी में पढें
Business Standard
Notification Icon
userprofile IconSearch

Breezing through

SUZLON ENERGY

Image

Shobhana Subramanian Mumbai
With REpower, the firm gets a foothold in Europe.
 
Tulsi Tanti is not a deeply religious man. But he believes that there is 'some energy' in us that helps us to deal with our problems. That, possibly, is what helped the 49 year old chairman of Suzlon Energy fight an almost four month long battle for control of the Hamburg-based REpower.
 
It seemed like the bidding for REpower, valued at 1.35 billion euro, would never end but in the end Tanti managed to convince rival shareholder Areva to cede voting rights for its 30.17 per cent stake.In return, the Rs 6,130 crore Suzlon will buy out Areva's stake in REpower, a year down the line, at a valuation to be decided on by an independent team.
 
Tanti has also managed to bag the voting rights of Martifer, the other big shareholder in REpower with a holding of 23.08 per cent; Suzlon will buy out the equity later, though exactly when is not clear.
 
So, with its own stake of just under 8 per cent, that it acquired at ¤150 per share, Suzlon now controls 60 per cent of the voting rights of REpower. And for this, all Tanti is putting on the table right now is around ¤ 250million "" the cost for for its 8 per cent stake and the amount to be paid to minority shareholders who might choose to give up their shares in reponse to Suzlon's open offer.
 
At an enterprise value of ¤1.35 billion, the deal has not come cheap, even if the payments need to be made over time. But, Suzlon becomes a strong player in Europe, the single biggest market for wind energy accounting for a share of 50 per cent.
 
REpower's state-of-the- art technology will help Suzlon upgrade its facilities and together they should sell over 3,000MW of capacity in 2007, making the combine the fourth largest in the world. And Tanti knows that he could not have made it this far on its own before 2012-13, which might have been too late.
 
The presence in Europe apart, REpower gives Suzlon an entry into the offshore market(turbines installed in water), where REpower is in pole position having tested out its 5MW turbines at four test sites.
 
REpower has, however, been unable to scale up operations due to a shortage of gear boxes, rotor blades and bearings. That's where Suzlon comes in: it is setting up capacities for these components. Moreover, in March last year, Suzlon acquired the Belgium-based Hansen Transmissions NV, which makes gear boxes for units of up to 2mW.
 
Hansen is ramping up capacity from 3,600mW to around 9,300mW and can supply parts to REpower. Over time, it could look at making bigger units of 5MW, now that it will have a captive buyer in REpower.
 
More parts should help REpower scale up production from current levels of 600 MW, just 60 per cent of its potential, to around 900MW. Moreover, as Arvind Mahajan, executive director, KPMG points out, the higher level of operations together with the lower cost of components should help trim REpower's raw material costs which are high at 82 per cent of sales.
 
"Suzlon can help lower costs by supplying cheaper components and this can be brought down to around 62-63 per cent of sales," Mahajan explains. Once that happens, REpower's operating margins should see an uptick from the current 4 per cent.
 
Suzlon's also hoping to make its own operations more profitable "" its operating margins are 16 per cent "" once its components capacity comes on stream. Says Tanti, "As we scale up, our margins should be better. Also, we can save on procurement costs since the combined buying volumes will be far larger, " Tanti sure has a plan. Now he needs to make it work.
 
STRONG TAILWINDS
 
REpower will propel Suzlon to the fourth spot in the wind energy market
 
Suzlon gains entry into Europe, the world's biggest market
 
REpower's offshore technology an added advantage for Suzlon
 
Suzlon can help REpower scale up operations by supplying components
 
A bigger scale of operation for both players should help improve operating margins

 
 

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Jun 03 2007 | 12:00 AM IST

Explore News