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Wind power segment is witnessing a lot of activity over the past few months. Suzlon has attracted investment from Dilip Sanghavi and Associates infusing new life into the company. Inox Wind, a Gujarat Fluorochemicals promoted company is now tapping the market to raise funds to expand its capacity.
Wind power companies were affected by the previous government’s decision to remove accelerated depreciation policy. Wind Power units were being sold to high net worth individuals and corporates as a tax saving financial product. This policy not only gave them tax benefits but also high IRRs (internal rate of return) of over 17 per cent.
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This policy which was withdrawn in 2012 has been notified in September 2014. Further, generation based incentives which was withdrawn in March 2012 has been reintroduced which gives the generator an incentive of Rs 0.50 per unit with its ceiling increased from Rs 60 lakhs to Rs 1 crore.
But what can be a game changer for the sector is the recent policy decision that qualifies wind power companies as a CSR (Corporate Social Responsibility) activity. Under the new companies act, companies have to spend two per cent of their profit on CSR activity.
With the ongoing Inox Wind’s IPO, it is a good time to take a comparative look at how it measures up against Suzlon on various parameters. It will not be a like to like comparison as Suzlon is just coming out of a major debt crisis and had to sell its cash generating unit in Europe at a big discount to meet the debt restructuring criteria. But we can get an idea on which of the two is best suited to grab the opportunity going forward, especially since Suzlon now has strong financial backing of Dilip Sanghavi and associates.
Size comparison: Suzlon is the largest domestic manufacturer of wind turbine generators with a capacity of 3,600 MW. Inox Wind on the other hand has a capacity of 800 MW which is being doubled to 1,600 MW after the expansion. Suzlon has a wider range of products from 1.25 MW to 2.1 MW; Inox Wind on the other hand produces 2 MW units, with a product range most commonly used in the industry. Because of its financial problems, Suzlon has been operating on very low capacity utilization. For the first nine months, the company sold only 393 MW of wind turbines, its peak sales was 2,790MW in FY09. Suzlon does not need capital expenditure for meeting the growth potential. Inox Winds on the other hand has sold 380 MW in the first nine months.
Integration: Inox manufactures Nacelles, Hubs, Rotor Blade Sets and Towers as part of its integrated unit. Suzlon on the other hand does all of the above plus manufactures its own generators, panels and transformers. Suzlon is the most vertically integrated player in the country. Both the companies however offer turnkey projects.
Order Book: Inox Winds despite having a smaller capacity has a higher order book than Suzlon. As compared to an order book position of 1,147.50 MW of Suzlon, Inox Winds has an order book of 1,258 MW. Suzlon in its presentation has said that its order book which is valued at Rs 7,250 crore is to be executed by March 2016. No such detail is available for Inox Winds.
Financials: It is difficult to compare the two as Suzlon’s India operations are incurring huge losses. Suzlon is not even selling enough to recover its cost, it is making operating losses. Only after the company improves its capacity utilization will it be able to distribute cost and become profitable.
As per a HDFC Securities report on Suzlon, the company will be able to turn profitable at the profit before tax level in FY16. On a consolidated basis, the company has an operating margin of 0.6 per cent as compared to 15.9 per cent for Inox in the first nine months of the current fiscal. HDFC Securities feels that Suzlon will post an operating margin of 14.2 per cent in FY17. Projections are not available for Inox Winds.
To Suzlon’s advantage is the fact that with improving liquidity, the company can grow at a faster pace as it has the infrastructure in place compared to Inox Winds who will have a lag due to commissioning of the new capacity.
