HINDU RECOMMENDS INDIAN WIND

Like the savvy, wind industry veteran player it is, Suzlon Energy has over the last 1-to-2 years been positioning itself to be ready for the coming wind power market expansion.

Suzlon has essentially confronted every potential barrier to its growth and eliminated it.

It has developed a 10.5% global market share and a presence in the key markets of Europe, the U.S. and China.

It has also developed its supply chain through acquisitions of companies around the world that handle hardware.

Aware of the growing list of U.S. states with Renewable Electricity Standards (RESs) requiring utilities to obtain a portion of the their power from New Energy sources and anticipating the extension of the federal production tax credit (PTC), Suzlon booked half its 3,040 megawatts of orders (valued at Rs 16,490 crore or $3.3 billion) in the U.S.

In Europe, Suzlon increased to 90% its stake in REPower, the German turbine manufacturer, by acquiring stock owned by European companies. This expands Suzlon manufacturing capacity in the huge and booming European onshore and offshore markets. It also gives Suzlon potential access to the advanced REPower proprietary technology.

Suzlon has, too, been developing streamlined, cost-effective manufacturing capacity in China and India, markets with awesome growth potential. China plans to add 100,000 megawatts of wind generation by 2020. India’s planned targets and government supports are comparable.

Suzlon's acquisition of Hansen Transmissions provides a worldwide sales and service presence.

Suzlon continues to have quality issues because of defective blades but recently obtained certification from Germanischer Lloyd, establishing global wind industry legitimacy. Rapid growth and mass production inevitably lead to isolated equipment failure incidents. Suzlon is, reportedly, moving to rectify the problems.

Acquisitions left Suzlon cash-poor and led to 2007 and early 2008 financial difficulties but its fiscal year 2008 profit margin of 13% is above the wind industry average. Its sales are up.

The Hindu Business Line: “While we do not expect an immediate increase in order flows, medium-term prospects appear bright.”

Analysts expect the company to start moving with market. The expansion will likely be delayed by the current market crash but is widely believed to be inevitable.

The Hindu Business Line: “Investors with a three-five year perspective can consider investing in the stock of Suzlon Energy. At the current price of Rs 86 [$1.73], Suzlon trades at 5.7 times its projected FY-10 earnings. The stock price and its price-earnings multiple are at all-time lows, providing an attractive entry point…”

From utvinews via YouTube

Suzlon Energy: Buy; Access to high end technology through acquisitions has provided the right foundation for Suzlon’s take-off as a leading wind energy company.
Vidya Bala, October 19, 2008 (The Hindu Business Line)

WHO
Suzlon Energy (Suzlon); REPower; Martifer and Areva; Hansen Transmissions

WHAT
India’s Suzlon Energy is expected to prosper from the groundwork it has done in preparing to grow with the international wind industry.

click to enlarge

WHEN
- December 31, 2009: The U.S. PTC was extended another year – and is expected to win a long-term extension from the incoming administration.
- 2006: Suzlon acquired international gearbox manufacturer Hansen Transmissions.
- 2007: Suzlon settled competition for control of REPower with Areva and Martifer.
- 1Q FY-08 sales: Rs 4.7 crore ($0.95 million) per MW
- 1Q FY-09 sales: Rs 6.2 crore ($1.25 million) per MW

WHERE
- Suzlon has established efficient and low-cost manufacturing facilities in India and China.
- Suzlon also has a blade manufacturing facility in the U.S.
- More than half of U.S. states have established RESs, assuring wind industry demand in the U.S.
- The European Union’s goal to obtain 20% of its power from New Energy sources by 2020 will assure wind industry growth in Europe. Also, many EU nations have established minimum goals for wind development and the European Commission is urging it members to develop offshore wind.
- Hansen Transmissions’ worldwide sales and service facilities give Suzlon access where other manufacturers lack it.

WHY
- The current depreciating rupee favors Suzlon’s exports and its base in other nations from the U.S. to China to Europe is a hedge against currency fluctuations.
- Suzlon has acquired access to higher end technology through acquisition of REPower.
- Hansen’s gear box manufacturing capacity gives Suzlon an edge while other turbine makers struggle with supply chain shortages.
- Suzlon has also set up its own foundry, forging and machining units.
- Recent acquisition of Martifer and Areva stock in RePower as well as other acquisitions left Suzlon with continuing cash flow difficulties, especially in the current credit crunch. It is working on alternative financing.
- The benefits of the Hansen and REpower acquisitions will come in the expanding market, justifying the financial struggles Suzlon has had to deal with in making the acquisitions.
- Suzlon has issued bonds (convertible into equity at Rs 360-371) but they do not expire until 2012, allowing the company time to bring its cash flow around.

Number 5 with a bullet? (click to enlarge)

QUOTES
The Hindu Business Line: “…given that the stock markets themselves appear short of any support, investors can consider adding the stock on declines linked to broad markets. A long-term perspective on the stock is a pre-requisite…”