corporate restructuring in suzlon

Corporate Restructuring in Suzlon

Group members

Anjali JhalaniMahvash Shamim

Shruti RaiSwatantra Singh

Suzlon

Suzlon Energy Limited is one of the world leading players in wind energy.

The company has come to the fore of the business by strategically focusing on R&D, innovation, an integrated value chain, and entering into emerging and high growth markets to drive sustainable growth.

Suzlon is one of the most integrated wind turbine manufacturers with manufacturing capability along the full value chain ranging from components to complete wind turbine systems.

Company overview

End to end solution provider.No. 1 supplier to the Indian market for the

last 9 years.Truly global player in terms ofmarket and productWind turbine and component

manufacturing.R& D capability.Broad wind turbine product portfolio.

Integrated business model

Conceptualization-wind resources assessment & land acquisition

Infrastructure-assess road,grid interconnection

Equipment supply-WTG and component design

Services- project execution,installation.

Domestic growth strategy

From small beginnings in 1995, Suzlon has tried to become a fully integrated company capable of building wind turbines and installing and operating wind farms.

Suzlon delivers end-to-end wind power solutions from assembly, installation to commissioning.

Thus suzlon has built a profitable business at home using India's low- cost, highly skilled labor force , tax benefits and Vertical Integration through joint ventures and acquisitions, it is now pursuing a global vision.

Global growth strategy

Suzlon is focusing on globalizing through a number of methods-

First, it benefits from India's depreciating currency, as its products are seen as cheaper by the rest of the world.

Second, Suzlon offers varying packages in different places depending on the price levels; in China, where prices are low, they offer full power plants, but in the U.S., they install cheaper turbine generators. This price discrimination allows Suzlon to cut their costs while maximizing margins.

Finally, Suzlon is increasing its global reach, with its R&D branch in Europe, production in India and China, and a sales focus in the top global wind markets.

The company is aggressively pursuing an acquisition strategy to absorb smaller competitors.

Suzlon’s global strategy involves Vertical Integration, Focus on Key High Growth Markets, Growth through M&A, Cost Efficiency, R&D and Innovation, and Focus on Customer Satisfaction.

Suzlon acquired Hansen Transmissions, Belgium in 2006.Suzlon 2nd largest globally in wind gearboxes.The acquisition of the world second leading gearbox maker

gives Suzlon manufacturing and technology development capability for wind gearboxes, enabling an integrated R&D approach to design even more efficient wind turbines.

Plugs a critical gap in Suzlon supply chain Gearbox, one of the longest lead-time products in WTG value chain.

Develops a long-term growth driver in form of Wind and Industrial gearbox business of Hansen Transmissions.

Its acquisition of Hansen that makes Gear boxes has longer term strategic implications since most of its global competitors rely on this company for their requirements.

The deal consists of a consideration of 465 million euros ($565 million) enterprise value in an all-cash transaction.

RE Power

RE power Systems AG is one of the leading manufacturers of onshore and offshore wind turbines.

The International engineering company develops produces and sells wind turbines with outputs ranging from 2 to 5 megawatts and rotor diameters of 82 to 126 meters for almost all locations.

Rationale for Acquisition

Complementary Product portfolio with presence in offshore wind energy Market.

Entry in to Key growth Markets : Germany ,France and UK.

Fast growing offshore market.Capitalize on Repower‘s designs and

development know how and brand equity

With access to Repower’s technology , Suzlon can take a shot at becoming one of the world’s top three firms in wind energy

The Acquisition Process

Suzlon had overpowered Areva to buy REpower in May last year for euro 1.35 billion (about Rs 7,314 crore).

The company had inked a bidding deal which would give Suzlon voting rights of Areva and after one year, Areva had the option to sell its shares to Suzlon at the prevailing price.

This gives Suzlon the all important access to the REpower technology which it will now be able to do as it is a majority owner and successfully acquire about 67% of RE Power.

Suzlon locked a borrowing of 1 billion euros from ABN Amro in case of a 100% acquisition. However, if Suzlon were to acquire only 70% share of REpower, it would need to borrow 626 million euros.

Share holding in RE Power

Post Acquisition Scenario

Repower is very strong in markets like England, France and Germany and Suzlon is gaining from it.

80% growth after our acquisition.Repower margins are in the range of 4-6 %

and their margin can be improved to 12 percent by using Suzlon’s supply chain in 3 years. Repower’s costs to materials which is 82%, can be reduced to about 65%.

Repower’s price is about €200 (a share). When Suzlon acquired it at €150, it was high then because of the bidding process. So it is a huge benefit for Repower and their shareholders.

Earnings before interest and taxes were €27 million last year. This year it is €60 million.

SUZLON opts for QIP route

• Issued 11,386,000 new shares of Rs 10 each• issue price of Rs 1,917premium of Rs 17.50 per share to the last

traded price at the BSEaggregate to 3.80 per cent of the post-issue

equity base of the company

QIP

Qualified institutional placement (QIP) is a capital raising tool, whereby a listed company can issue equity shares, fully and partly convertible debentures, or any securities other than warrants, which are convertible into equity shares, to a qualified institutional buyer (QIB).

Benefits of QIP

Enable listed companies raise money from domestic markets in a short span of time

Very less regulatory requirementAlternate to foreign funds as FCCB and GDR

Purpose of QIP in Suzlon

Suzlon float QIP for to repay part of the debt raised to fund the acquisition of

Repower capital expenditure working capital requirements potential acquisition of shares of REpower from the

Martifer Group general corporate purposes.

At a Glance

Conclusion

Suzlon is looking forward for inorganic growth through acquisition and merger.

In this it is less concerned about its core operation and issues like “cracking of windmill’s blade” are arisen.

Recommendation

Now it should go for consolidation and streamline their operation rather than looking for new operations.

Thank you