Suzlon- Out of Wind

Facing recession Suzlon Energy's net profits are declining fast amidst concerns of the company facing severe cash-flow problems

Noor Mohammad Delhi

When international crude oil prices were surging in recent years, India's biggest wind power equipment manufacturer, Suzlon Energy, used to be a favourite with investors betting big on the future of clean wind energy amid growing climate change concerns. However, the widening global credit crisis coupled with the falling global crude prices in recent months has led to a tightening financial squeeze for the wind power projects across the world as investors feel that the fight against climate change is going to take a backseat. This has further complicated things for Suzlon, which was already struggling to soothe industry skepticism about soundness of its turbine technology in view of growing cases of the company having to undertake wholesale replacement of equipment supplied in recent past.

The widespread suspicion in the industry circles that Suzlon is facing serious cash-flow problems is confirmed by the company's move to negotiate staggered payment terms towards its purchase of  Portugal company Martifer's 22.4 per cent share in German wind power equipment major REpower Systems that would take its total stake in the firm to 91 per cent. To complete the transaction, Suzlon had committed to make upfront payment to the Portugese company on this account by December 15, 2008, after the two sides reached an agreement on the deal on November 4. As per the revised terms, Suzlon will pay Martifer around 65 million Euros by December 2008 end in the first tranche, 30 million Euros and 175 million Euros in April and May of 2009.

Suzlon Energy's net profit declined 95 per cent in the first half of the current financial year 2008-09, as compared to the same period in the previous fiscal. The company attributed this to foreign exchange losses.

Amid concerns that Suzlon is facing severe cash-flow problems, investors have dumped its shares at exchanges.

Global financial services firm Morgan Stanley has downgraded Suzlon Energy from overweight to equal-weight while lowering the price target to Rs 52.45 from the earlier Rs 450, citing slowdown in the global wind turbine market and the unresolved technological issues. Further, Morgan Stanley also does not expect Suzlon to get access to REpower technology in the short term.

Meanwhile, credit rating agency Crisil cut outlook on rating of the company's long-term bank facilities to negative from stable. According to Crisil, the outlook primarily reflects Suzlon Energy's higher-than-expected borrowing needs and significant cash outflows in the near term for purchase of shares of REpower from the Martifer Group. Further, the company's growth may be slower than anticipated because of technical problems in some of the company's machines.

In a sign that the company fears a worsening business environment in the days ahead and it needs to get its act together, the responsibilities of the chief executive officer (CEO) were distributed between the offices of the Chairman and Managing Director, Tulsi R Tanti, and the Chief Operating Officer Sumant Sinha on December 10, 2008.

Tanti admitted, "I am taking direct charge of the company's operations to navigate us through the challenging business environment caused by difficult global economic conditions. This re-allocation of roles will enable us to be more agile and deliver a better financial performance as a group."