Vision, Philosophy and share holding pattern

Vision

• To be among the top three wind energy companies in the world

• To be the most respected brand
• To be the best team and place to work at
• To be the fastest growing and most profitable business
• To be a technology leader in the wind industry

Philosophy

• To be a company that serves society with sustainable wind-power on a commercial

scale with a focus on continuously increasing efficiency and reliability of our wind
turbines.
• To always be committed to a life-long relationship with customers and work
towards total customer satisfaction.
• To lay importance on bettering our quality, safety and environmental standards.
• To build partnerships with all stakeholders; employees, customers, vendors, service
providers, local communities and governments.
• To conduct business only with the highest standards of ethics.
• To contribute to the reduction of use of fossil fuels by reducing our carbon footprint
in all our operations.

Shareholding Pattern

The shareholding pattern of the Company as on March 31, 2009 is noted below:

1) Major Products services and areas of operations

A primary component of Suzlon Energy’s income arise from sale of Wind Turbine
generator and allied activities including sale/ sub-lease of land, infrastructure development
income, sale of gear boxes and sale of foundry and forging components.

An analysis of various wind turbine generators produced by Suzlon is given below.

All of them can work efficiently under medium wind speed regime.
Particulars S66-1.25 S88-2.1 S64-1.25 S52-600
MW MW MW kW
Rated power 1250 Kw 2100 kW 1250 kW 600 kW
Cut-in wind 3 m/s 4 m/s 3.5 m/s 4 m/s
speed
Rated wind 14 m/s 14 m/s 14 m/s 13 m/s
speed
Cut-off wind 22 m/s 25 m/s 25 m/s 25 m/s
speed
Survival wind 52.5 m/s 59.5 m/s 59.5 m/s 59.5 m/s
speed

Company also manufactures S-82, 1.2 MW

Particulars of Production:

Suzlon believes in being a holistic supplier of Wind energy. As a result it has added a series
of ‘End-to-End Solution’ designed for the Indian Market. These solutions are spread across
the following stages:-

• Land and Site Identification

• Supply of WTG & Accessories
• Site Infrastructure Development
• Installation and Commissioning
• Life Cycle Operations & Maintenance
• Assistance for Approvals & Loan Processing
• Wind Resource Mapping
Factors Affecting Wind Energy Segment

Economic Growth: The relationship between economic growth and wind energy segment
can be given by:-

High Economic Growth=High Industrial Production=High Demand for Electricity=Better

Sales Possibilities for Wind Energy Industry.

Demand for electricity depended on the economic growth of India and countries, such as
USA and China that are huge market. As a result any economic downturn in these
economies will have an adverse impact on Suzlon’s business and financials.

Current & Future Outlook of GDP

Despite the global financial crisis Indian economy registered GDP growth of 6.1% in the
first quarter of 2009-10 positioned against the growth of 5.8% in the previous quarter and
7.8% in the same period of the previous year. Such impressive performance substantiates
India’s position as one of the best performing economies. Owing to which CII has raised
the growth target for 2009-10 to 6.5-7.0 percent

Cost Competitiveness: The demand for wind power plants is dependent on the cost of
wind-generated electricity compared to electricity generated from other sources of energy.
Hence, limited cost and supplies of oil, coal and other fossil fuels are key factors in
determining the effectiveness of wind power.

Interest Rates: Wind farm project require higher upfront capital investment per kWh of
energy produced when compared to fossil fuel-based power plants. As a result condition
and availability of financing availed for wind power project significantly affects the
business, financial condition and results of operations. Higher interest rates increase the
cost of investment, making investment in wind energy less attractive.
− Investment in wind power projects is considered to be riskier.
− The refinancing of wind power project is done at a higher rate.
− Project funding has taken a hit due to non availabltiy of credit in the wake of
financial crisis

Regulatory Framework: Wind Power Industry worldwide is supported by grants and

several government initiatives and incentives. Hence, any elimination of the following can
eliminate the competitive advantage of the industry.
Current State
− Indian and global government have enacted have enacted legislations to
promote expansion of renewable energy sources.
− Fiscal incentive scheme, tax incentives and public grants, such as referential
tariffs on power generated by WTGs or tax incentives promoting
investments in wind power.
 − State governments have even give wind power generator with wheeling
facilities.
− Wind power generators are allowed to take power from the grid, to offset
the impact of intermittent wind.
− Country specific targets to obtain a set amount of electricity form renewable
energy sources.
− Global efforts to reduce carbon dioxide emissions

Local Sentiments: Local communities have at times opposed the construction of wind
power projects due to concerns about:-
− Aesthetic unappealing
− Impact on flora, due to killing of birds

In some countries there are legislations pertaining to height of WTG and minimum distance
between the power plant and urban area. Any further restrains can reduce the growth
prospects of wind power industry.

Technological Obsolescence: Wind energy sector is sensitive to changes in technology.

Hence a firm’s inability to develop financially viable and cost efficient WTG on an
ongoing basis can dilute its competitive advantage.

Other Factors: The competition in the global wind energy market is governed by
performance of WTGs, reliability, product quality, technology, price, and the scope and
quality of services, including O&M services, and training offered to customers.

If competitor’s come together through joint ventures and other cooperative agreement, that
can have impact the leadership position of Suzlon.
Growing competition can either result in the reduction of the market share of the firms or
reduction in margins, if the firm plans to reduce its prices.

Highlights of Global Wind Energy Market

− Total installed capacity of 152’000 MW by 2009-end

− Estimated annual capacity expansion of over 30’000 MW
− Execution of some wind energy projects which have been postponed due to
financing challenges, new regulations or bureaucratic delays
− Turnover of 40 Billion € in 2008
− China doubles its installations, more than 12 GW of wind turbines installed
− North America and Asia bullish on growth as Europe slows down
− Global capacity of around 1’500’000 MW is feasible by 2020
− USA reports maximum number of installations.
− The USA and China accounted for 51 % of the wind turbine sales in 2008
− Generated 260 TWh electricity in 2008
− Currently contributes to 1.5% of global electricity consumption and is
expected to contribute 12% by 2020
 Global Wind Power Capacity Expanding at CAGR of 28% over 1995-08

Prospects for Wind Turbine Market

Growth prospects for WTM depend on the annual capacity additions which have been
relatively volatile. Annual capacity addition is significantly dependent on the demand
generated by the US market. This claim can be substantiated on the basis of fluctuations in
annual capacity additions from in 2000-04 which occurred due to volatility in the US
market.

Annual Capacity Additions and Growth Underwent Greater Volatility

Leveraging Governmental Renewable Targets

Demand for WTG will primarily arise due to governmental schemes. Hence, ambitious
targets by different countries to add on to their renewable energy production will further
stimulate WTM market in the long term.
Source: Global Wind Energy Association

Indian Wind Energy Industry- Porter’s Five Force Analysis

− The Intensity of Competitive Rivalry – Medium Although the market is

dominated by two players but the extent of competitive rivalry can be
termed as medium because there is a scope for foreign players.

− Bargaining Power of Suppliers – Medium High bargaining power of

suppliers can be attributed to multiple requirement of number of
components, which are either sourced from open market or imported.
However, this issue has been resolved due to widespread vertical
integration. Yet some components have long delivery time which gives
medium bargaining power to suppliers.

− Bargaining Power of Buyers – Low Since it’s a relatively new sector still
in the development stage of the life cycle so there can be number of cases
where supplier governs the terms when compared to the buyers.

− The Threat of Substitute Product – Low Since wind power is one of the
cheapest sources of energy so the threat of substitutes is relatively low.
 − The Threat of New Entrants – Medium Since it’s a capital intensive
industry so only major players can afford enter the market either
individually or in the form of JVs.

Highlights of Indian Wind Energy Industry

− Contribution of renewable energy expected to rise to 15% of total power

generation, against the current level of 8.6%

− Indian Wind Energy Growing at an average annual rate of 34% for the past
three years, as compared to 28% for rest of the world.

− Tamil Nadu boasts highest installation level of over 4304.5 MW. Suzlon’s
largest turbine of 2 MW is installed in Tamil Nadu. Domestic growth
prospects for Suzlon also depends on gross potential of different states

State-wise Wind Power Installed Capacity In India

Gross Total Capacity (MW) till
State Potential 31.03.09
(MW)
Andhra
8968 122.5
Pradesh
Gujarat 10,645 1566.5
Karnataka 11,531 1327.4
Kerala 1171 27.0
 Madhya
1019 212.8
Pradesh
Maharashtra 4584 1938.9
Orissa 255 -
Rajasthan 4858 738.4
West
1.1
Bengal
Tamil Nadu 5530 4304.5
Others 3.2
Total
48,561 10242.3
(All India)

Status of Suzlon

Share of Suzlon in annual addition of 1250 MW in Indian Market from Jan 2008-09

Share of Suzlon in Annual Capacity Additon of 1250 MW

8%

23%
Suzlon
Vestas
Others

69%

Geographical Break-up of Suzlon’s Sale

Chinese Market
In China, Suzlon’s share has come down to 2% in 2008 as against 4% reported in 2007.

− Furthermore, due to biased policies of Chinese governments against foreign

players, it is difficult for an international player to retain or enhance its
share. So, despite Chinese government’s ambitious plans to add 100GW
over next 10 years it will be difficult for Suzlon to avail its benefits.

− Europe and US Market: Given the difficult availability of short term

finances in Europe and US the market for wind energy is anticipated to
relatively remain sluggish till 2010

Future Outlook—Factors Affecting Growth

− India has adopted liberal foreign investment which can lead to higher
investment in wind energy segment.

− Lack of grid especially in remote areas which has potential for generation of
wind energy can be an issue of concern

Oversupply to stay till 2013 despite 15% demand CAGR in next 5 years
Source: BTM Consultancy

− Turbine prices: Due to excess of supply over demand there is a possibility

that the prices of wind turbine will deflate.

Strengths of Suzlon

− Backward Integration: By acquiring Hansen and RE Power, Suzlon has

strengthened its control over the entire supply chain. The acquisition of
90.7% stake in RE power has not only provided it access to its off shore
wind power technology but also entry into European market, mainly
Germany, France and the UK.
 − Presence across all Product Segments and different locations

− Strong Management Team

− In-house Technology and Design Capabilities
− Cost efficient Manufacturing Base and Supply Chain
− Operations and Maintenance Expertise
− Focus on provided integrated wind energy solutions to customers.

Weaknesses
− Suzlon is dependent on external supply or raw materials, such as steel, glass
fibre etc. In the past it has faced interruptions in the supply of raw material.
− Suzlon is also exposed to foreign exchange risk, owing to its indulgence in
international trade.
− Suzlon’s expansion into markets outside India has exposed it to operational
risk
− Company is also vulnerable to stringent land acquisition norms for
establishing wind farms

Business strategies
Suzlon’s business strategies are primarily focused on:-

− Improvement of cost efficiency- To achieve the same it aims to ensure

effective utilization of in-house manufacturing facilities and relocate at
places where manufacturing efficiency are low. Relocation at new places
can expose Suzlon to risks of entering into a new market of which it is not
yet familiar. It can also lead to extra expenses.
− Improvement of manpower efficiency- Enhancement of manpower
efficiency calls for implementation of high-end training and development
programs. Such training endeavors can result in high employee costs

− Negotiation with Suppliers- In the past Suzlon has been hit on grounds of
rising raw material prices and quality of raw material being supplied to the
firm. Furthermore, since Suzlon imports most of its raw material so it
exposes the company to foreign exchange fluctuations. To dilute the
repercussions of such fluctuations, company aims to enter into stringent
negotiations with the suppliers. By doing so it aims to achieve a promising
bargaining position in terms of discounts. Any discounts on grounds of raw
material can result in reduction of cost of goods sold which can increase the
operational efficiency and improve the earnings of the firm

− Expansion in new markets- Given the turbulence in US market and

restrictions in the Chinese, market, the firm aims to foray into new markets
such as Korea, South Africa. As result firm will have to incur heavy
expenditure to expand and run their operations in these booming markets.
Growth acceleration through focus on high growth markets and customer
needs

− Technological Enhancement- Suzlon aims to expand its product portfolio

and enhance the efficiency of existing products through a range of R&D
efforts which will further result in heavy R&D expenditure.

− Tapping New Markets- Given the acquisition of RE power, now Suzlon can
leverage its expertise in off-shore wind energy generation. It will help the
firm to increase its share in Europe
(Common Size) Balance Sheet of Suzlon Energy Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

LIABILITIES

Share Capital 10% 7% 5% 2% 2%

Reserves 37% 58% 55% 53% 36%
Defered tax liability (50%) 0% 0% 0% 0% 0%
Networth (Gross) 48% 65% 59% 55% 39%
Less: 0% 0% 0% 0% 0%
a)DTA (Net After 100% DTL, if any) -1% -1% -1% -1% -1%
b)Miscellaneous Expenses 0% 0% 0% 0% -2%
Networth (Net) 46% 63% 58% 55% 35%
0% 0% 0% 0% 0%
Loan Funds (80% of Long Term) 4% 3% 2% 13% 16%
Defered tax liability (50%) 0% 0% 0% 0% 0%
Loan Funds 4% 3% 2% 13% 16%
Current liabilities & Provision 0% 0% 0% 0% 0%
(a)100% of Loan funds due within 1 year 11% 4% 16% 8% 23%
b)20% of Loan Funds 1% 1% 0% 3% 4%
c)Sundry Creditors 27% 20% 18% 16% 19%
(d)Provisions 10% 9% 6% 5% 2%
Current liabilities & Provision 49% 34% 40% 32% 49%
TOTAL 100% 100% 100% 100% 100%
Application Of Funds
Net Fixed Asset 8% 7% 6% 4% 3%
Tangible Asset 7% 7% 6% 4% 3%
Intangible Asset 1% 0% 0% 0% 0%
Capitlal Work In progress 1% 2% 1% 1% 2%
Investments 6% 7% 13% 39% 42%
Current Investments 0% 0% 0% 0% 0%
Long Term Investment 6% 7% 13% 39% 42%
Loans & Advances: Non operational Items 3% 4% 7% 4% 10%
Current Assets, Loans & Advances 0% 0% 0% 0% 0%
Cash & Bank Balance 5% 7% 6% 7% 1%
Inevntories 25% 25% 22% 12% 8%
Sudry Debtors 35% 36% 31% 26% 28%
Over 6 Months 5% 4% 3% 5% 11%
Others 30% 32% 29% 22% 17%
Loans & Advances: operational Items 17% 12% 14% 6% 6%
Total 100% 100% 100% 100% 100%

Trend Analysis of Balance Sheet Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
LIABILITIES
Share Capital 100% 150% 143% 148% 195%
Reserves 100% 346% 471% 914% 850%
Defered tax liability (50%) 0 0 0 0 0
Networth (Gross) 100% 304% 399% 747% 708%
Less:
a)DTA (Net After 100% DTL, if any) 100% 210% 257% 339% 635%
b)Miscellaneous Expenses
Networth (Net) 100% 306% 404% 760% 666%

Loan Funds (80% of Long Term) 100% 162% 135% 1931% 3241%
Defered tax liability (50%) 0 0 0 0 0
Loan Funds 100% 162% 135% 1931% 3241%
Current liabilities & Provision
(a)100% of Loan funds due within 1 year 100% 77% 460% 484% 1809%
b)20% of Loan Funds 100% 162% 135% 1931% 3241%
c)Sundry Creditors 100% 162% 209% 368% 624%
(d)Provisions 100% 214% 210% 338% 199%
Current liabilities & Provision 100% 153% 265% 423% 866%
TOTAL 100% 225% 324% 645% 876%
Application Of Funds
Net Fixed Asset 100.00% 184.49% 242.38% 319.60% 344.11%
Tangible Asset 100.00% 216.78% 275.87% 369.77% 382.85%
Intangible Asset 100.00% 39.19% 91.70% 93.82% 169.77%
Capitlal Work In progress 100.00% 425.26% 517.07% 750.92% 1600.50%
Investments 100.00% 232.31% 639.04% 3904.04% 5656.54%
Current Investments 0.00% 0.00% 0.00% 0.00% 0.00%
Long Term Investment 100.00% 232.31% 639.04% 3904.04% 5656.54%
Loans & Advances: Non operational Items 100.00% 290.16% 792.54% 995.62% 3027.99%
Current Assets, Loans & Advances
Cash & Bank Balance 100.00% 358.55% 398.40% 992.63% 240.82%
Inevntories 100.00% 223.31% 278.06% 299.89% 279.75%
Sudry Debtors 100.00% 234.19% 291.39% 488.89% 701.59%
Over 6 Months 100.00% 172.01% 160.77% 590.44% 1832.32%
Others 100.00% 242.16% 310.82% 465.59% 491.69%
Loans & Advances: operational Items 100.00% 164.38% 264.96% 227.37% 313.27%
Total 100.00% 224.60% 323.46% 644.65% 875.74%

P&L Common Size Statement

March,05 March,06 March,07 March,08 March , 09

 Sales Turnover 100.00% 100.00% 100.00% 100.00% 100.00%

less: 0.00% 0.00% 0.00%

Raw Materials 62.01% 62.40% 61.37% 63.95% 64.11%

Adjustments in Stock 2.49% 2.87% 1.26% 2.23% 0.94%

Excise Duty 0.00% 0.00% 0.00% 0.04% 0.03%
Power & Fuel Cost 0.06% 0.05% 0.06% 0.06% 0.06%
Employee Cost 1.83% 1.63% 2.05% 2.01% 2.74%
Other Manufacturing Expenses 1.00% 6.80% 5.24% 5.52% 3.95%
Cost of Goods Sold 62.42% 68.00% 67.47% 69.36% 69.96%
less: 0.00% 0.00% 0.00% 0.00% 0.00%
Selling and Admin Expenses 11.59% 5.84% 8.20% 7.46% 9.57%

Miscellaneous Expenses 1.35% 0.07% 0.45% 0.31% 8.55%

EBDIT/PBDIT 24.62% 26.07% 23.88% 22.87% 11.92%

less: 0.00% 0.00% 0.00% 0.00% 0.00%

Depreciation/Ammortisation 2.02% 1.19% 1.35% 1.24% 1.37%

EBIT/PBIT 22.60% 24.88% 22.53% 21.63% 10.55%

less: 0.00% 0.00% 0.00% 0.00% 0.00%

Interest 2.26% 1.48% 1.92% 2.05% 6.01%

EBT/PBT 20.34% 23.41% 20.61% 19.57% -7.44%

less: 0.00% 0.00% 0.00% 0.00% 0.00%

Tax 1.60% 2.11% 1.28% 1.30% -0.98%

EAT/PAT 18.74% 21.29% 19.54% 20.46% -6.47%

\
P&L Trend Analysis

March,0 March,0 March,0 March,0

5 6 7 8 March,09
Sales Turnover 100% 200% 282% 359% 376%
less:
Raw Materials 100% 201% 279% 370% 389%
Adjustments in Stock 100% 231% 143% 322% 143%
Excise Duty 0% 0% 0% 289% 253%
Power & Fuel Cost 100% 158% 310% 400% 398%
Employee Cost 100% 178% 316% 395% 564%
Other Manufacturing Expenses 100% 1354% 1471% 1974% 1481%
Cost of Goods Sold 100% 218% 304% 399% 422%
less:
Selling and Admin Expenses 100% 101% 199% 231% 311%
Miscellaneous Expenses 100% 11% 93% 83% 2376%
EBDIT/PBDIT 100% 212% 273% 334% 182%
less:
Depreciation/Ammortisation 100% 118% 189% 221% 254%
EBIT/PBIT 100% 220% 281% 344% 176%
less:
Interest 100% 130% 238% 326% 1000%
EBT/PBT 100% 230% 285% 346% -138%
less:
Tax 100% 263% 224% 291% -229%
EAT/PAT 100% 227% 294% 392% -130%
 Mar Mar Mar Mar
Suzlon Energy -Common Size Statement of Cash FLow 2005 2006 2007 2008 Mar 2009
12
Rs. Crore (Non-Annualised) 12 mths mths 12 mths 12 mths 12 mths
-
Net cash flow from operating activities (indirect method) 5% -13% 21% 7% -4%
Net profit before tax & extra ordinary income 32% 28% 33% 22% 4%
Adjustments for depreciation 3% 1% 2% 1% 1%
Adjustments for interest payable 3% 1% 3% 2% 4%
Adjustments for provn. for contingencies 0% 0% 0% 0% 0%
Adjustments for foreign exchange (gain)/loss 0% 0% 0% 0% 0%
Adjustments for add back of amortisations & others written off 0% 0% 0% 0% 0%
Adjustments for add back of other provisional adjustments 10% 7% 6% 4% 7%
Adjustments for (profit)/loss on sale of investments 1% 0% 0% 0% 0%
Adjustments for (profit)/loss on sale of assets 0% 0% 0% 0% 0%
Adjustments for interest income -2% -1% -2% -1% -1%
Adjustments for dividend income 0% 0% 0% 0% 0%
Adjustments for other expenses / income 0% -2% 0% 0% 0%
Adjustments for provision / liabilities written back 0% 0% 0% 0% 0%
0% 0% 0% 0% 0%
Operating cash flow before working capital changes 47% 35% 42% 27% 15%
Cash inflow/(outflow) due to decrease/(increase) in trade & other receivables -32% -34% -12% -21% -18%
Cash inflow/(outflow) due to decrease/(increase) in inventories -24% -19% -8% -1% 1%
Cash inflow/(outflow) due to increase/(decrease) in trade & other payables 17% 10% 4% 5% 5%
Cash inflow/(outflow) due to deposits (banks/FIs) 0% 0% 0% 0% 0%
Cash inflow/(outflow) due to advances (banks/FIs) 0% 0% 0% 0% 0%
Cash inflow/(outflow) due to others 0% 0% 0% 0% 0%
0% 0% 0% 0% 0%
Cash flow generated from operations 9% -8% 26% 10% 3%
Cash (outflow) due to direct taxes paid -3% -4% -4% -2% -1%
Cash (outflow) due to dividend tax paid 0% 0% -1% 0% 0%
0% 0% 0% 0% 0%
Cash flow before extraordinary items 5% -13% 21% 7% 2%
Cash inflow/(outflow) from extraordinary items 0% 0% 0% -1% -6%
Cash (outflow) due to miscellaneous expenditure 0% 0% 0% 0% 0%
0% 0% 0% 0% 0%
Net cash inflow/(outflow) from investment activities -21% -15% -34% -53% -39%
Cash (outflow) due to purchase of fixed assets -6% -7% -6% -3% -3%
Cash inflow due to sale of fixed assets 0% 0% 0% 0% 0%
Cash inflow/(outflow) due to decrease / (increase) in capital wip 0% 0% 0% 0% 0%
Cash inflow /(outflow) due to acquisition/ merger/ hiving off of cos./ units 0% 0% 0% 0% 0%
Cash (outflow) due to purchase of investments -7% -5% -15% -56% -29%
Cash inflow due to sale of investments 0% 0% 0% 0% 4%
Cash inflow due to profit on redemption of shares 0% 0% 0% 0% 0%
Cash inflow/(outflow) due to loans to subs./group cos. 1% -3% -8% -2% -12%
Cash inflow/(outflow) due to loans to other cos. -11% 0% -8% 6% 0%
Cash inflow due to interest received 2% 1% 2% 1% 1%
Cash inflow due to dividend received 0% 0% 0% 0% 0%
Cash inflow/ (outflow) due to other income 0% 0% 0% 0% 0%
Cash inflow /(outflow) due to disbursements 0% 0% 0% 0% 0%
0% 0% 0% 0% 0%
Net cash inflow/ (outflow) from financing activities 18% 35% 14% 54% 35%
Cash inflow due to proceeds from share issues 16% 43% 0% 30% 1%
Cash (outflow) due to redemption/buyback of capital 0% -3% 0% 0% 0%
Cash inflow due to cash subsidy 0% 0% 0% 0% 0%
Cash inflow due to proceeds from total borrowings 14% 8% 25% 28% 40%
Cash inflow due to proceeds from long term borrowings 0% 0% 0% 0% 10%
Cash inflow due to proceeds from short term borrowings 0% 0% 25% 1% 31%
Cash (outflow) due to repayment of total borrowings -6% -8% -1% -1% 0%
Cash (outflow) due to repayment of long term liabilities 0% 0% -1% -1% 0%
Cash (outflow) due to repayment of short term liabilities 0% 0% 0% 0% 0%
Cash (outflow) due to issue expenses -1% -1% 0% -1% 0%
Cash (outflow) due to interest paid -3% -1% -3% -2% -4%
Cash (outflow) due to dividend paid -3% -3% -6% 0% -2%
Cash inflow/(outflow) due to other cash receipts/payables from financing activities 0% 0% 0% 0% 0%
0% 0% 0% 0% 0%
Net cash inflow/(outflow) due to net increase/(decrease) in cash & cash
equivalents 2% 7% 1% 7% -7%
Cash flow -- opening balance 5% 3% 9% 5% 9%
Cash flow -- closing balance 7% 10% 10% 12% 2%
 Mar Mar Mar Mar
Suzlon Energy Ltd. Trend Analysis of Cash FLow 2005 2006 2007 2008 Mar 2009
Rs. Crore (Non-Annualised) 12 mths 12 mths 12 mths 12 mths 12 mths
Net cash flow from operating activities (indirect method) 100% -693% 1256% 837% -639%
Net profit before tax & extra ordinary income 100% 230% 285% 409% 85%
Adjustments for depreciation 100% 118% 189% 221% 254%
Adjustments for interest payable 100% 133% 280% 393% 1190%
Adjustments for provn. for contingencies 0% 0% 0% 0% 0%
Adjustments for foreign exchange (gain)/loss 0% 0% 1103% -1894% 63%
Adjustments for add back of amortisations & others written off 100% 0% 483% 19867% 11733%
Adjustments for add back of other provisional adjustments 100% 174% 154% 240% 538%
Adjustments for (profit)/loss on sale of investments 100% 0% 32% 0% -187%
Adjustments for (profit)/loss on sale of assets 100% 98% -411% 651% -36%
Adjustments for interest income 100% 162% 288% 471% 595%
Adjustments for dividend income 100% 152% 186% 311% 556%
Adjustments for other expenses / income 0% -5663% 730% 0% 0%
Adjustments for provision / liabilities written back 0% -539% 0% 0% 0%
0%
Operating cash flow before working capital changes 100% 193% 248% 348% 234%
Cash inflow/(outflow) due to decrease/(increase) in trade & other receivables 100% 279% 100% 401% 422%
Cash inflow/(outflow) due to decrease/(increase) in inventories 100% 208% 92% 37% -34%
Cash inflow/(outflow) due to increase/(decrease) in trade & other payables 100% 154% 59% 181% 211%
Cash inflow/(outflow) due to deposits (banks/FIs) 0% 0% 0% 0% 0%
Cash inflow/(outflow) due to advances (banks/FIs) 0% 0% 0% 0% 0%
Cash inflow/(outflow) due to others 0% 0% 0% 0% 0%

Cash flow generated from operations 100% -254% 857% 678% 229%
Cash (outflow) due to direct taxes paid 100% 294% 338% 386% 154%
Cash (outflow) due to dividend tax paid 100% 226% 582% 0% 463%

Cash flow before extraordinary items 100% -693% 1256% 950% 261%
Cash inflow/(outflow) from extraordinary items 0% 0% 0% -6546% -52167%
Cash (outflow) due to miscellaneous expenditure 0% 0% 0% 0% 0%

Net cash inflow/(outflow) from investment activities 100% 190% 461% 1562% 1418%
Cash (outflow) due to purchase of fixed assets 100% 342% 271% 363% 411%
Cash inflow due to sale of fixed assets 100% 88% 2219% 102% 326%
Cash inflow/(outflow) due to decrease / (increase) in capital wip 0% 0% 0% 0% 0%
Cash inflow /(outflow) due to acquisition/ merger/ hiving off of cos./ units 0% 0% 0% 0% 0%
Cash (outflow) due to purchase of investments 100% 200% 617% 4819% 3137%
Cash inflow due to sale of investments 100% 160% 435% 0% 14982%
Cash inflow due to profit on redemption of shares 0% 0% 0% 0% 0%
Cash inflow/(outflow) due to loans to subs./group cos. 100% 711% -1879% 760% 7359%
Cash inflow/(outflow) due to loans to other cos. 100% 2% 191% 327% 26%
Cash inflow due to interest received 100% 131% 315% 445% 602%
Cash inflow due to dividend received 100% 2933% 6244% 1667% 5956%
Cash inflow/ (outflow) due to other income 0% 0% 0% 0% 0%
Cash inflow /(outflow) due to disbursements 0% 0% 0% 0% 0%

Net cash inflow/ (outflow) from financing activities 100% 499% 213% 1791% 1479%
Cash inflow due to proceeds from share issues 100% 682% 3% 1094% 51%
Cash (outflow) due to redemption/buyback of capital 0% 10000% 1500% 2% 0%
Cash inflow due to cash subsidy 0% 0% 0% 0% 0%
Cash inflow due to proceeds from total borrowings 100% 154% 491% 1216% 2192%
Cash inflow due to proceeds from long term borrowings 0% 0% 0% 0% 89000%
Cash inflow due to proceeds from short term borrowings 0% 0% 83956% 7110% 286102%
Cash (outflow) due to repayment of total borrowings 100% 362% 71% 158% 61%
Cash (outflow) due to repayment of long term liabilities 0% 0% 4932% 10942% 4196%
Cash (outflow) due to repayment of short term liabilities 0% 0% 0% 0% 0%
Cash (outflow) due to issue expenses 100% 537% 0% 650% 67%
Cash (outflow) due to interest paid 100% 133% 284% 398% 1164%
Cash (outflow) due to dividend paid 100% 211% 543% 0% 372%
Cash inflow/(outflow) due to other cash receipts/payables from financing activities 0% 0% 0% 15% 23%
Analysis

− There has been Y-o-Y decline in the contribution of share capital as a

component of total liabilities. Its contribution has declined from 10%in
2004-05 to mere 2% in 2008-09. Declining trend in owner’s equity indicates
a dilution of safety margin for the lender. If we position owner’s equity
against total liabilities, one can conclude that rise in owner’s equity has not
been sufficient to provide the required safety margin to the creditors.

− There has been a significant increase in the contribution of reserves in total

liabilities. It has increased from 37% in fiscal 04-05 to 53% in fiscal 07-08.
However there has been a significant slump in reserves in FY-09 as its
contribution dropped down to 36%. In terms of value it has been following
an increasing trend. High reserves have contributed to high amount of
shareholder’s funds.

− Loan Funds- Since, Suzlon is a capital intensive industry so significant

portion of its operations are fueled by debts. As a result it has raised long
term debts to fuel its growth. In terms of value it has witnessed an increase
of 3241% from the base year FY-05. However, this growth has outpaced the
 growth of 195% and 850% in equity and reserves. The contribution of term
liabilities to total liability has risen from 4% to 16% which indicates that
company will have to incur huge expenses in term of payments of
installments and interests.

− Total contribution of current liabilities to total liabilities has remained

somewhat stable within the range of 49% to 32%. However, it is interesting
to observe that contribution of current liabilities has witnessed increase in
alternate years which indicates that firm has been borrowing to fuel its short
term operations. In terms of value current liabilities and provisions rose to
423% in FY-08 when compared to FY-05. Furthermore, it shot to a
whopping 866% in FY-09.

− By looking at the contribution of fixed assets in the total asset base one can
say that Suzlon has made significant investments in the asset base from a
long term perspective. Heavy investment in fixed investments may result in
better efficiency in the future. In terms of value it rose to 370% and 383%
when compared to FY-05. However, in terms of percentages there has been
a decline in the contribution of fixed assets to total asset base from 8% in
FY-05 to 3% in FY-09.

− From long term investment point of view Suzlon has remained bullish since
FY-05. Its contribution to total asset base has rose from 6% in FY-05 to
42% in FY-09.In terms of value it translates into an increase of 5656%.
However, one must note that most of these investments are illiquid.

− In terms of short term liquidity Suzlon is facing the pinch. When compared
to FY-05, there has been a severe decline in cash position from 993% in Fy-
08 to 241% in FY-09.

− Contribution of inventories in the total asset base has faced a declining

trend. It points toward efforts towards requirement of efficient utilization of
inventories

− There has been in decline in the contribution of sundry debtors to total

current asset base from 35% in FY-05 to 28% in FY-09. However, in terms
of value the amount has increased to 1832% which points towards a poor
collection cycle. To improve cash position better collection norms is
essential. Furthermore, receivables due for more than six months have also
increased which is an alarming signal.

− The contribution of cost of goods sold to total sales has risen from 62% in
FY-05 to 70%-09. This increase in cost of goods sold has result primarily
due to rising prices of raw materials. Though the contribution of raw
material to total sales has remained somewhat stable around 62% in FY-05
to 64% in Fy-09 but in terms of value it has increased to 389%. Rising raw
 material costs has a significant impact on the firms earnings. Hence, steps
should be taken to bolster the supply chain and reduce vulnerability to rising
raw material prices.

− Selling and Administrative and miscellaneous expenses have witnessed

fluctuating trends. The impact of miscellaneous expenses has been
negligible on EBDIT. Furthermore, due a stagnant depreciation of 2% to 1%
with respect to sales, there is a marginal difference in propotion of EBDIT
and EBIT to total sales for all the years.

− The Y-o-Y increase in total assets is more than the Y-o-Y increase in Sales,
indicating that the increase in assets has not resulted in a similar increase in
sales

− Increase in inventories is lower than increase in sales, indicating Suzlon is

effectively utilizing its inventories.

− PAT witnessed a healthy trend till FY-08 when it increased to 392% with
respect to FY-05. However, it declined to -130% with respect to FY-05. It
primarily resulted due to a global financial crisis and tight liquidity
positions.

− Net cash flows from operating activites have faced a negative trend in Fy-06
and Fy-09. This primarily occurred due to increase in inventories and
decrease in payable in FY-06 and increase in inventory levels in FY-09
which can be attributed to lack of demand.

− There has not been a stable trend with respect to contribution of total profits
to total inflows. Hence Y-o-Y based rising profits did not necessary
contribute to positive net cash inflows. For instance, though with a positive
net profit of 902 crore in Fy-06, the firm reported negative cash inflow of
401 crore.

− In terms of absolute value both payables and receivable have witnessed a

constant increase and receivables. On the other hand inventories have also
increased. These trends resulted in outflow on grounds of working capital
changes and weakened the cash position

− Net cash inflows from investing activities have been primarily negative
which resulted from acquisition of fixed assets and purchase on investments

− As far as the financing activities are concerned there has been a positive
cash flow, primarily resulting from proceeds of shares and borrowings. High
amount of borrowing will result in future cash outflows in terms of interest
payments and installments. There has been a rising trend in cash outflows
with respect to interest payments.
 − Net cash flows have witnessed a fluctuating trend. However, given the
negative cash inflow of 663 crore is a matter of concern. This figure is in
excess of highest cash flow of 524 Crore that was ever reported by Suzlon.

Ratios

Suzlon Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
Liquidity
Current Ratio 2.065368 3.3393359 2.1372013 1.8824772 0.931725
Quick Ratio 0.9977736 1.7943006 1.0896937 1.2299635 0.6280656
Cash Ratio 0.1151066 0.2986236 0.1648921 0.2574868 0.0269087

Activity
Inventory Turnover Ratio 3.4577259 3.2801111 2.9558744 3.361136 3.540848
RM Turnover Ratio 4.0600751 3.5986013 6.4028624 7.3798639 4.8542872
Recievables (Debtors) Ratio 3.6624 3.3895793 3.0460332 2.6124229 1.7929936
Average Collection Period 99.661424 107.68298 119.82798 139.71704 203.57016
Payables (creditors) Turnover Ratio 4.3441 5.0413995 4.8694039 4.5546489 3.9197354
Average Payment Period 84.022007 72.40053 74.95784 80.1379 93.118531
-
Working Capital Ratio 3.073973 1.8611019 2.6795235 2.9319735 7.9305667
Total Asset Turnover Ratio 1.55 1.22 1.12 0.7 0.53
Fixed Asset Turnover Ratio 14.6823 14.020177 12.734419 12.27999 9.7681593
Capital Turnover Ratio 1.8732 1.783264 1.378533 0.9411982 0.623402

Leverage
 Debt Equity Ratio 0.0908635 0.0484606 0.0307221 0.2347403 0.4160697
Total Debt Ratio 0.1655042 0.07369 0.0511669 0.0256735 0.0188988
Interest Coverage Ratio 9.9853379 16.855612 11.762088 10.538413 1.7544632
Prefernce Dividend Coverage Ratio 239.38411 543.83444 707.42667 0 0

Profitability
Gross Profit Ratio 0.3757895 0.3199515 0.3253043 0.3064165 0.3003569
Operating Profit Ratio 0.2260099 0.2488266 0.2252625 0.2162714 0.1055294
Net Profit Ratio 0.1874358 0.2129388 0.1953523 0.2045693 -0.064687

Market Ratio
-
Return On equity 0.3888572 0.29097 0.2857681 0.2039363 0.0713142
-
Earnings Per Share 41.411364 28.507535 36.823102 9.4652136 3.1320267
Dividend Per Share 4.5615085 5.7086019 5.7084774 1.1699247 0
Dividend Payout Ratio 0.1101511 0.2002489 0.1550243 0.1236026 0
Price Earning Ratio NA 9.2607095 5.4419641 27.849345 NA
Earnings Yield NA 0.1079831 0.1837572 0.0359075 NA
Dividend Yield NA 0.0216235 0.0284868 0.0044383 NA

Ratio Analysis

Liquidity

− Current ratio has declined since Fy-07. It fell to .93 in Fy-09. It indicates
that the availability of current asset per rupee of current liability has
declined from 2.06 Rs in FY-05 to .93 Rs in FY-09. It indicates towards a
deteriorating short term solvency position. Hence, the firm’s ability to pay
short term creditors is declining.

− Furthermore, according to cash and quick ratio one can say that firm’s
ability to pay short term lenders and meet its current liabilities through
instruments that can be readily converted into cash has been declining. In
FY-09 the availability of quick assets for 1 Rs of current liability has
declined from 1.22 Rs to 0.62 Rs. Position with respect to availability of
cash to meet current liability has also depleted. In FY-09 for 1 Rs of liability
firm only had 0.02 Rs in the form of cash in bank and balance.

Activity
 − Inventory Turnover of Suzlon has remained steady, indicating that Suzlon
has been producing which is sync with its demand. Yet an increase in RM
turnover ratio of Y-o-Y basis from Fy-06 to FY-07 indicates inefficient
utilization of raw materials. A decline RM turnover ration from 7.37 in FY-
08 to 4.85 in FY-09 points towards slack in demand

− There has been a constant decline in Debtors Ratio from 3.66 in Fy-05 to
1.79 in Fy-09.Hence; it indicates that the time lag between cash to sales has
increased. Furthermore, the collection periods have also increased from 99
days to 203 days which further points towards a tight short term liquidity
position.

− Payable ratio has been somewhat stable. Yet a decline in the payable
turnover ratio from 4.55 in FY-05 to 3.91 in FY-09 indicates that the firm
has granted liberal credit terms. Furthermore, on an average the short term
creditors are willing to wait for payments around 80 days in 2008 and 93
days in 2009.

− The working capital turnover ratio has been declining, indicating that Suzlon
is incurring high investments in working capital which is reducing the
profitability of the firm.

− One Rupee of fixed asset has generated sales worth 1.55 Rs in FY-05 and
only 0.7 Rs and 0.53Rs in Fy-08 and Fy-09. Furthermore fixed asset
turnover ratio and capital employed turnover ratio has also declined which
indicates that amount of sales made per rupee of tangible asset and capital
employed has reduced which has reduced the profitability of the firm

Leverage

− By analyzing Debt-equity ratio and total debt ratio that the ability of
shareholders funds to meet debt requirements have declined. Thereby,
reducing the safety margin of lenders

− For 1 rupee of interest payments Suzlon has sufficient amount of EBIT to

sustain it. Hence, there is a low probability of defaulting on interest
payments.

Profitability
− Gross profit ratio reduced from 0.37 in FY-05 to .30 in Fy-09. The decline
in the gross profit margin over the period of five years has resulted from
soaring raw material prices and firms inability to increase turbine prices due
to intense competition
 − The operating profit has remained stable on Y-o-Y basis. However, there
was a steep reduction in the operating profit margin as the firm incurred
high amount of expenses

− Net profit had a fluctuating trend. However, it plummeted to -0.06 Rs on

account of losses incurred by Suzlon in Fy-09. Thus as on the balance sheet
date, the firm is vulnerable to any economics hardships

Market Ratio

− Return on equity reveals that the amount of profit accrued on account to

total shareholders funds deployed in the firm has declined

− On Y-o-Y basis the EPS has declined, indicating that profits available to
ordinary shareholders have declined.

− The amount of dividend received by shareholders have increased till FY-07

and it fell to only 1.16 Rs in Y-08 indicating that the amount of dividend
received by an individual shareholders has declined. Since Suzlon didn’t
give dividend till first quarter of 09 so it’s a matter of concern for an
investor.

− Dividend payout ratio reveals that close to 88% of profits were kept by the
firm and rest were distributed

− With respect to market value the dividend and earning yield has reported a
declining trend. Yet there is significant improvement in the price being paid
by the market for each rupee of EPS.
Common Size P&L- Suzlon vs Vestas

Suzlon Vestas
Sales Turnover 100% 100%
less: 0% 0%
Cost of Goods Sold 70% 80%
less: 0% 0%
Selling and Admin Expenses 10% 3%
Miscellaneous Expenses 9% 3%
EBDIT/PBDIT 12% 14%
less:
Depreciation/Ammortisation 1% 2%
EBIT/PBIT 11% 12%
less: 0% 0%
Interest 6% 0%
EBT/PBT -7% 12%
less: 0% 0%
Tax -1% 3%
EAT/PAT -6% 8%
By analyzing P&L statements of Suzlon vis-à-vis Vestas, one can say that despite of having
high cost of goods Vestas had higher operating profits. This can be attributed to Vestas
superior efficiency in terms of reduction of selling, admin and miscellaneous expenses. On
the other hand, Suzlon’s operating profits suffered due to high selling and miscellaneous
expenses. With respect to Vestas, Suzlon has a leveraged position. This can be attributed
high interest expenditure incurred by Suzlon with respect to the cost of goods sold.

Competitive Analysis

Ratios Suzlon Thermax

Mar '09 Mar'09
Liquidity
Current Ratio 0.931725 1.2954429
Quick Ratio 0.6280656 1.0686794
Cash Ratio 0.0269087 0.2900552

Activity
Inventory Turnover Ratio 3.540848 11.121818
RM Turnover Ratio 4.8542872 11.659975
Total Asset Turnover Ratio 0.53 9.8082981
Fixed Asset Turnover Ratio 9.7681593 9.4821784
Capital Turnover Ratio 0.623402 3.9735564

Leverage
Debt Equity Ratio 0.4160697 0.3787243
 Total Debt Ratio 0.0188988 0.5262431
Interest Coverage Ratio 1.7544632 128.77982

Profitability
Gross Profit Ratio 0.3003569 0.2393851
Operating Profit Ratio 0.1055294 0.1236188
Net Profit Ratio -0.064687 0.0843353

Market Ratio
Return On equity -0.0713142 12.055812
Earnings Per Share -3.1320267 24.110349

Liquidity:
Short term lenders are primarily concerned about the short term liquidity of an organization
which can be compared by juxtaposing current assets against current liabilities. Further
more we can also make inferences about the firms abilities to meet immediate current
liability through its cash situation via cash ratio. If we compare the quick ratio cash ratio
and current ratio we can conclude that Thermx has a better short term liquidity position.
Better short term solvency situation is sign of good financial health

Activity:
Lower turnover ratio of Suzlon can be interpreted as poor sales and therefore excess
inventory. Excess inventory can put Suzlon in a difficult situation when prices begin to fall.
Furthermore by analyzing raw material turnover ratio, total asset turnover ratio we can
conclude that Thermax is in better position to generate sales with respect to amount
invested in procurement of raw material and total asset. On the other hand, fixed asset
turnover ratio is same which indicates that the contribution of fixed asset in generation of
sales is somewhat similar. In addition, a higher capital turnover ratio of Thermax indicates
better utilization of capital employed.

In addition, Suzlon’s lower interest coverage ratio when compared to Suzlon indicates that
the company has a heavy burden of debt expense when compared to Thermax. On the other
through Thermax’s interest coverage ratio one can conclude that Thermax is generating
sufficient revenue to meet its interest expense.

Leverage:

Suzlon’s higher D/E ratio vis-à-vis Thermax indicates that Suzlon is aggressive on
borrowing and its fuelling its growth through debt. A high debt/equity indicates that Suzlon
might have to face volatile earnings on account of high interest expenses.
Suzlon has a lower total debt ratio indicating that company’s debt against asset is lower
when compared to total asset. A lower ratio has resulted on account of high amount of
fixed asset.

Profitability:

In terms of profitability, Suzlon performed well in case of gross profit ratio and operating
profit ratio. It indicates that Suzlon is in better position to meet the cost of goods sold
through sales receipts. The performance is somewhat similar in terms of operating profit.
However, Suzlon’s net profit ratio is negative which resulted due to an extraordinary
expense incurred by Suzlon to through its retrofit program.

Market Ratio
Return on equity measures how effectively the company generates profit on account of
money invested by shareholders. Thermax’s higher ROE indicates that the company is
effectively generating sales when compared to Suzlon.

In addition, Thermax’s higher EPS indicates that the company is more profitable and the
shareholders are getting higher returns per share.

Common Size Balance Sheet Thermax Suzlon

Mar'09 Mar'09
Liabilities
Share Capital 1.06% 2.32%
Reserves & Surplus 41.70% 36.36%
Deferred Tax Liability(50%) 0.40%
Net Worth (Gross) 43.16% 38.68%
Less(a) DTA 0.00% 1.00%
(b) Miscellaneous Exp. 0.00% 0.00%
Net Worth (Net) 43.16% 35.30%
Loan Funds(80% of Long term ) 0.40% 16.09%
Current Liabilities & Provisions 0.00%
(a)20% of Loan Funds 0.00% 22.97%
(b)Sundry Creditors 17.65% 4.02%
(c) 100% of Short Term Loans 0.00% 19.41%
(d)Provisions 4.22% 2.21%
2.48% 0.00%
 (e) Other liabilities 34.57% 0.00%
TOTAL 100.000% 100.00%

Thermax Suzlon
Assets Mar ' 09 Mar ' 09
Net Fixed Assets
(a) Tangible Assets 18.69% 2.95%
(b)Intangible Assets 0.87% 0%
(c) Capital work in progress 0.78% 1.69%
Investments
(a)Current Investments 4.51%
(b)Long Term Investments 3.34% 41.90%
Loans & Advances : Non operational items 8.67% 9.95%
Current Assets, Loans & Advances 0.00%
(a)Cash & Bank Balances 15.15% 1.25%
(b)Inventories 11.84% 8.13%
(c) Sundry Debtors 24.03% 27.89%
(i) Over 6 months 3.01% 11.19%
(ii)Others 21.03% 16.83%
(d)Loans and Advances : Operational 0.31% 5.96%
(f) Other current assets 12.52% 0.00%

TOTAL 100.00 100.00%

− In case of Thermax, the contribution of shareholder’s fund to total liability is

higher indicating that there is higher safety margin for the long term lenders.

− In addition, Suzlon’s higher amount of loan funds indicates that in future

Suzlon will incur high amount of expense when compared to Thermax in
terms of installments and interest payments.

− Suzlon’s lower percentage share of sundry creditors is also a positive sign.

− Suzlon has a higher percentage of sundry debtors indicating its collection

cycle is not effective. Whereas a lower proportion Sundry debtors in case of
Thermax indicates effective collection cycle.

− High inventory levels are unhealthy because they represent an investment

with a rate of return of zero. It also opens the company up to trouble should
prices begin to fall.

− Thermax has higher amount of fixed capital, indicates that most of its funds
are tied to fixed asset so as a result they are not generating much profits.
P&L Common Size Thermax Suzlon
Mar ‘ 09 March , 09
Sales(including Exice duty) 100.00% 100.00%
less: 0.00%
Raw materials consumed 61.58% 64.11%
Excise duty 3.10% 0.94%
Power+Fuel 0.53% 0.03%
Manpower Expenses 7.48% 0.06%
Other Manufacturing Expenses 3.37% 2.74%
COST OF GOODS SOLD 76.06% 69.96%

Less:
Selling and Administration Exp. 6.16% 9.57%
Misc. Expenditure 4.48% 8.55%
EBDIT/PBIT 13.30% 11.92%
less: 0.00%
Depriciation/Amortisation 0.94% 1.37%
EBIT/PBIT 12.36% 10.55%
less: 0.00%
Interest 0.10% 6.01%
EBT/PBT 12.27% -7.44%
less:
Tax 3.87% -0.98%
EAT/PAT 8.43% -6.47%

− The cost component to total sales is somewhat similar for both the firms,
indicating that the raw material costs are higher. In addition, the total share
of employee costs to total expenses is higher for Thermax when compared
to Suzlon has a higher proportion of cost of goods sold which resulted due
to high manpower and excise expenses when compared to Suzlon.

− However, when we see the effective management of administrative and

selling expenses vis-à-vis the sales, we can conclude that Thermax has
efficiently minimized the expense under both the heads. Eventually it has
resulted in better operational efficiency and PBIT.

− Suzlon’s earnings have once again have been effected due to high interest
expenses and it has become negative due to incurrence of extraordinary
expense worth Rs 896.56 Crores. Thus, in terms of profitability Thermax
has emerged as a winner.

Inputs from Auditor’s report, Notes to Account, Accounting Policies and Various Schedules

− The USA along with China accounts for more than 50% of Suzlon’s wind
turbine market. Given the rampant difficulty in availability of project
funding in USA and governmental barriers in China, it is difficult to
comment to what extent Suzlon will be able to cope up with flat demand

− On account of retrofit issue to resolve the blade crack issue S88 (1.2MW)
turbine Suzlon incurred exceptional losses amounting to Rs 896 crore. One
cannot predict to what extent this retrofit program will cost Suzlon both in
terms of financials and goodwill

− In the wake of financial crisis, Suzlon incurred MTM losses worth Rs 354
crore on FE contracts hedged to cover its forex transactions in 2008-09. A
possibility of future MTM losses cannot be negated.

− By adapting the provisions of As-11 pertaining to reporting of foreign

exchange losses Suzlon has availed a favorable position which has
substantially minimized its losses.
 − As Suzlon’s earnings are primarily dependent on the market for wind
turbine generators, so any regulatory framework or policies that are
detrimental to the wind energy market will be detrimental for Suzlon

− Elimination of production Tax credits granted by the US government,

extended till 31st December 2009 can dilute the growth prospects.

− Smooth transportation network is essential to boost wind energy market.

− Financial dailies have been repeatedly alleging that Tusli R Tanti has been
overstating the sales by adopting manipulative accounting policies. In
addition it is also alleged that he has liasoned with high net worth
individuals, under which they participate in construction of wind farms and
avail the depreciation benefits granted by state authorities to promote wind
energy.

Analysis from the Point of View of Short Term Creditor

− To enhance the confidence level among short term creditors, Suzlon must
improve its cash and bank balance by enhancing the collection pace of
receivables.

Improvement in collection of recievables is needed.

5000
4500
4000
3500
3000
Cash & Bank Balance
2500
Sudry Debtors
2000
1500
1000
500
0
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
 − Short term lenders are primarily concerned about liquidity of a firm. Hence,
an analysis of net cash flows will give a true picture about the firm’s ability
to pay. Since, Suzlon is facing a liquidity crunch as its clear seen from its
cash flow status; a short term creditor might get into a difficult position

600

400

200
Net cash inflow/(outflow)
Rs Crore

0
Mar Mar Mar Mar Mar
-200
2005 2006 2007 2008 2009

-400

-600

-800

− In addition the depleting trend in quick ratio, cash ratio and current ratio is
also an issue of concern

Analysis from The Point of View of Long Term Lender

− Decrease in owner’s equity positioned against term liabilities indicates

reduction in credit safety margin for long term lenders.

Reduction in Owner's equity vis-a-vis term liabilties

3000

2500

2000
In Rs Crore

Share Capital

1500
Loan Funds (80% of Long
1000 Term)

500

0
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
 − Furthermore, a decreasing debt equity ratio and total debt ratio raises
concerns about Suzlon’s financial viability.

Analysis from the point of view of investors

− An investor is primarily interested in the firms’ ability to make profits so

that the firm can declare good dividends. However, Suzlon’s profitability
has been rather unrealizable which indicates that dividend distributed by the
firm will fluctuate. Furthermore a low dividend payout ratio indicates that
most of the profits will be retained by the firm which can further affect the
dividends declared by the firm.

− Though gross profit and operating profit ratios have been impressive but the
reducing net profit ratio is not in the interest of the investor.

Computation Of Z-score*

Calculation of Z-Score 2005-06 2006-07 2007-08 2008-09

Calculation of X1:
Current Assets 3536.33 4554.44 6400.75 7354.43
Current Liabilities 2523.18 4658.27 7438.64 16162.53
Net Working Capital 1013.15 -103.83 -1037.89 -8808.10
Total Assets 4351.72 6257.03 12496.10 16963.27
X1 0.232815071 -0.01659413 -0.08305695 -0.51924517

Calculation of X2:
Reserves and Surplus 2519.72 3425.53 6648.27 6185.66
Total Assets 4351.72 6257.03 12496.10 16963.27
X2 0.579017032 0.547469007 0.532027593 0.364650212

Calculation of X3:
PBIT 959.59 1223.61 1497.93 765.56
Total Assets 4351.72 6257.03 12496.10 16963.27
 X3 0.220508213 0.195557637 0.1198718 0.045130449

Calculation of X4:
Short Term Liabilities 1058.992 2131.03 3400.174 7893.348
Long Term Liabilities 136.768 114.08 1630.896 2737.872
Value of Debt 1195.76 2245.11 5031.07 10631.22
Share Prices 264 200.39 263.6 42.4
Total No. of Shares 0.8692 2.8753138 2.8753138 14.969344
Value of Firm 229.4688 576.1841324 757.9327177 634.7001856
Market Value of Equity -966.2912 -1668.92587 -4273.13728 -9996.51981
Book Value of Total
Liabilities 1195.76 2245.11 5031.07 10631.22
X4 -0.80809795 -0.7433604 -0.8493496 -0.94029846

Calculation of X5:

Sales 3,856.46 5,431.93 6,926.16 7,254.47

Total Assets 4351.72 6257.03 12496.10 16963.27

X5 0.886192126 0.868132325 0.554265731 0.427657521

Z-Score 2.219012391 1.813999934 1.085403197 -0.10017498

Interpretation: High Probability of bankruptcy.

*Z-score for fiscal 2004-05 has not been calculated as till then Suzlon was not a listed firm.

Operational efficiency of Suzlon

− To improve the operational efficiency of Suzlon must focus of reduction in

cost of goods sold. As of now, year on year the increase in sales turnover
has been lower when compared to increase in cost of goods sold. The rise in
COGS has accrued due to escalating raw material prices. Hence, to
maximize earnings Suzlon needs to tweak its supply chain. Furthermore, an
increase in the turbine prices will not be possible owing to intense
competition so effective utilization of resource is the need of the hour
 Cost of Goods Sold vs Sales Turnover

450%
400%
350%
300%
250% Cost of Goods Sold
200% Sales Turnover
150%
100%
50%
0%
2004-05 2005-06 2006-07 2007-08 2008-09

− Decrease in growth rate of operating income vis-vis sales in Fiscal 2008-09

indicates a declining trend in operating performance

Operating Income and Sales

400%
350%
300%
250%
EBDIT/PBDIT
200%
Sales Turnover
150%
100%
50%
0%
2004-05 2005-06 2006-07 2007-08 2008-09

Adapting to business environment

− To adapt to rapidly changing business environment by developing state of

the products. So, investment in R&D activities is essential.
− By acquiring RE power, Suzlon can leverage its expertise in off-shore wind
energy market to enhance its presence in Europe
− Company should look beyond US and China and tap markets like Ukraine,
Bulgaria and Australia.
Financial Health

− Liability has been reduced by 111 million dollars through buyback.

− Steps should be taken to reduce the quantum of debt. Suzlon’s liability
management exercise by redefining and modifying the debt covenant for
USD 500 million FCCB aims and reduction in liability by 111 million
dollars through buyback is just the beginning
− By selling its stake in Hansen, Suzlon can improve its cash position.
− Suzlon also needs to reduce its cash to sales cycle.
− Suzlon is also planning to sell its 83% stake in SE forge Ltd to improve its
position in terms of liquidity.

Future
Future is optimistic, given the increased awareness about benefits of renewable energy and
ambitious renewable energy targets by global governments. Through its diverse presence
across geographical locations, Suzlon can leverage the global market. Although its difficult
to comment on the short term growth prospects due to lack of credit availability but long
term prospects are definitely bright.
However, given the heavy amount of leverage Suzlon most undergo capital restructuring at
the earliest

Determinants of Corporate Governance Rating

− Companies practices aims to generate value for shareholders, society,

customers, shareholders and environment at large.
− The independent directors are not appointed on the board of directors of any
company that deals in a similar segment.
 − Composition of Board of directors has two executive and four non-executive
independent directors. So, more than half of the board is independent. This
composition adheres to Clause 49(1)(A) of the listing agreement with stock
exchange.
− In 2008-09 there were six board meetings and the difference between two
board meetings did not exceed four months.
− The audit committee is headed by an independent director, Mr. Ashish
Dhavan. Moreover the other three members are also independent directors.
The gap between two meetings did not exceed four months.
− The Remuneration committees also consist of three independent directors.
− Investor grievance committee is headed by an independent director and
includes three members. Two of which are executive directors.
− Suzlon has practiced communication with shareholders through annual
reports, newspapers, website and circulars.

− There were episodes of non compliance of company with any matter related
to share market.
− Company has fully utilized the money raised through private placement and
public issue in the projects mention in the offer document.
− Suzlon has made detailed disclosure about accounting treatment, risk
management and related party transactions.
− Suzlon has in-depth expertise in areas of operations of its subsidiaries. There
is no deviation from its core business strength which is wind energy.

Determinants of Corporate Social Responsibility Rating

− Implementation of transformative programs which aims to improve business

practices so that the impact on natural, financial and human resources are
minimal
− Responsive program aims to reduce the negative impact
− Proactive programs aims to contribute to development and issues of
sustainability
− Suzlon took active steps in the domain of Employee Health & Safety,
Human resource and development and increasing awareness about wind
energy
− Active measures have been taken to address several stakeholder issues, such
as water shortage, lack of employment opportunities, poor infrastructure,
and so on.
Overall Corporate Governance and Corporate Social Responsibility Rating- 4/5
Analysis of Quarterly Results of Suzlon

June ,09 June,08

Total Income 359.25 1496.28

Total Expenditure 479.87 1109.27
PBIT & exceptional Items -120.62 387.01
Interest 138.74 38.2
PBT -259.36 348.81
Exceptional Items -99.29 -229.81
PBT and after exceptional items -160.07 119
Tax 0.47 30.96
Net Profit -160.47 88.04

− Given, Suzlon’s position on March-31-2009 a good quarterly performance

was desirable However, in the aftermath of global financial crisis, slack in
demand, tight credit market and the company’s excessive exposure to
foreign market, quarterly profit was a far cry. This assertion is evident from
the quarterly loss of Rs 160.07 crore in June-09.

− Furthermore, on account of increased borrowing Suzlon is severely hit by

rising interest payments which has further augmented the losses. In addition
due suzlon has also accrued exceptional losses on the grounds of
restructuring of financial facilities and exposure to convertible bond which
augmented losses by 99 crore.

− In short, given Suzlon’s quarterly loss and a possibility of future debt

restructuring measures one can conclude that the chances of improvement in
next quarter are bleak. Furthermore, keeping the excess capacity
installations by global governments and difficult situation of project funding
Suzlon will face rough weather.

Segment Performance

− Suzlon’s revenue generating segments primarily comprises of wind turbine

generators, gearboxes, foundry & forging and miscellaneous items

− In June-09 results the profits from wind turbine generators was only Rs 2.61
crore whereas total depreciation charged by the firm was a Rs 82.53 crore
which resulted in the loss of Rs 79.92 crore. Similar trend was visible in
case of foundry and forging and it resulted in a net loss of Rs. 16.49 crore.
Whereas, gear boxes contributed to the net profit of Rs 1.23 crore