Suzlon Energy Limited

Q3 FY09 Results

30th January 2009

 Disclaimer

• This presentation and the accompanying slides (the “Presentation”), which have been prepared by Suzlon Energy
Limited (the “Company”), have been prepared solely for information purposes and do not constitute any offer,
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• This Presentation has been prepared by the Company based on information and data which the Company
considers reliable, but the Company makes no representation or warranty, express or implied, whatsoever, and no
reliance shall be placed on, the truth, accuracy, completeness, fairness and reasonableness of the contents of this
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consider material. Any liability in respect of the contents of, or any omission from, this Presentation is expressly
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• Certain matters discussed in this Presentation may contain statements regarding the Company’s market
opportunity and business prospects that are individually and collectively forward-looking statements. Such forward-
looking statements are not guarantees of future performance and are subject to known and unknown risks,
uncertainties and assumptions that are difficult to predict. These risks and uncertainties include, but are not limited
to, the performance of the Indian economy and of the economies of various international markets, the performance
of the wind power industry in India and world-wide, competition, the company’s ability to successfully implement its
strategy, the Company’s future levels of growth and expansion, technological implementation, changes and
advancements, changes in revenue, income or cash flows, the Company’s market preferences and its exposure to
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• The distribution of this document in certain jurisdictions may be restricted by law and persons into whose
possession this presentation comes should inform themselves about and observe any such restrictions.

2
 CY 2008 & 09: A period of financial
crisis
• Impact on wind industry
– Subdued growth forecasts
• Slowdown in order intake
• Customers unwilling to pay advances for deliveries beyond near term
• Industry-wide order book visibility contracting from 2-3 years to 1-2 years

– Concentration of projects with large developers

• Worry on large-scale cancellations unfounded

– Increase in cost of capital with reduction in sources of project finance

• Can restrict wind power project development
– Equity investors likely to demand higher returns and seek lower
valuations
• May seek lower capital expenditure for projects

– Postponement of capacity expansion plans

• US and Europe expansions may be scaled down
• India and China capacity expansion to continue

Credit crunch has impacted new order flow for the industry
3
 Industry outlook CY 2009:
Change in industry scenario
• Positive impact of the 2008 crisis

– The last few months have witnessed a substantial shift in the industry
leading to
• Significant reduction in commodity prices
• Reduction in logistics costs
• Reduction in inventory
• Reduction in overall project costs

– This has translated into

• Project cost reductions for customers
• Interest cost reductions
• Higher IRR projects

– For lenders, industry attractiveness has also improved due to

• Higher security cover due to better returns
• More secure cash flows (backed by PPA)

4
 Long term story still intact

• EU: Parliament and heads of nations commit to Renewable Energy

Directive (12th Dec 2008)
– 20% of energy from renewable sources by 2020
– Wind power to take lead in meeting mandate

• USA: Inauguration speech of Pres. Barack Obama (20th Jan 2009)

– Need to “roll back the spectre of a warming planet” through transforming the way
America uses energy, harnessing “the sun and the winds and the soil”

• India: Increased regulatory support

– Gujarat announces revised wind power policy (7th Jan 2009)
• RPO mandate increased from 2% to 10% by 2012, PPA tariff increased from Rs.3.37 to
Rs.3.50
– CERC raises base RoE from 14% to 15.5% - 16% for power generation, will
affect utility and PPA tariffs
– PSU for investment in renewable energy being planned

• China: NDRC’s goal of 30GW by 2020 set to be achieved by 2012

• Cost of wind power generation stable and competitive amidst uncertainty in

conventional sources
– Drop in interest rates to benefit wind more than fossil fuels

5
 2004-08: Suzlon’s scorching growth

2,311 MW`

• Growth continuation through

internationalization
– Launch of products for 976
international markets
%
– Capacity expansion overseas 77 1,456 MW
AGR
C
• Other major initiatives
964 MW
– Hansen Transmissions acquired 955
in 2006
– REpower Systems acquired in 1336
507 MW
2007 883
– Capacity increased to 4,200 MW 235 MW
507 501
– Increased vertical integration
235
81
• Learning curve in international FY04 FY05 FY06 FY07 FY08
business
International Domestic

Suzlon grew at more than twice the industry’s growth rate

6
 2009: Our year of consolidation

• Subdued markets give an opportunity to consolidate business after 5

years of scorching growth
– Overcome present challenges
• Business
• Working capital management
• Strategic financial management
– Integration of strategies
– Expand markets for component business

– No additional capital expenditure beyond current targets

Preparing for the next level of growth from 2010 onwards

7
 Overcoming present challenges:
Business
• Blade cracks
– Retrofit exercise under way after satisfactory conclusion of RCA and solution
validation

• Order book slowdown

– S88 V3, with demonstrable performance, positioned as mainstay for international
market
– Strong pipeline of potential customers
– Industry converging to shorter-term order visibility
– Cost competitiveness, vertical integration and expanded scope of services to
provide edge in tough market conditions

• Global credit crisis

– Well-diversified market reach hedges geographical risk
– Focusing on key markets and customer relationships
– Current customer profile dominated by utilities and financially sound developers

Proactively addressing challenges at their root

8
 Overcoming present challenges:
Working capital management
• Working capital buildup
– Working capital reduction plan designed in association with AT Kearney
– Being executed for 3 months; to yield results by March 2009

• Receivables
– Program management for order fulfillment
– Improvement in production planning process
– Improvement in documentation and certification process

• Inventories
– Procurement reduction
– Non- and slow-moving inventory reduction
– Redistribution of excess between units
– Mismatch and excess inventory reduction

Targeting reduction in NOWC by over Rs.1,000 Crs. by March ‘09

9
 Overcoming present challenges:
Strategic finance management
• Funding REpower stake acquisition
– Acquired partial stake worth EUR65 million from Martifer in December 2008,
paving way for further steps
– Funding for balance EUR205 million stake to be met through combination of
working capital management and external sources

• Capital structure
– Rs.400 crores invested in SEFL by IDFC PE
– Successfully monetized stake in Hansen Transmissions by sale of 10% to Ecofin
for GBP73 million
– Freeze on capex plans in view of business and economic outlook
– Exploring various fund raising avenues

Balancing strategic needs with capital structure optimization

10
 Integration of strategies

Suzlon and REpower:

Supply chain synergies and cost reduction

✚
• Accelerate REpower’s volumes and improve margins through Suzlon’s
supply chain linkages
– Supply of rotor blades, gear box, generator, control panel, forging and casting parts,
converters etc.
– Reduce cost through moving supply chain partially to low cost manufacturing centre

• REpower performance YTD:

– Revenues grew 52% to EUR 842.9 million in 9m FY09 against EUR 552.7 million in
9m FY08
– EBIT grew 36% to EUR 38.1 milion against EUR 27.9 million during the same period
– Order book: 1502.6 MW totaling to EUR 1.6 billion

• Renewable Energy Technology Centre (RETC) is a 50-50 JV between

REpower and Suzlon
– Focusing on manufacturing process optimization, aerodynamic efficiency
improvement, training and technology services 11
 Integration of strategies

Suzlon and Hansen:

Supply chain synergies and cost reduction

✚
• Supply chain management
• Plugs a gap in Suzlon’s supply chain for gearbox and technology
• Key components of gear boxes would be sourced out of India and China
• SE Forge will supply forged and cast steel components
• Hansen has expanded to 7,300 MW within Belgium
• Will expand in low cost base by setting up units in India and China
• Capacities being added: 5,000 MW in India and 3,000 MW in China
• Develops a long-term growth driver for Suzlon’s component business
• Hansen Performance YTD:
• Revenues grew 65% to EUR 451 million in 9m FY09 against EUR 274 million in
9m FY08
• EBIT grew 139% to EUR 45 million against EUR 19 million during the same
period
• Full order book till December 2009, guidance for 50% revenue growth for full year
12
 Component business

• IDFC PE invested Rs.400 cr. for 17.1% stake in Sept. 2008

• Manufacturing facilities
– 70,000 MT p.a. forging and machining unit in Vadodara
• 42,000 rings of 5m diameter, largest in India
• High precision forging and machining capability
• Tower flanges, bearing rings, gear rim and ring gear
• Innovative technology to achieve very high conversion ratio
• Third party orders from SKF, Defence
• Commercial production started

– 120,000 MT p.a. casting and machining unit in Coimbatore

• 50 MT per-piece capability, largest in India
• Rotor hubs and other spherical castings, rotor shafts, main frames and casings
• Test production started

• Product application in multitude of industries

– Wind turbines and components, oil and gas, material handling, aerospace, defence,
construction equipment, bearings and heavy machinery

13
 Blade crack rectification

ƒ Background
– Reports from in service S88 V2 turbines begin to surface of a common crack appearing c.
5m from the hub fairing
– Suzlon announces retrofit for 1,251 blades majority of which are sold in the US
• Crack faults observed in 172 blades by 25th Jan 2009
– Next generation V3 blade, already under development at the time, rolled out at the end of
2007 (prior to the surfacing of blade cracks)

• Independent verification
– Root cause analysis was performed by external consultants - Navigant Consulting (NYSE:
NCI)
– Successful completion of solution validation test and identification new testing processes
for the future
• Post retrofit fatigue test on upgraded V2 rotor blades conducted by Wind turbine
Materials and Constructions (WMC), Netherlands

• Fault rectification
– All issues related to the V2 crack are being addressed
• All V2 blades subsequently manufactured have the production fix incorporated
• Damaged blades are being replaced with newly manufactured blades
• Undamaged faulty blades are retrofitted
– Development of a vibration sensing system in all upgraded blades
• In-built sensor to auto shutdown the turbine in the event of a blade crack being
discovered over the next 20 years
– The program is expected to be completed by June 2009

14
 Blade crack rectification

• Introduction of V3 blade
– V3 blade development was initiated as a next generation development aimed
at achieving improved aerodynamic performance
• Incorporates stronger structure as compared to V2

– V3 was an independent development made before the V2 blade crack issue

arose

– 342 S88 V3 WTGs commissioned till date

• 250 in the US, 92 in Australia

– 770 sets of V3 blades produced till date (552 India, 218 US)
• No blade crack incident on V3 blades reported till date

– S88 V3 first commissioned in Australia in March 2008

• Achievement of above 97% availability in majority of WTGs

– Rattlesnake project of Horizon Wind has been recently financed by JP

Morgan Chase in the US

– V3 product and has shown consistently superior performance in major

operating parameters as against the V2 model

15
 Blade crack rectification:
Summary and provisioning

Blade Cracked Replaced/

Balance
(Nos.) (till Jan 25, 2009) Retrofitted

1,251 172 363 888

Provisions (Rs. crores)

Particulars
FY08 H1 FY09 Q3 FY09 Total
Retrofit and replacement 122 -- 171 293
Availability compensation 20 74 62 156
Total 142 74 237 449

Nearly 30% of the retrofit / replacement exercise already completed

Full completion expected by June 2009 16
 Explanation to blade provisioning

• Initial internal RCA pointed to design weakness and possible solution

– Budget of Rs.122 crore provided for 45 blades’ replacement and full retrofit
– Exercise was to be completed by September 2008

• Delay in commencing retrofit exercise as full RCA and validation testing

were desired by customers
– Full RCA completed in Nov 2008, retrofit validation completed in Dec 2008
– Number of cracked blades increased from 34 in Jan 2008 to 172 in Jan 2009
– Blade replacement is costlier as compared to preventive retrofit
– Retrofit cost escalation due to change in weather conditions as compared to
original schedule
• Additional cost of equipment such as cranes, and manpower during idle period
– Feasibility of reallocation of larger cost items like cranes between small projects

• Availability related compensation

– Compensation of Rs.94 crores till Q2 FY09 considered 104 blades against 172
cracked presently

17
Suzlon Energy Limited

Financial Highlights
Q3 FY09
30th January 2009
 Suzlon:
Quarter highlights
• CEO’s office to be jointly shared by
– Mr.Tulsi Tanti, CMD and
– Mr.Sumant Sinha, COO

• Sale of 10% stake in Hansen Transmissions to Ecofin, UK

– 10% stake sale resulting in cash inflow GBP 73 million
– Suzlon currently holds 61.3%

• Payment of EUR 65 million to Martifer resulting in increase of stake to stake

of 73.7% in REpower Systems
– Voting rights of approx. 91% through vote pooling arrangement

19
 Performance analysis:
Suzlon Wind Business
• Volume growth in Suzlon Wind business
– 678.75 MW in Q3 FY09 vs. 545.45 MW in Q3 FY08: 25% growth
– 1,744.20 MW in 9m FY09 vs. 1,546.05 MW in 9m FY08: 13% growth
• Sales realisation
– Improved to Rs.5.79 crores / MW in Q3 FY09 from Rs.4.83 crores / MW in Q3
FY08
– Improvement due to better pricing and currency impact
• Gross profit
– Improvement to Rs.2.28 crores / MW in Q3 FY09 from Rs.1.44 crores / MW in
Q3 FY08 due to better sales realization and predominant sales mix of equipment
sales
• Operating expenses
– Manpower cost as a percentage of sales has marginally increased in Q3 FY09 to
5.91% from 5.58% in Q3 FY08, largely due to capacity expansion
– Other operating expenditure has gone up from 11.81% of sales in Q3 FY08 to
20.57% in Q3 FY09 mainly due to increase in
• Freight cost, foreign exchange loss, guarantees, warranties and LDs
• EBITDA in Suzlon Wind business
– Improvement to Rs.0.75 crores / MW in Q3 FY09 from Rs.0.60 crores / MW in
Q3 FY08
– Improvement to Rs.0.70 crores / MW in 9m FY09 from Rs.0.65 crores / MW in
9m FY08
20
 Consolidated financial results
(Suzlon Wind + Hansen + REpower)
INR Cr.

Particulars Q3 FY09 Q3 FY08 YTD FY09 YTD FY08 FY08

Unaudited Unaudited Unaudited Unaudited Unaudited

Sales MW 679 546 1,744 1,546 2,311

Sales 6,893 3,170 17,277 8,756 13,679
Raw Material cost 4,484 2,112 11,352 5,722 8,870

Gross Profit 2,409 1,058 5,926 3,034 4,809

Gross Profit margin 34.94% 33.37% 34.30% 34.65% 35.16%

Manpower cost 574 273 1,530 749 1,043

Other operating expenses 1,110 388 2,436 1,125 1,744

EBITDA 725 396 1,959 1,160 2,022

EBITDA margin 10.51% 12.50% 11.34% 13.25% 14.78%

Interest 172 110 433 267 361

Interest on acquisition loans 72 47 168 136 171

Exceptional Items 357 19 522 84 290

Exchange Loss / (Gain) on FCCB 92 (11) 435 (40) (4)

Depreciation 150 75 374 192 289

Other income 120 73 268 169 265

Taxes 36 87 227 129 163

Share in associate’s PAT -- 9 11 10 (43)

Share of profit of minority (24) (1) (117) (5) 56

PAT excl. FCCB FX effect 33 140 397 526 1,026

21
PAT incl. FCCB FX effect (59) 152 (37) 565 1,030
 Consolidated financial results
INR Cr.
Q3 FY09 Unaudited Q3 FY08 Unaudited
Particulars Wind Hansen REpower Wind Hansen REpower
Sales MW 679 -- -- 546 -- --
Sales 3,932 1,019 2,109 2,634 569 --
Raw Material cost 2,383 532 1,742 1,846 300 --
Gross Profit 1,549 487 366 788 270 --
Gross Profit margin 39.39% 47.77% 17.34% 29.91% 47.38% --
Manpower cost 234 199 142 147 127 --
Other operating expenses 809 157 145 311 77 --
EBIDTA 506 131 80 330 66 --
EBIDTA margin 12.88% 12.90% 3.81% 12.52% 11.67% --
Interest 147 18 7 85 25 --
Interest on acquisition -- 37 35 -- 35 12
Exceptional Items 357 -- -- 19 -- --
Exchange Loss / (Gain) on FCCB 92 -- -- (11) -- --
Depreciation 75 52 23 46 29 --
Other income 53 20 46 61 11 --
Taxes (26) 29 33 79 8 --
Share in associate’s PAT -- -- -- -- -- 9
Share of profit of minority 4 (18) (11) (1) -- --
PAT excl. FCCB FX effect 11 (2) 18 162 (20) (2)
PAT incl. FCCB FX effect (81) (2) 18 174 (20) (2)
22
 Consolidated financial results
INR Cr.
YTD FY09 Unaudited YTD FY08 Unaudited
Particulars Wind Hansen REpower Wind Hansen REpower
Sales MW 1,744 1,546 --
Sales 10,200 2,958 4,656 7,273 1,540 --
Raw Material cost 6,631 1,410 3,811 4,995 784 --
Gross Profit 3,569 1,547 846 2,278 756 --
Gross Profit margin 34.99% 52.13% 18.16% 31.32% 49.10% --
Manpower cost 669 567 295 375 374 --
Other operating expenses 1,680 437 320 905 220 --
EBIDTA 1,221 544 231 998 163 --
EBIDTA margin 11.97% 18.40% 4.95% 13.72% 10.55% --
Interest 360 57 17 214 53 --
Interest on acquisition -- 97 71 -- 95 41
Exceptional Items 522 -- -- 84 -- --
Exchange Loss / (Gain) on FCCB 435 -- -- (40) -- --
Depreciation 186 143 45 117 75 --
Other income 112 79 76 140 28 --
Taxes 40 97 90 107 22 --
Share in associate’s PAT 1 -- 11 -- -- 10
Share of profit of minority 6 (84) (40) (5) -- --
PAT excl. FCCB FX effect 232 146 55 610 (53) (31)
PAT incl. FCCB FX effect (203) 146 55 650 (53) (31)
23
 Suzlon Wind: Order outlook

• Order visibility in light of the financial crisis would

be reduced for the industry
• 2009: as the industry expects slowdown in
growth, so do we
– Current order book 1,916 MW (98 MW domestic,
1,818 MW international)
– Addition of component sales business: orders of
approx. Rs.1100 Crs.

We are in negotiation in various markets across Australia, China, Europe and the
US for orders of around 2,000 MW. We expect to close approx. 1,000 MW orders in
next 6 months
24
 Suzlon Wind:
Sales and order breakup
INR. Crs.
Orders as on Orders Orders as on
Region New Orders Sales in Q3
29/10/08 Adjustment 26/01/09

India 236 135 105* 168 98

USA 1,215 0 0 202 1,013

China 512 50 0 90 472

ANZ 185 0 0 57 128

Europe 168 0 0 63 105

S.America 189 0 0 99 90

Others 0 10 0 0 10

Total MW 2,505 195 105 679 1,916

Total value Rs. in crores 14,052 -- -- -- 10,387

( * ) Unrest at Maharashtra site and so the order has been rolled back 25
 Suzlon Wind:
WTG revenue by geography
INR. Crs.
YTD Sales Rs. Q3 FY09 Sales Q3 FY09 Sales
Region YTD Sales MW
Crs MW Rs. Crs

India 519 2,979 168 897

USA 582 3,031 202 1,211

China 164 699 90 423

ANZ 189 1,400 57 396

Europe & ROW 290 2,092 162 1,005

Total 1744 10,200 679 3,932

26
 Suzlon Wind:
Exceptional Items
INR Crs.

Particulars Q3 FY09 Q3 FY08 YTD FY09 FY08

Blade retrofit provisions 171 19 171 122

Availability related to blade cracks 62 -- 136 20

FCCB MTM Loss / (Gain) 92 (12) 435 (4)

Other MTM Loss / (Gain) 124 -- 215 23

Others -- -- -- 125

Total 449 7 956 285

27
 Suzlon wind:
Net Operating Working Capital
INR Crs.
As on 31st Dec. As on 31st Mar. As on 31st Mar.
Particulars
2008 2008 2007

Inventories 5,408 3,319 2,748

Receivables 4,876 4,238 2,513

Prepayment from customers (including due to customers) (1,275) (2,197) (1,100)

Trade Payables (4,610) (2,560) (1,247)

Other Liabilities (1,238) (791) (339)

Total NOWC 3,161 2,009 2,575

28
 Suzlon Wind:
Capex program
INR Crs.

Commercialisation
Investments Investments Investments
Particulars Budget Balance / Completion
till H1 FY09 in Q3 FY09 in Q4 FY09
targets

Integrated WTG unit 865 367 266 70 125 Q1, Q2, Q3FY09

Forging, Foundry and

Machining units 1,100 688 173 39 231 Q3 FY09

Suzlon campus 361 205 18 139 -- Q1 FY10

Total 2,292 1,260 457 248 356

29
 Suzlon Wind:
Cash & Bank balance (as at 31st Dec 2008)
INR Crs.

Particulars Domestic International Total

Cash 1 1 2

Current accounts including EFC account 161 538 698

Cheque / DD on hand 16 0 16

Fixed deposits 407 19 426

Public Sector Banks 34 1 36

Private sector banks 218 0 218

Foreign banks 4 3 7

Others (Margin Money) 151 16 166

Other instruments 0 0 0

Total 585 557 1,142

30
 Debt levels

INR Crs.

As at 31st December 2008

Particulars
SEL Wind Consol. Group

Gross Debt 12,232 14,129

Cash 1,142 3,027

Net Debt 11,089 11,102

31
 Notes to consolidated accounts

• Stated hereafter are the unaudited summarised consolidated financial results of Suzlon Energy
Limited (the “Company”) and its subsidiaries for the quarter and nine months ended December 31,
2008. The financial results have not been subject to limited review by the auditors of the
Company. The unaudited financial results are not in the form specified in the Listing Agreement.
The Board has taken on record these unaudited financial results. The unaudited financial results
of the Company and all its subsidiaries except REpower Group of companies (“REpower”) have
been prepared / realigned as per Indian GAAP whereas the financial results of REpower have
been consolidated based on its accounting policies under IFRS and do not include any
adjustments for realignment of these policies to that of the Company and hence to that extent are
not compliant with Accounting Standard 21 - Consolidated Financial Statements issued by ICAI.
The unaudited financial results of the combined group are for your information only. Stakeholders
are required to make their own assessment of impact on financial results arising on such non-
alignment of accounting policies.

• The Consolidated figures are net of elimination of inter company transactions.

• These results are to be read with applicable notes to the standalone reviewed results for the
quarter and the nine months ended December 31, 2008.
• REpower has been consolidated as subsidiary since June 2008. Results for the period from June
2008 to December 2008 are consolidated on a line by line basis as per AS 21 – Consolidated
Financial Statements. The figures for the corresponding period are not comparable to that extent.
• REpower was an associate till May 31, 2008. Results for the nine months ended December 31,
2008 includes profit during April 2008 to May 2008 under equity method as per AS 23 –
Accounting for Associates. Corresponding results for the nine months ended December 31, 2007
include profit during June 2007 to September 2007 under equity method due to three months’ lag
to that of the Company. Results for the quarter ended December 2007 includes profit during July
2007 to September 2007 under equity method, due to three months’ lag to that of Suzlon. The
figures for the corresponding period are not comparable to that extent.
• The figures stated above have been reclassified wherever necessary.
32
Thank you

33