Suzlon Energy Ltd:Annual Report 2023-24 Analysis

Suzlon Energy Ltd.: A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

Suzlon Energy Limited was founded in 1995 by Tulsi Tanti. The company initially started as a textile business but later transitioned to wind energy generation, driven by the founder’s need for a reliable and cost-effective energy source for his textile operations.

Headquarters Location and Global Presence:

The headquarters of Suzlon Energy Limited is located in Pune, India. The company has a global presence with operations and subsidiaries in various countries, including the United States, Europe, Australia, and China.

Company Vision and Mission:

• Vision: To be a leading global renewable energy solutions provider committed to sustainable development.
• Mission: To enable a greener future by delivering innovative and reliable wind energy solutions.

Key Milestones in Their Growth Journey:

• 1995: Incorporation of Suzlon Energy Limited.
• 2005: Initial Public Offering (IPO) on the Indian stock exchanges.
• 2006: Acquisition of Hansen Transmissions International NV, a gearbox manufacturing company. (Later divested)
• 2007: Acquisition of REpower Systems AG (now Senvion), a German wind turbine manufacturer. (Later divested)
• 2023: Successful restructuring and debt resolution.

Stock Exchange Listing Details and Market Capitalization:

Suzlon Energy Limited is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in India. (NSE: SUZLON, BSE: 532667). Market capitalization fluctuates based on market conditions.

Recent Financial Performance Highlights:

Suzlon has reported improved financial performance recently, driven by increased order inflows and the execution of existing orders.

Management Team and Leadership Structure:

The leadership team includes:

• Girish R. Tanti: Chairman
• Vinod R. Tanti: Managing Director
• Himanshu Mody: Chief Financial Officer

Notable Awards or Recognitions:

Suzlon has received various awards and recognitions over the years for its contributions to the renewable energy sector, including awards for its technology, sustainability initiatives, and overall business performance.

Their Products #

Complete Product Portfolio with Categories:

• Wind Turbines: Range of wind turbine generators (WTGs) catering to different wind regimes and site conditions.
• Operation and Maintenance Services: Comprehensive O&M services for wind farms.
• Wind Farm Development: Turnkey solutions for wind farm development, including site assessment, engineering, procurement, and construction (EPC).

Flagship or Signature Product Lines:

The S144 wind turbine series is a key product.

Key Technological Innovations or Patents:

Suzlon has patents related to wind turbine technology, including blade design, control systems, and gearbox technology.

Manufacturing Facilities and Production Capacity:

Suzlon has manufacturing facilities across India.

Quality Certifications and Standards:

Suzlon’s products and manufacturing processes adhere to international quality standards, including ISO 9001, ISO 14001, and OHSAS 18001.

Unique Selling Propositions or Technological Advantages:

• In-house technology development and manufacturing.
• Vertical integration across the wind energy value chain.
• Strong focus on O&M services.

Recent Product Launches or R&D Initiatives:

Focus on developing higher-capacity wind turbines to improve energy generation efficiency.

Primary Customers #

Target Industries and Sectors:

• Independent Power Producers (IPPs)
• Utilities
• Commercial and Industrial (C&I) customers
• Public Sector Undertakings (PSUs)

Geographic Markets (Domestic vs. International):

While historically, Suzlon had a significant international presence, the company is now primarily focused on the Indian market.

Major Client Segments:

• Power generation companies.
• Businesses seeking to reduce their carbon footprint and energy costs.

Distribution Network and Sales Channels:

Suzlon has a direct sales force and works with channel partners to reach customers.

Major Competitors #

Direct Competitors in India and Globally:

• India: Inox Wind, Vestas, Siemens Gamesa
• Globally: Vestas, Siemens Gamesa, GE Renewable Energy, Goldwind

Competitive Advantages and Disadvantages:

• Advantages: Established brand recognition in India, in-house technology.
• Disadvantages: Historically high debt burden, intense competition.

How They Differentiate From Competitors:

Suzlon differentiates itself through its integrated solutions, in-house manufacturing capabilities, and focus on the Indian market.

Industry Challenges and Opportunities:

• Challenges: Price competition, supply chain disruptions, regulatory uncertainties.
• Opportunities: Growing demand for renewable energy, government support for wind energy, technological advancements.

Market Positioning Strategy:

Suzlon aims to be a leading wind energy solutions provider in India, focusing on providing reliable and cost-effective solutions.

Future Outlook #

Expansion Plans or Growth Strategy:

Suzlon is focused on increasing its market share in India by securing new orders and executing existing projects.

Sustainability Initiatives or ESG Commitments:

Suzlon is committed to sustainable development and has implemented various ESG initiatives, including reducing its carbon footprint and promoting responsible business practices.

Industry Trends Affecting Their Business:

• Increasing demand for renewable energy.
• Advancements in wind turbine technology.
• Government policies supporting renewable energy.

Long-Term Vision and Strategic Goals:

Suzlon’s long-term vision is to be a leading global renewable energy solutions provider, contributing to a sustainable future.

Suzlon Energy Ltd. - Financial Analysis (FY2023-24) #

3-Year Trend Analysis of Key Financial Metrics #

• Revenue: Consolidated revenue increased by 9.25% to ₹ 6,497 crore in FY24 from ₹ 5,947 crore in FY23, after an increase of 97.8% from 3,295 cr in FY21 to 6,520 in FY22. The increase is attributed to improved market conditions and increased WTG operational capacity.
• EBITDA: Consolidated EBITDA was ₹ 1,029 crore in FY24, representing a 24% increase from ₹ 832 crore in FY23 after an increase of 66.47% from 534 cr. in FY21 to 889 cr. in FY22.
• EBITDA Margin: Improved from 13.99% in FY23 to 15.84% in FY24.
• Net Profit: Consolidated net profit before exceptional items increased by 317%, from ₹ 171 crore in FY23 to ₹ 713 crore in FY24.
• Net Profit Margin: Increased from 2.8% in FY23 to 10.99% in FY24 before exceptional items.
• Debt-Equity Ratio: Decreased significantly from 1.73 in FY23 to 0.03 in FY24, reflecting debt reduction following a Qualified Institutional Placement (QIP).
• Interest Coverage Ratio: Improved from 1.49 in FY23 to 7.94 in FY24 due to reduced finance costs and full repayment of term loans.
• Current Ratio: Improved from 1.55 in FY23 to 1.76 in FY24.
• Inventory Turnover Ratio: Inventory turnover is 1.93 in FY24 as compared to 1.87 in FY23.
• Debtors Turnover Ratio: The Debtor turnover ratio is 4.33 in FY24 as compared to 4.67 in FY23.
• Return on Net Worth: 16.84% in FY 2024.

Business Segment Performance #

• WTG Division: Showed a 78% year-on-year growth in wind energy capacity addition, outperforming the sector’s 43% growth.
• Operations and Maintenance Services (OMS): Suzlon Global Services Limited (SGSL) was recognized as the ‘Best OMS Service Provider’ by WindInsider’s Indian Wind Energy Forum 2023. It contributes significantly, with a portfolio of over 14.8 GW in India.

Major Strategic Initiatives and Their Progress #

• Debt Reduction: Suzlon became debt-free through a successful QIP, raising ₹ 2,000 crore, and a rights issue. Term loans were fully repaid.
• New Product Launch: The 3.x MW S144 series wind turbines received strong market acceptance, with over 3.3 GW of firm orders as of June 30, 2024.
• Organizational Capability Building: Significant investments in human resources, adding leaders and talent across various fields.
• Manufacturing Enhancement: Suzlon is investing in increasing its manufacturing capacity to meet growing domestic and global demand.
• Digitization and Digitalization: Ongoing projects focused on digitization of processes to meet rising demand.

Risk Landscape Changes #

• Operational Risks: The Company is focused on mitigating technology risk with continuous R&D, supply chain risks through vendor development and securing long-term commitments, and project execution risks through regular monitoring.
• Financial Risks: Working capital requirements are being addressed with ₹ 2,800 crores in non-fund based working capital lines. The Company is mitigating foreign exchange risks and inflation risks, though details of specific hedging strategies or cost control measures are not provided.

ESG Initiatives and Metrics #

• Environmental Impact: Suzlon’s wind installations have helped prevent 53.37 million tonnes of CO2 emissions annually. Manufacturing facilities are transitioning to 100% green buildings.
• Social Impact: Suzlon Foundation impacted 1.23 million people across 800 villages, focusing on education, healthcare, livelihood, and environmental restoration.
• Diversity and Inclusion: The Company formed a DEIB council and signed the UN Global Impact Women’s Empowerment Principles.
• Governance: Suzlon received an ESG Award from The Economic Times Sustainable Organizations 2023.

Management Outlook #

• Focus on timely execution of the existing order book and operational projects.
• Development of high-performance products aligned with industry demand.
• Expansion of the Service Business.
• Advocacy for policy support to facilitate the growth of the Renewable Energy sector in India.

Comparative Analysis with Industry Averages #

• Wind Capacity Addition: Suzlon’s 78% growth in wind capacity addition significantly outperformed the sector’s 43% growth in FY24.
• Market Share: Suzlon holds a 32% cumulative market share in India’s Wind Energy market.

Detailed Analysis #

Financial Analysis: Suzlon Energy Ltd. #

3-Year Comparative Analysis of Assets, Liabilities, and Equity (Consolidated) #

Significant Changes in Major Line Items (>10% YoY) #

• FY 2023-24 vs. FY 2022-23

  • Total Non-Current assets increased by 40.5%.
  • Total current assets increased by 27.6%, increase is caused due to higher inventories, trade receivables, cash and bank balances.
  • Total Equity reported a 256.68% increase.
  • Non-current Liabilities decreased by 85.48% due to the significant repayment of long-term borrowings.
  • Current Assets increased by 27.6%
  • Share capital Increased by 10.9%
  • Other equity improved by 188.4%

• FY 2022-23 vs. FY 2021-22

  • Total Assets decreased by 14.7%.
  • Total Liabilities decreased by 55.73%, primarily due to debt restructuring.
  • Total equity reported a improvement of 131%.

Working Capital Trends #

• FY 2023-24 shows a considerable increase in net working capital, largely attributable to the build-up of inventory and increased trade receivables, aligning with higher sales volume.

Asset Quality Metrics #

• Impairment allowance on financial assets significantly decreased, indicating reduced risks in recoverability.

Debt Structure and Maturity Profile #

• The Group significantly reduced its non-current borrowings, indicating a shift towards a less leveraged capital structure.
• The complete redemption of FCCBs and reduction of current maturities during FY24.

Off-Balance Sheet Items #

• Contingent liabilities related to claims not acknowledged as debts and guarantees were disclosed.

Suzlon Energy Ltd. Financial Analysis (FY 2023-24) #

Revenue Breakdown by Segment/Geography #

• Sale of WTGs and Components: FY24: ₹3,957.58 Crore, FY23: ₹3,734.94 Crore, Growth: 6%.
• Operation and Maintenance Services (OMS): FY24: ₹1,952.26 Crore, FY23: ₹1,800.11 Crore, Growth: 8.45%.
• Sale of services: FY24: ₹492.73 Crore, FY23: ₹319.24 Crore.
• Geography - India: FY24: ₹6,132.04 Crore, FY23: ₹5,639.93 Crore, Growth: 8.73%.
• Geography - Outside India: FY24: ₹364.80 Crore, FY23: ₹306.91 Crore, Growth: 18.86%.

Cost Structure Analysis (FY 2023-24) #

• Cost of Raw Materials, Components Consumed, and Services Rendered: 62.97% of total revenue (₹4,018.65 Crore).
• Employee Benefits Expense: 10.82% of total revenue (₹702.90 Crore).
• Changes in Inventory: -0.56% of total revenue.
• Other Expenses: 12.55% of total revenue (₹815.18 Crore).
• Finance Cost: 2.52% of total revenue.
• Depreciation: 2.91% of total revenue.

Margin Analysis (FY 2023-24 vs. FY 2022-23) #

• Operating Margin (EBIT/Revenue, pre-exceptional items): FY24: 12.89%, FY23: 9.62%.
• Net Profit Margin (before exceptional items): FY24: 10.99%, FY23: 2.8%.
• Net Profit Margin (after exceptional items): FY24: 10.16%, FY23: 48.52%.

Non-Recurring Items (FY 2023-24 vs. FY 2022-23) #

• FY24: Exceptional loss of ₹53.89 Crore.
• FY23: Exceptional gain of ₹2720.60 Crore.

EPS Analysis (FY 2023-24 vs. FY 2022-23) #

• Basic EPS: FY24: ₹0.50, FY23: ₹2.64.
• Diluted EPS: FY24: ₹0.50, FY23: ₹2.64.

Audit & Compliance Analysis of Suzlon Energy Ltd. #

Auditor’s Opinion and Qualifications #

• Unqualified Opinion: Walker Chandiok & Co LLP issued an unqualified opinion on the consolidated financial statements, indicating compliance with Ind AS.
• Emphasis of Matter: Note 48(a) highlights a show cause notice from SEBI concerning transactions between the Company and its domestic subsidiaries. Management believes there is no material impact.
• Other Matter: Reliance on reports from other auditors for subsidiaries outside India, whose statements reflect total assets of 673.56 cr.
• Qualification: Audit trail feature in the accounting software was enabled at the application level but not at the database level, contrary to MCA requirements.

Key Accounting Policies and Changes #

• Accounting Standards: Compliance with Indian Accounting Standards (Ind AS) and Division II of Schedule III of the Companies Act, 2013.
• Changes in Accounting Policy: Amendment to Ind AS 1-Disclosure of Accounting Policies impacting the disclosure of accounting policies.
• Key Accounting Policies: Revenue recognition follows a five-stage model under Ind AS 115. Depreciation uses the WDV method. Intangible assets are amortized on a straight-line basis. Financial instruments are measured at fair value.
• Going Concern: Financial statements prepared on a going concern basis.

Internal Control Effectiveness #

• Auditor’s Opinion: A modified opinion was issued on internal financial controls with reference to consolidated financial statements.
• Material Weakness Identified: A material weakness was identified in a subsidiary (SGSL) related to the timely reconciliation of customer balances.
• Other Observations: The Risk Management Committee reviews risks and mitigation plans. A Risk Management Policy and Whistleblower Policy are in place.

Regulatory Compliance Status #

• SEBI Compliance: Compliance with SEBI regulations related to corporate governance (Listing Regulations) and the SEBI (Prohibition of Insider Trading) Regulations, 2015.
• Secretarial Standards: Compliance with applicable Secretarial Standards.
• Tax Compliance: General compliance with statutory dues like GST, provident fund, and ESI, with a slight delay in some professional tax deposits.
• Debt Covenants: Compliance with loan covenants related to working capital, debt-to-EBITDA ratio, and net worth.
• Audit Trail Requirement: Audit trail enabled in the accounting software, but disabled at the database level.

Legal Proceedings and Their Potential Impact #

• SEBI Show Cause Notice: Receipt of a show cause notice from SEBI regarding transactions and disclosures. A settlement application has been filed without admission of guilt.
• Tax Disputes: Ongoing tax disputes with various authorities.
• Contingent Liabilities: Claims against the Company not acknowledged as debts totaled ’ 148.47 crore.
• Litigation: Lawsuits filed by suppliers, and customers have disputed certain amounts.

Related Party Transactions #

• Disclosure: Related party transactions and outstanding balances are disclosed as per Ind AS 24.
• Transactions: Transactions primarily included sales, purchases, loans, interest, and guarantee with subsidiaries.
• Arm’s Length Basis: All related party transactions were stated to be in the ordinary course of business and on an arm’s length basis.
• Debt Assignment: Recognition of 4,453.01 cr as loan payable to SGSL following debt assignment as part of the Resolution plan in June 2020.
• Material Transactions: No material related party transactions exceeding 10% of the annual turnover.

Subsequent Events #

• Scheme of Amalgamation: Board approval for merger of Suzlon Global Services Limited (SGSL) with Suzlon Energy Limited (SEL) and Scheme of Arrangement for setting off debit balance in the retained earnings account, subject to regulatory approvals.
• ESOP Grants: Nomination and Remuneration Committee granted additional stock options under ESOP 2022 in May 2024.
• Forfeiture of Shares: Board approval for forfeiture of 8,194,063 partly paid-up equity shares on which call money was unpaid.
• Resignation of Independent Director: Mr. Marc Desaedeleer resigned from the directorship w.e.f. June 8, 2024.

Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: Accounting quality is impacted by a material weakness in internal control system.
• Regulatory Risk: SEBI investigation, audit trail qualification, and tax disputes pose regulatory risks.