Boosts Indian firm’s efforts to expand in European markets
MUMBAI: Laid low by rising interest costs and a liability on account of the cracks discovered in some of its blades supplied to US customers, Suzlon Energy finally has something to cheer.
Its associate REpower outperformed Street expectations and may soon join the billion-dollar club. REpower reported a 48.2% jump in revenues to €680 million. Profit for the year also increased three-fold to €21.1 million.
As a result, the Suzlon-REpower combine has become the third-largest wind power turbine company in the world after Vestas (Denmark) and Gamesa (Spain).
In 2008, REpower hopes to join the billion-dollar club. By then Tulsi Tanti’s Suzlon would have tightened its grip on REpower.
“The acquisition of REpower is paying off. It has already moved the Suzlon-Repower combine into the top three among global wind turbine makers,” says Krishnakant Thakur an analyst who tracks Suzlon for Edelweiss Securities.
REpower is an assembly line operator and depends on vendors for the supply of critical components. With Suzlon embarking on a major vertical integration, the synergies of sourcing components from its Indian principal partner will benefit REpower immensely.
About 80-82% of Suzlon’s finished products are made in-house, whereas for REpower it is about 62% of sales, says Thakur. REpower’s wind turbines are in the range of 5 MW. There is thus no overlap in the product portfolio as Suzlon’s wind turbines are pegged up to 3 MW.
The Suzlon share ended on a strong note on Tuesday, closing up 8% at Rs 269.90.
Suzlon — by making an aggressive bid for REpower last year — was counting on the rising demand in Europe for renewable energy.
REpower is the beach-head that will help Suzlon gain a sizeable presence in the lucrative European market.
At present, Suzlon holds 33.6% in REpower, while Areva holds a little less than 30% and Portugal-based Martifer owns about 23%. Suzlon has the right to acquire the REpower stake from its partners in the next couple of years.
The performance of REpower will also help Suzlon iron out the creases that emerged from forex and the cracked blade episode.
Suzlon’s interest costs in fiscal year 2007 rose to Rs 276.3 crore from Rs 64.8 crore a year ago. Estimates reveal that the interest costs would almost double to 500 crore by next year.
The company had borrowed extensively to fund its ambitious acquisitions and organic growth plans.
There is a chance that the company may have to make more provisions for the cracked blades and the delay in order execution. But over a couple of years, Suzlon with its plans to vertically integrate will see a dramatic rise in capacities.
