India

India

Suzlon poised for business transformation

INDIA: Suzlon Group looks set to join the list of wind-turbine manufacturers cutting staff after the company announced plans to streamline its operations across the group, including German subsidiary Repower. This is one of a number of structural changes Suzlon is making in response to both financial and market pressures.

The latest information came in Suzlon's Q1 announcement of a 10% increase in revenue, which chairman Tulsi Tanti described as disappointing. Tanti also said that the company is looking to reduce operational and manpower costs by 20%. This will be done as part of Project Transformation, a programme to bring about these reductions by the end of the fiscal year.

Deeper look

Project Transformation comes as Suzlon is midway through a separate review of how it runs its business. This one is looking at the structure of the group and how it operates. The review will determine, among other things, whether Repower is absorbed into the Suzlon brand.

In contrast, Project Transformation looks to be more of a jobs cutting exercise. Although Suzlon's statement avoided any mention of job losses, it admitted this was possible but was unable to give any details where this might occur. Asked whether the company's US operations would be affected, such as its assembly plant in Illinois, the company was again unable to respond.

Central to Suzlon's current problems appears to be the $360 million in foreign currency convertible bonds it repaid last month. To do so, the company sold around $60 million of non-critical assets, including its Chinese subsidiary, and raised the remainder through a new credit deal. However, despite the removal of the bonds, Kirti Vagadia, Suzlon's chief financial officer, said the company was suffering from a variety of problems such as a lack of working capital.

"Additionally, profitability was impacted by an adverse market mix, a high interest burden and notional forex (foreign exchange market) losses," Vagadia said. "We are in the process of enhancing our working capital facilities to execute our order pipeline and achieve a targeted 30% growth." He added that the company had had some success in its attempt to reduce its interest burden, with some lenders agreeing to reduce rates by 2.5%.

"This has been a disappointing first quarter," Tanti said about the Q1 results. "The macroeconomic environment, policy uncertainties in some markets, along with other external factors such as the depreciating Rupee continue to impact us."

He added: "This will be a defining year for Suzlon Group, even as our sector continues to face a number of challenges. I remain cautiously optimistic that we will end the fiscal in a satisfactory position."

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