A Rs. 8700 cr (USD 1.7bn) market cap wind turbine giant, with Rs. 15,000 cr (USD 3.0 bn) debt on balance sheet is struggling to raise Rs. 200 cr (USD 40 mn) for buying out the minority shareholding of another smaller wind turbine manufacturer in which it already owns 74% equity and 91% voting rights. Having exhausted traditional market fund-raising options, it is now knocking on the doors of obscure hedge funds and private equity players. Does that sound absurd? or does it? Suzlon Energy's troubles today are a result of some ill-timed ambitious expansion plans laid way back in 2005, mixed with some operational disasters in an industry with some very interesting peculiarities.
Wind energy does seem like a very simple business – manufacture turbines, blades and towers and sell them to wind-farm developers and utilities at a decent margin. When Suzlon was growing in India in 2000-2005, it was indeed that simple. The company had the technology to manufacture/source all components for machines upto 1.5MW. As wind energy was new in India, the company was quick to build land banks in wind-intensive states and sell wind farms to industrials interested in owning them. The company made a healthy 20 to 25% EBITDA margin and was further aided by two key factors - debt was cheap and technology requirements were not onerous (as the Indian peninsula is a low-wind regime area as opposed to sites in Europe, US and Australia).
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