A file photo of Suzlon’s windmill power generation in Rajasthan. (Mint)
A file photo of Suzlon’s windmill power generation in Rajasthan. (Mint)

Why debt restructuring alone cannot save Suzlon Energy

  • Lack of funds and tight liquidity conditions have hampered execution, resulting in a loss of market share
  • In an industry that constantly invests to lower costs of energy, playing catch-up can be tough for Suzlon, unless it finds a strategic partner

Suzlon Energy Ltd gained nearly 9% on Thursday following reports that a large lender has approved a debt restructuring scheme, segregating sustainable and unsustainable debt, and allowing the firm to repay it over 20 years. Mint also reported the development.

The company’s net worth is negative and it has defaulted on loan repayments. Its gross earnings are not even sufficient to meet employee and operating expenses, leave alone finance costs. In the nine months to December, it had posted an operating loss (before interest and depreciation) of 273 crore, against a profit of 265 crore a year ago.

The lenient terms may bring some reprieve but can take it only so far. The primary challenge for Suzlon and its peers is the adverse market conditions in the wind energy sector, which is yet to recover from the disruption caused by the competitive bid-based capacity additions.

The move by both the central and state governments to beef up capacity is yielding limited results. Against the December 2019 target of adding 5,000 megawatts (MW) of wind capacities for the bids awarded by central and state utilities, only about 2,000MW is estimated to have been commissioned, said Icra Ltd.

Graphic by Sarvesh Kumar Sharma/Mint
Graphic by Sarvesh Kumar Sharma/Mint

Add payment delays and the threat of tariff renegotiations, and developers have reasons to be wary. Consequently, business volumes have taken a hit.

The impact is more pronounced for Suzlon, considering that lack of funds and tight liquidity conditions have hampered execution, resulting in a loss of market share. Its market share in total installations halved from 41% in 2018 to 19% in 2019, and it ceded leadership to Siemens Gamesa, said a study by research firm BloombergNEF (BNEF).

In an industry that constantly invests to lower costs of energy, playing catch-up can be tough for Suzlon, unless it finds a strategic partner. “If Suzlon’s project execution challenges continue, it could provide an opening in 2020 to Siemens Gamesa to strengthen its market leadership in India. Other international manufacturers could also try to eat into the former industry leader’s market share," said Shantanu Jaiswal, head of India research, BNEF.

Suzlon is, however, not alone. Globally, original equipment manufacturers are looking to manage costs more efficiently, and consolidation seems to be the way forward.

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