Renewable energy sector doing much better than the power sector: Tulsi R. Tanti, Suzlon

Calling the recent fall in stock price, at the back of a stake sale, 'unwarranted', Tulsi Tanti, chairman and managing director of Suzlon Energy says that the company was aware of the market concerns on the sale, however, needed the fund for promoter group companies catering to Suzlon. As analysts have been slamming the stock for the high debt/equity ratio, Tanti says the company's net debt to equity ratio stands at 1.65 times. And says, "The company is targeting a debt/equity ratio of 1.4 times by end FY12, and hope to have it at 1 by end FY13."While Suzlon received an order yesterday from GAIL to build and commission wind turbines, going forward, Tanti says the company could look at selling wind farm investments. Further, he also adds that the Indian markets are witnessing robust growth as the business shows a growth of about 40%, on a year on year basis. Below is an edited transcript of Tulsi Tanti's interview to CNBC-TV18. Also watch the accompanying video.

Q: Do you think you will be able to tide over this phase given the pressures or do you think it will be difficult to fix?

A: We are looking at the balance sheet very seriously but 1.6 times net debt/equity ratio is there, which is the size of the operations that we are running globally. So, USD 5 billion is top line and USD 7 billion is the order book situations. It is quite comfortable but we are working on it. We have sold out the Hansen, the USD 200 million raised out of that will support in to reduce the debt. Going forward, we are continuously announcing our requirement of the growth but at same time we are focusing heavily some of the receivable and debts. The companies are doing very well in the last 2-3 quarters, we are generating good cash out of the business and nearly 40% growth is coming from last year to this year. Hence, this will support us to generate sufficient cash and to reduce our working capital and also to reduce our debt.

Q: While the leverage amount itself may not seem that high, the concern is on what the real size is in terms of debt being more than Rs 13,000 crore and that your interest cost went up so sharply this quarter. Could you sent out some kind of guidance from Suzlon in terms of how much you plan to scale debt down by the end of FY12 and going into FY13?

A: The net debt-equity ratio is 1.6 times, in the current financial year we are targeting it to come down to nearly 1.4 and the next financial our target is 1:1. Suzlon's competitive edge, strength and the value that we have, going forward it will support us good because we are extremely well positioned in some of the important markets like India, Germany, Canada, UK and the offshore market which is quite promising. Nearly 30% growth comes from those markets and provides good profitability. We are the highest gross profit margin company today and we have optimized cost structure. We are quite comfortable to bring down our net debt-equity ratio to 1:1 in the next financial year.

Q: There was some surprise in the market that the promoters choose to sell 2% stake and that too at such a depressed price for Suzlon. Why did you have to do it at such a low price and what will the money be used towards?

A: I understand the market concern but I wasn't expecting a stake sell of 2% to trigger such a market reaction. However, we have to understand Indian markets are showing high growth, the last year to current year we are doing 40% growth and our plan for next year is to achieve another 40% growth. We have to develop good level of land and power pipeline which is the basic need of our growth point of view. The promoter group companies are doing these development activities for Suzlon, exclusively and we need some investments to be done. Hence, if you are not investing in rallying time in the current financial year, we cannot achieve more growth in the next financial year. We have a very strong order intake in Indian markets and lot of good IPP investment are increasing, based on the very strong policy framework for the renewable energy. Although the overall power sector is not doing good in India, the markets for renewable energy is doing extremely well, the new additional energy in Indian market is nearly 20-25%. Hence, promoters would like to invest in a pipeline, in order to maintain our growth of 40% and that was the key requirement, however, I am surprised by the small amount by selling, the value going down which was unexpected.

Q: You had to sell 2 crore shares to raise some capital, given the kind of debt you have and to meet those debt obligations over the next couple of years, you may need recourse to equity capital and at this current beaten down price you may have to dilute at the kind of price as you did last week and that's something which worries a lot of investors. Do you think it is evitable that you would need equity capital to support debt obligation payments over the next 4-8 quarters?

A: The debt proposition is nearly USD 1.2 billion for working capital. We are in the high growth rate market, currently, and the last two quarter we have delivered 35% growth. USD 0.8 million is our long term debt. In the last financial year, we have done the long term ring financing, hence, we have focus currently to optimize our operations, generate internal cash be it to reduce our working capital cycle and spare out the maximum cash and some of the none-core asset of the wind farm investment in our group that we are disinvesting as well. Hence, we can reduce our debt substantially. It is very difficult in current market environment to access the capital market. At the same time we are leveraging the synergy benefit between REpower and Suzlon and we are quite comfortable of the next financial year to announce our 2% market share globally and also we will increase 2% EBIT margin in the next financial year just because of the synergy. We are expecting nearly 200 million euros from the synergy benefit; hence, it will give good headroom to reduce our short term or medium term debt. We also have majority investment of nearly Rs 10,000 crore assets in REpower. It is quite comfortable but at same time we have to focus on our net debt-equity ratio coming down to 1:1 in the next financial year.

Q: Is it an option for the company to look at selling some of its none-core assets because there has been expectations that perhaps some kind of stake sale could be done on that accord, in order to raise some money and alleviate your debt situation?

A: We have some of the asset like wind farm investment in India, which is nearly USD 50-60 million that we can sell. Also, some of the receivables and inventory in global market are out other options. Hence, it will give us good support with USD 200 million. Moreover, the H2 is always higher than H1 and based on our given guidance of Rs 25,000 crore we are comfortable to deliver and H1 will also give us support for more liquidity to reduce debt.

Calling the recent fall in stock price, at the back of a stake sale, 'unwarranted', Tulsi Tanti, chairman and managing director of Suzlon Energy says that the company was aware of the market concerns on the sale, however, needed the fund for promoter group companies catering to Suzlon. As analysts have been slamming the stock for the high debt/equity ratio, Tanti says the company's net debt to equity ratio stands at 1.65 times. And says, "The company is targeting a debt/equity ratio of 1.4 times by end FY12, and hope to have it at 1 by end FY13."While Suzlon received an order yesterday from GAIL to build and commission wind turbines, going forward, Tanti says the company could look at selling wind farm investments. Further, he also adds that the Indian markets are witnessing robust growth as the business shows a growth of about 40%, on a year on year basis. Below is an edited transcript of Tulsi Tanti's interview to CNBC-TV18. Also watch the accompanying video.

Q: Do you think you will be able to tide over this phase given the pressures or do you think it will be difficult to fix?

A: We are looking at the balance sheet very seriously but 1.6 times net debt/equity ratio is there, which is the size of the operations that we are running globally. So, USD 5 billion is top line and USD 7 billion is the order book situations. It is quite comfortable but we are working on it. We have sold out the Hansen, the USD 200 million raised out of that will support in to reduce the debt. Going forward, we are continuously announcing our requirement of the growth but at same time we are focusing heavily some of the receivable and debts. The companies are doing very well in the last 2-3 quarters, we are generating good cash out of the business and nearly 40% growth is coming from last year to this year. Hence, this will support us to generate sufficient cash and to reduce our working capital and also to reduce our debt.

Q: While the leverage amount itself may not seem that high, the concern is on what the real size is in terms of debt being more than Rs 13,000 crore and that your interest cost went up so sharply this quarter. Could you sent out some kind of guidance from Suzlon in terms of how much you plan to scale debt down by the end of FY12 and going into FY13?

A: The net debt-equity ratio is 1.6 times, in the current financial year we are targeting it to come down to nearly 1.4 and the next financial our target is 1:1. Suzlon's competitive edge, strength and the value that we have, going forward it will support us good because we are extremely well positioned in some of the important markets like India, Germany, Canada, UK and the offshore market which is quite promising. Nearly 30% growth comes from those markets and provides good profitability. We are the highest gross profit margin company today and we have optimized cost structure. We are quite comfortable to bring down our net debt-equity ratio to 1:1 in the next financial year.

Q: There was some surprise in the market that the promoters choose to sell 2% stake and that too at such a depressed price for Suzlon. Why did you have to do it at such a low price and what will the money be used towards?

A: I understand the market concern but I wasn't expecting a stake sell of 2% to trigger such a market reaction. However, we have to understand Indian markets are showing high growth, the last year to current year we are doing 40% growth and our plan for next year is to achieve another 40% growth. We have to develop good level of land and power pipeline which is the basic need of our growth point of view. The promoter group companies are doing these development activities for Suzlon, exclusively and we need some investments to be done. Hence, if you are not investing in rallying time in the current financial year, we cannot achieve more growth in the next financial year. We have a very strong order intake in Indian markets and lot of good IPP investment are increasing, based on the very strong policy framework for the renewable energy. Although the overall power sector is not doing good in India, the markets for renewable energy is doing extremely well, the new additional energy in Indian market is nearly 20-25%. Hence, promoters would like to invest in a pipeline, in order to maintain our growth of 40% and that was the key requirement, however, I am surprised by the small amount by selling, the value going down which was unexpected.

Q: You had to sell 2 crore shares to raise some capital, given the kind of debt you have and to meet those debt obligations over the next couple of years, you may need recourse to equity capital and at this current beaten down price you may have to dilute at the kind of price as you did last week and that's something which worries a lot of investors. Do you think it is evitable that you would need equity capital to support debt obligation payments over the next 4-8 quarters?

A: The debt proposition is nearly USD 1.2 billion for working capital. We are in the high growth rate market, currently, and the last two quarter we have delivered 35% growth. USD 0.8 million is our long term debt. In the last financial year, we have done the long term ring financing, hence, we have focus currently to optimize our operations, generate internal cash be it to reduce our working capital cycle and spare out the maximum cash and some of the none-core asset of the wind farm investment in our group that we are disinvesting as well. Hence, we can reduce our debt substantially. It is very difficult in current market environment to access the capital market. At the same time we are leveraging the synergy benefit between REpower and Suzlon and we are quite comfortable of the next financial year to announce our 2% market share globally and also we will increase 2% EBIT margin in the next financial year just because of the synergy. We are expecting nearly 200 million euros from the synergy benefit; hence, it will give good headroom to reduce our short term or medium term debt. We also have majority investment of nearly Rs 10,000 crore assets in REpower. It is quite comfortable but at same time we have to focus on our net debt-equity ratio coming down to 1:1 in the next financial year.

Q: Is it an option for the company to look at selling some of its none-core assets because there has been expectations that perhaps some kind of stake sale could be done on that accord, in order to raise some money and alleviate your debt situation?

A: We have some of the asset like wind farm investment in India, which is nearly USD 50-60 million that we can sell. Also, some of the receivables and inventory in global market are out other options. Hence, it will give us good support with USD 200 million. Moreover, the H2 is always higher than H1 and based on our given guidance of Rs 25,000 crore we are comfortable to deliver and H1 will also give us support for more liquidity to reduce debt.