SUZLON ENERGY: FINANCING PROBLEM
Q1) Discuss the various financing options available for a company to raise the required funds.
Basically, business firms need finance for two purposes:
1. To fund long-term decisions and
2. To meet working capital requirements

Long-term financing sources that a company employs:
1. Retained earnings
2. Equity capital
3. Preference capital
4. Debenture capital
5. Term loans/term finance

Short-term financing options adopted by a company are:
1. Short-term loans
2. Trade credit
3. Commercial papers

Q2) Analyse the business of Suzlon up to the FY2007-2008 since its inception.
Established in 1995, started as Textile Company and ventured into wind turbine due to energy need for textile business;
Founded by Tanti; started the buss with his own money of IRN135million
Beginning with a wind farm project he set forth to acquire the basic technology and varied expertise to set up Suzlon Energy Limited - India’s first home-grown wind technology company.
2000-market leader in india with 50%market share; Suzlon is a wind turbine company operating in India since 1995 It is world 5th largest wind turbine manufacturer. Global market share of 0.5% in 2008 it is market leader in Inida and with 50% market share in 2000. 100% growth in 2007 and 108% in 2006.

Inception of Suzlon and some problems in the beginning
• The concept of Suzlon came into being to satisfy the electricity needs of a textile co. owned by Tanti
• Tanti then set it up as a separate co. as he recognised the potential for wind power
• He faced problems to stabilize his co. and raise funds in the beginning
• He started the co. with his own money as investors were reluctant to invest in the co.
• Even the co. struggled to convince the bankers and make them support its corporate customers

Suzlon came up with an IPO

The growth and expansion plans of Suzlon

Q3) Evaluate the reasons for Suzlon's poor business performance.
Suzlon Energy hit by liquidity issues, took a 20 per cent cut on sales in the December 2012 quarter. Compared to last year, total income was lower by about Rs 1,000 crore at Rs 4,074 crore. This was not even enough to cover the operating expenses of Rs 4,563, leading to an operating loss of Rs 516 crore. Add to it interest cost and other non-operating expenses, and losses totalled a whopping Rs 1,155 crore. Not surprising then that the stock tanked nine per cent on Friday before closing at Rs 21.70 a share.

The poor financial performance is attributed to liquidity woes. Despite Suzlon’s huge order book position, it is unable to convert these into sales. Every additional unit of sales requires more funds due to the high working capital needs. Annualising the December sales, the working capital was almost 27 per cent of sales. In the present scenario, the company is unable to commit more funds to the business and thus grow revenues. Instead, its funds are used servicing debt and paying interest costs.

Importantly, prior to the corporate debt restructuring (CDR) approval, the company was facing difficulty in raising fresh funds. Also, in October it had to redeem foreign currency convertible bonds worth $221 million (Rs 1,160 crore). By the end of December 2012, the company’s debt stood at Rs 13,587 crore, on which it incurred an interest cost of Rs 457 crore.

To break even at the operating level and return to profitability, the company will have to book more revenues for which it needs more funds. For instance, last year in the December quarter, on total income of Rs 5,071 crore, Suzlon was able to cover operating expenses as well as interest cost of Rs 441 crore.

Interestingly, it has a strong order book of 5,700 Mw worth $7.7 billion (Rs 42,000 crore), about two times its financial year 2012 sales. If funding is in place the company can focus on execution as there are enough orders in hand. Also, the clients are more confident in awarding projects and helping with receivables following the approval of CDR. Thankfully, under CDR, Suzlon is expected to get enhanced working capital to the tune of about Rs 1,800 crore. Theoretically, going by the working capital to sales ratio, this could mean an additional Rs 6,000-8,000 crore revenue.

Further, under the CDR, there’s a two-year moratorium on principal and interest payments on term loans, a three per cent reduction in interest rates and a six-month moratorium on working capital interest. So, one can hope interest burden would ease in the coming months. It has also identified non-critical assets worth Rs 2,200-2,700 crore, that could be sold to help meet its liquidity needs. “There is some improvement in Q4FY13, but normal operations will start only in the first quarter of the next financial year,” said the company in its analyst conference call. Overall, things could get better based on the assumptions of higher liquidity and lower interest cost. Meanwhile, managing the huge debt and current liquidity situation will be an uphill task for the company.

Q4) Evaluate the various options through which Suzlon can raise funds to tide over the pending payments.
1. loan from bank
2. private placement
3. issue stock
4. selling stake in its sub