Suzlon Energy goes global to grow, but margins will be low

Wind energy major Suzlon Energy is attempting to expand its footprint beyond India to grow and de-risk its profile. From nothing in FY05, exports accounted for 8.5% of sales in ’06 – 81 megawatts of the 964MW sold by the company that year. Suzlon expects 40% of sales from overseas markets in ’07, most of it from the US, while it also has orders from Brazil and China. The company expects sales from India to fall to 20% in the long-term.

The US and China are also expected to be major markets with a similar share of sales, and Suzlon has already put up plants in these countries.

An overseas strategy is critical for Suzlon. The company has a market share of 40% in India, which accounted for 15% of the global market in ’05. However, it hasn’t had a presence in major markets like the US and EU so far. Globally, the wind power business is split among a handful of players. Companies such as Vestas and Enercon, who are big in these regions, are larger than Suzlon.

Looking beyond India will clearly drive growth for the company going forward – Indian orders account for only 12.5% of the company’s current order book of $1,467m.

However, margins on overseas orders are likely to be lower. In India, Suzlon provides full services to customers, which includes conducting wind studies and developing infrastructure in addition to supply of equipment. In foreign markets, the company’s role will largely be for supplying equipment.