ECONOMY ANALYSIS

The Indian economy is one of the fastest growing economies in the world. The Indian
economy grew at 9 per cent in 2007-08 and 9.6 per cent in 2006-07 Growth has been
supported by market reforms, rising foreign exchange reserves, huge foreign direct
investment (FDI) inflows, development in various sectors and a flourishing capital market. In
this growth rate industrial sector, service sector and manufacturing sector have logged in 10.9
per cent, 11 per cent and 12.3 per cent growth rate respectively in 2006-07. As far as savings
and investments are concerned both showed good growth rate as a proportion of GDP. Gross
saving rate as a proportion of gross domestic product (GDP) has 34.7 per cent in 2006-07 and
gross investment rate has 35.1 per cent in 2006-07. The 2007-08 Fiscal Year, India's foreign
exchange reserve is at US$ 309.72 billon 2007-08. Indian forex reserves stand at US$ 300.01
billion as on August 08, 2008. India achieved a record food grain production of 227 million
tonnes in 2007-08, Food grain output grew by 4.23 per cent in 2007-08, nearly double the
average annual growth of 2 per cent between 1994 and 2004. Overall industrial production
grew by 8.5 per cent during 2007-08. Significantly, manufacturing sector grew at the rate of
8.8 per cent and construction at 9.8 per cent. Services grew by 10.8 per cent in 2007-08. The
trade, hotels, transport and communication segment grew by 12 per cent, while the financing,
insurance, real estate and business services sector grew at 11.8 per cent. Exports grew by
23.02 per cent during 2007-08 amounting to US$ 155.5 billion, imports increased by 27.01
per cent to US$ 235.9 billion in the same period. To explain in depth about the Indian
economy, following points are taken into consideration by me. These factors are really very
important to know about how Indian economy is being growing and are helpful to clear the
picture about the economy.
1. GDP (Gross Domestic Product)
2.Inflation
3.FDI (Foreign Direct Investment)
4.Industrial Production Index
5.Stock Market Index
6.Fiscal Deficit
7.Per capita income
8.FII (Foreign Institutional Investor)

1. GDP (Gross Domestic Product)---

The gross domestic product (GDP) is one of the measures of national income and input for a
country's economy. GDP is defined as the total cost of all completed goods and services
produced within the country in a particular period of time (usually a
year).
The formula to compute or measure GDP:
GDP = Consumption + gross investment + government spending + (Exports – Imports)
Here,
Consumption and investment are stands for expenditure on final goods and services.
Consumption is further divided in two parts such as private consumption and public or
government spending. In gross investment depreciation of capital stock is not taken into
consideration otherwise it will be net investment and it converts the GDP into net domestic
product. Export minus Import is also called as net exports and this equation adjusts by
subtracting the part of expenditure not produced domestically (the imports), and adding back
in domestic area (the exports).
Recent growth trend in Indian economy---
India’s Economy has grown by more than 9% for three years running, and has seen a decade
of 7%+ growth. This has reduced poverty by 10%, but with 60% of India’s 1.1 billion
populations living off agriculture and with droughts and floods increasing, poverty alleviation
is still a major challenge. World GDP, also known as world gross domestic product or GWP -
gross world product, calculated on a nominal basis, was estimated at $65.61 trillion in 2007
by the CIA World Fact book. While the US is the largest economy, growth in world GDP of
5.2% was led by China (11.4%), India (9.2%) and Russia (8.1%). India’s GDP is expected to
be 10% in the year 2011.
Sector wise GDP 2003-04 2004-05 2005-06 2006-07 2007-08
Pharmaceutical 4.06 6.6 5.24 8.06 10.03
Agriculture 9.96 -0.05 5.92 3.76 4.55
Industry 6 8.51 8.02 10.63 8.09
(a)Manufacturin 6.63 8.65 8.98 12 8.78
g
(b)Mining 3.09 8.15 4.87 5.7 4.75
(c)Electricity 4.77 7.9 4.68 5.98 6.27
Service 8.84 9.87 11.01 11.18 10.66
(a)Construction 11.98 16.14 16.46 11.98 9.81
(b) Trade, hotels 12.01 10.69 11.51 11.82 12.02
(c) Finance 5.58 8.69 11.41 13.92 11.79
(d) Community 5.58 6.85 7.21 6.89 7.25
GDP at factor 8.52 7.85 9.4 9.62 9.03
cost
From the above graph we can say that GDP growth is positive. All four sectors
pharmaceutical, Agriculture, Industry and Service are growing well. But the agriculture
sector which has lowest contribution is not a good sign for India. When we talk about the
service industry it is growing very fastly and brought up boost in the economy in near future.
Overall GDP can be concluded as good compare to other developing countries.
India’s GDP growth released for the last quarter of 2009-10 turned out to be robust, it showed
a
record growth of 8.6 percent as compared to the growth of 5.8 percent in the same quarter of
previous year. For the fiscal 2009-10 India's economy grew by 7.4 percent which is an
upward
revision from earlier estimates of 7.2 percent due to higher-than-anticipated growth in
agriculture,
mining and manufacturing sectors.

2. Inflation---
The Indian method for calculating inflation, the Wholesale Price Index, is different to the rest
of world. Each week, the wholesale price of a set of 435 goods is calculated by the Indian
Government. Since these are wholesale prices, the actual prices paid by consumers are far
higher. According to the 2008 Economic Survey Report, India’s inflation rate was targeted by
the Reserve Bank of India (RBI) to be 4.1%. The price of basic goods such as lentils,
vegetables, fruits and poultry were expected to slow their rise. However, the beginning of
2008 has seen a dramatic rise in the price of rice and other basic food stuffs. Inflation has
climbed steadily during the year, reaching 8.75% at the end of May. There was an alarming
increase in June, when the figure jumped to 11%. This was driven in part by a reduction in
government fuel subsidies, which have lifted gasoline prices by an average 10%. In July
2008, the key Indian Inflation Rate, the Wholesale Price Index, has risen above 11%, its
highest rate in 13 years. This is more than 6% higher than a year earlier and almost three
times the RBI’s target of 4.1%. After the July month because of highest inflation rate
government takes various steps to control and reduce inflation. Because of these steps in
august inflation is come down to around 10.45% which signals reduction in inflation. In
September inflation is further decrease to around 10% and after that in next month
inflation moves in single figure and in December last week inflation rate was at 6.35%.
According to me the target of a inflation is set by the government is approximately 3% in
the year 2009 which is shown to be possible. Recently government has reduced the price of
petrol Rs.5p/l, Diesel Rs.2p/l andRs.25 in LPG. These are the steps taken by government to
control inflation. Recently government has reduced the price of petrol Rs.5p/l, Diesel Rs.2p/l
andRs.25 in LPG. These are the steps taken by government to control inflation. Inflation is
already dropped at 5.62% as on 29th Jan 2009.After studying the inflation rate in different
years we can say that rate for the year 2008 is highest in last 6 to 7 years which can not
considered good for the Indian economy, but if we compare inflation rate from may 2008 to
Dec 2008 there is a huge decrease in it and on the basis of that we can say that inflation rate
will definitely come down to 3%, which is good for the economy.
The overall inflation averaged for the month of April 2010 stood at 9.6 percent as compared
to theinflation of 1.3 percent seen in the same month of previous year. This rise in price index
is on
account of dearer food articles and fuel products.
3. FDI (Foreign Direct Investment) and FII’s—
The generous inflow of FDI and FII is playing a significant role in the economic growth of
our country. In 2007-08, India's FDI touched US$ 25 billion, up 56 per cent against US$
15.7billion in 2006-07.
India has been rated as the fourth most attractive investment destination in the world after
China, Central Europe and Western Europe in terms of prospects of alternative business
locations. A large portion of the FDI has been flowing into the skill-intensive and high value-
added services industries, particularly financial services and information technology. India is
continuously attracting FDI because of its cheap labor, low costs, excellent language and
technical skills. The Indian Government's approach towards foreign investment has changed
considerably during the past decade. Foreign investment, which was permitted only in
restricted industries under exceptional conditions, has been liberalized across the board,
excluding certain restricted or prohibited industries Currently, FDI inflows into the Indian
real estate sector are estimated to be between US$ 5 billion and US$ 5.50 billion.

The total foreign investments attracted in 2009-10 amounted to USD 66.5 billion compared to
USD21.3 billion during 2008-09. However, the numbers were almost same when foreign
direct
investment for both the years were being compared.

4. Foreign exchange reserves stood at USD 279.6 billion in April 2010 from USD 251.7
billion April2009. This increase is subject to the recent surge in the foreign investments
inflows.

5. In the opening month of 2010-11, growth came from the three sectors, mining,
manufacturing and electricity. As per the use-based classification, growth numbers were
also found to be remarkable; especially, the capital goods sector, this achieved a growth of
72.8 percent indicating a rise in investment sentiments in the economy. The consumer
goods sector appeared to have performed well as it posted growth of 14.4 percent in April
2010. This growth is mainly fuelled by high growth in consumer durables, registering an
increase of 37 percent in April 2010. Fifteen (15) out of the seventeen (17) industry sectors
witnessed positive growth in the first month of the present fiscal (2010-11) as compared to
the growth numbers in the same month of previous year.
6. Growth in six core infrastructure industries accelerated by 5.1 percent in April 2010 as
compared to 3.7 percent in April 2009. This growth is attributed to high performance in
the sectors such as

7. finished steel, crude petroleum, and petroleum refinery.

8. The broad money supply increased by 0.8 percent in April 2010 compared to growth of 2.6
percent in the same month of 2009. The growth in bank credit to commercial sector was
seen to decelerate by (-) 0.8 percent.

9. The aggregate deposits expanded by 1.6 percent in April 2010 , calculated over March
2009
numbers . This expansion in aggregate deposits, was however, marginally higher in the
same month of previous year.

10. The rising indices show that strong sentiments among the investors. Investment sentiments
in the Indian stock market BSE Sensex was maintained above 17K in April 2010, whereas
NSE index NIFTY rose to stay above 5K points.

11. There has been a decline by 0.3 percent in the fiscal deficit in the opening month of the
current financial year 2010-11 as the deficit has stepped down from Rs 54158 crore in
April 2009 to Rs 53993 crores in April 2010.

12. The growth in gross tax revenue was observed to enter the positive quadrant during the
month of April 2010. This is mainly on account of strong revival in the collection of
indirect taxes and partly on account of collection in direct taxes.

Power industry analysis

Now, the Power & Energy Infrastructure sector in India is poised for a major take-off. The
APDRP (Accelerated Power Development & Reforms Programme 2002 - 2012) has seen an
addition of around 22,000 MW during last five years and during the next five years, a
capacity addition of over 78,000 MW has to be setup by 2012. (A commitment of 15,600
MW of capacity additions per annum).
The Market Potential to sustain the GDP Growth rate of India @ 8% plus per annum needs
the power sector to grow at 1.8 - 2 times the GDP rate of growth as espoused by economists,
planners and industry experts. This would mean a YOY capacity addition of 18,000 - 20,000
MW to achieve this ambitious plan of moving India to a Developed Economy status, as an
Economic Global Powerhouse. The Target Mission: ‘POWER for all by 2012’ would mean
achieving the target of 1000 KH (Units) of per capita consumption of electricity by this
period.
To achieve this goal, following milestones are critical: -
• Attract US $ 250 Billion Investment into the sector. (FDI & Domestic Investment
Combined)
• Adequate Capacity Growth to Sustain GDP Growth at 8% plus.
• Reliable & Quality Power On 24 x 7 bases, at least in Urban & Industrialized areas.
• 100% Rural Electrification with Adequate & Qualitative Power for irrigation purpose.
• Increasing the Role of Hydel & Renewable Energy in the Energy Mix.
• Urgent need to develop the alternatives, both in the Fuel & Technology terms.
• Focus on implementation (Outcomes are more important than Outlays)
As espoused by the Indian Prime Minister, Dr. Manmohan Singh
Power sector after independence
Significant changes have been observed in the Indian power sector after independence. Major
characteristics of the growth are as follows
 Installed capacity was 1713 MW in 1950. Now it is increased up to 89090 MW.
Electricity generation increased from 5.1 billion units to 420 Billion units.
 Per capita consumption of electricity increased from 15 kWh in 1950 to about 33
kWh. Still this is much less than world average. As mentioned earlier, per capita
consumption is aimed to be at 1000 kWh by 2012.
 About 80% to 85% of the villages electrified. It means the electricity has reached 80
to 85% of villages. Not every household in these villages is getting electricity. By
2012, India is poised to achieve 100 % electricity penetration in every household in
every village.

After of liberalization
Before the liberalisation took place in India in 1991, the growth in power sector was very
sluggish. There has always been a huge power deficit as power generation could not meet the
demand. With the growth in demand being exponential, still power deficit is a big problem.
But some accelerated positive initiatives were taken by Indian Government after
liberalisation. Some of them are mentioned below:
 Government is encouraging private players not only to produce power but also
carrying out its transmission and distribution activities. In effect there has been
significant Increase in private participation.
 Government has come with the provisions for determining the tariff smoothly. So the
ambiguity involved in complicated tariff rates has been done away with.
 To encourage all the states in active participation in the power generation and
distribution, government has placed various policies and plans ( for detailed
information, please refer ‘regulations and policies’ section of this paper)
 To regulate the power industry at centre level and also at state level, regulatory
authorities like Central Electricity Regulatory Commission (CERC) & State
Electricity Regulatory Commission (SERC) are appointed.
Major players

NTPC
NTPC, India's largest power company was set up in 1975 to accelerate power development in
India. It has emerged as an ‘Integrated Power Major’, with a significant presence in the entire
value chain of power generation business.
NTPC is ranked 317th in the ‘Forbes Global 2000’ ranking of the World’s biggest
companies. With a current generating capacity of 30,644 MW, NTPC has embarked on plans
to become a 75,000 MW company by 2017.
NHPC
NHPC Limited (Formerly known as National Hydroelectric Power Corporation Ltd.), A
Govt. of India Enterprise, was incorporated in the year 1975 with an authorised capital of Rs.
2000 million and with an objective to plan, promote and organise an integrated and efficient
development of hydroelectric power in all aspects. Later on NHPC expanded its objects to
include development of power in all its aspects through conventional and non-conventional
sources in India and abroad.
At present, NHPC is a Mini Ratna Category-I Enterprise of the Govt. of India with an
authorised share capital of Rs. 1,50,000 Million . With an investment base of over Rs. 3,
17,000 Million Approx., NHPC is among the TOP TEN companies in the country in terms of
investment.
Initially, on incorporation, NHPC took over the execution of Salal Stage-I, Bairasiul and
Loktak Hydro-electric Projects from Central Hydroelectric Project Construction and Control
Board. Since then, it has executed 13 projects with an installed capacity of 5175 MW on
ownership basis including projects taken up in joint venture. NHPC has also executed 5
projects with an installed capacity of 89.35 MW on turnkey basis. Two of these projects have
been commissioned in neighbouring countries i.e. Nepal and Bhutan.
NPCIL-Nuclear Power Corporation of India Limited is a Public Sector Enterprise under the
administrative control of the Department of Atomic Energy (DAE), Government of India.
The Company was registered as a Public Limited Company under the Companies Act, 1956
in September 1987 with the objective of operating the atomic power stations and
implementing the atomic power projects for generation of electricity in pursuance of the
schemes and programmes of the Government of India under the Atomic Energy Act, 1962.
NPCIL is a MOU signing Company with DAE. Presently NPCIL is operating seventeen
nuclear power plants with total installed capacity of 4120 MW has five reactors under
construction totalling 2660 MW capacity. NPCIL has achieved more than 285 reactor years
of safe nuclear power plant operating experience. NPCIL operates plants with motto ‘Safety
first and production Next’. NPCIL generated about 90 billion units of electricity in the X plan
(2002-2007) exceeding the set target by about 10%, and added 1180 MW capacity against the
target of 1300 MW capacity, thus realizing 91% of the target capacity addition.
POWERGRID
POWERGRID, a Navratna Public Sector Enterprise, is one of the largest transmission
utilities in the world. POWERGRID wheels about 45% of the total power generated in the
country on its transmission network. POWERGRID has a pan India presence with around
71,500 Circuit Km of Transmission network and 120 nos. of EHVAC & HVDC sub-stations
with a total transformation capacity of 79,500 MVA.POWERGRID has also diversified into
Telecom business and established a telecom network of more than 20,000 Km across the
country. POWERGRID has consistently maintained the transmission system availability over
99% which is at par with the International Utilities.
TATA power
India’s largest private sector power utility, Tata Power has an installed power generation
capacity of above 2785 Mega Watts, with the Mumbai power business, which has a unique
mix of Thermal and Hydro Power, generated at the Thermal Power Station, Trombay, and the
Hydro Electric Power Stations at Bhira, Bhivpuri and Khopoli, accounting for 1797 MW.
Reliance
Reliance Power Limited is part of the Reliance Anil Dhirubhai Ambani Group and is
established to develop, construct and operate power projects domestically and internationally.
The Company on its own and through subsidiaries is currently developing 16 large and
medium sized power projects with a combined planned installed capacity of 35,460 MW, one
of the largest portfolios of power generation assets under development in India.
Suzlon
Conceived in 1995 with just 20 people, Suzlon is now a leading wind power company with
over 14,000 people in 21 countries with operations across the Americas, Asia, Australia and
Europe. It has got fully integrated supply chain with manufacturing facilities in three
continents. It is rich with sophisticated R&D capabilities in Denmark, Germany, India and
The Netherlands. Market leader in Asia and 3rd largest wind turbine manufacturer in the
world, Suzlon Market Share rose to 12.3% thereby making Suzlon 3rd largest wind turbine
manufacturing company in the world.

The challenges and opportunities faced by Indian Power sector are:

• Low per-capita consumption of electricity
• Estimated demand growth of Power at 6-7%
• Estimated investment of Rs. 8,00,000 crores in power sector over next 10 years
• Privatization of SEBs
• Rationalization of the tariff structure
• Politically-sensitive issues such as subsidies
Indian Power Sector has some of the major strengths such as abundant coal reserves to
support thermal power generation, huge potential for hydro-electricity generation and
abundant engineering skills to commission and run large-scale projects and a large consumer
base.
But at the same time Indian Power Sector has number of weaknesses/problems such as,
• Inadequate power generation capacity
• SEBs’ weak financial health
• Lack of optimum utilization of existing generation capacity
• Inadequate inter regional transmission links
• Alarming level of Transmission and Distribution Losses
• Abysmally low level of collection efficiency
• Inadequate metering of consumers
• Large-scale theft
• Cross subsidization of Power and Skewed tariff structure
• Energy shortage of about 7.3% and peaking demand shortage of 12.5%
• Low PLF of Generating stations
FDI
The huge size of the market in the power sector in India and high returns on investment are
important factors in boosting FDI inflows to power. 100% FDI is permitted to this sector
under automatic route in almost all the power sectors in India except the Atomic energy.
There are huge opportunities of FDI in power sector in India. The power sector in India has
grown significantly and is an important part of infrastructure. Investment potential in power
sector in India is huge due to the market size and returns on investment capital. Past few
years have witnessed an outstanding growth in the power sector especially the sectors based
on renewable sources of energy. Opportunities of FDI in the Power Sector in India
Opportunities of Foreign Direct Investment (FDI) in the Power Sector in India exist in -
 Hydro Projects

 Captive Power

 Ultra Mega Power Projects

 Nuclear Power

 National Grid Program

 Rural Electrification

 Trading

 Renewables

Important aspects of FDI in the power sector of India are -

 100 percent Foreign Direct Investment is allowed under automatic route in almost all
the power sectors in India except the Atomic Energy

 Power projects involving generation and distribution tasks are allowed in all types and
sizes
 As per the Electricity Act 2003, trading in power is activated. Power trading
inherently means a transaction where the price of power is negotiable and options
exist about whom to trade with and for what quantum. In India, power trading is in an
evolving stage and the volumes of exchange are not huge.

 A duration of 30 years will given as a renewable license period

 Thermal power plants will get a return of 16 percent on equity and will get 68.5
percent PLF

 The import of equipments will be entitled to 20 percent of import duty

 Power generating projects will have a five year tax holiday with five more years
which will have a deduction of 30 percent taxable profits.

Impact of technology
The MoP is promoting the use of information and technology, through several
applications and e-governance initiatives, for achieving efficiency in transmission and
distribution. The ministry is also implementing several measures for implementing e-
governance for bringing in transparency and accountability in the functioning of the
ministry.
 Hydropower net project It is a web-based application for monitoring of hydro
projects by the MoP and sharing of data by hydro utilities and the CEA. This system
has remote data updating facility and is presently being updated by hydro utilities and
the CEA.
 Public Grievances Redressal and Monitoring System, or PGRAMS, and
Centralized PGRAMS, or CPGRAMS: This is an online system for handling public
grievances. The centralized version was launched in 2007.
 MIS (Management Information System) on power sector scenario: It is a web-
enabled application, providing information on various activities undertaken by the
MoP.
 Use of clean coal technology: The Government of India is making concerted efforts
to reduce the rising levels of CO2 emissions, which are currently about 9% of the
global emissions. It has been promoting the use of clean coal technologies for meeting
future energy needs of the country. IGCC (integrated gasification combined cycle)
technology is one such cutting-edge technology in clean coal technologies. It
 produces significantly less greenhouse gases, has operating efficiency of around 40%,
reduces water consumption by about 40%, and also produces less solid waste.
SWOT ANALYSIS

Strengths
Well established and vast T & D network
An extensive network of T&D lines has been developed in India over the years for
withdrawing the power produced at various generating stations and distributing the same to
consumers. Lines of appropriate voltages are laid, depending on the quantum of power and
distance involved. The state of Andhra Pradesh has the largest T&D network of 803 367 ckt
km in the country. Besides, the states of Gujarat, Karnataka, Madhya Pradesh, Maharashtra,
Rajasthan, Tamil Nadu, and Uttar Pradesh have more than 0.4 million ckt km of T&D lines.
Non conventional energy resource base
India has substantial non conventional energy resource base and technologies to meet
growing power requirements by tapping this energy. The MNRE (Ministry of New and
Renewable Energy) laid down Guidelines for Promotional and Fiscal Incentives by State
Governments for Power Generation from Non-conventional Energy Sources. To address
environmental issues related to the power sector, the Government of India has started various
initiatives, including promotion of renewable energy sources for power generation through
schemes such as RPO (renewable purchase obligation), wherein certain quantum of
electricity distributed must be purchased from renewable sources. Fifteen states have
committed to the RPO. A mechanism for RECs (renewable energy certificates) is also being
evolved, which would provide a platform for carrying out trading between renewable energy
surplus and deficit states.
Regulatory mechanism for tariff setting established
Emergence of strong and globally comparable central utilities: NTPC,
POWERGRID. National Thermal Power Corporation) is the largest power generation
company in India. Forbes Global 2000 for 2009 ranked it 317th in the world. It is an Indian
public sector company listed on the Bombay Stock Exchange although at present the
Government of India holds 84.5%(after divestment the stake by Indian government on
19october2009) of its equity.

Weaknesses
Persisting shortages
Peaking shortages are about 12% on an all India basis. India’s track record in adding power
generating capacity is poor: in the five years to 2007, the country added 20,950MW of
capacity, against a target of 41,110MW. According to data from CEA, the western region is
the worst affected in the country with around 19% power shortage, with states such as
Maharashtra and Gujarat reeling under a shortage of 23.7% and 23.4%, respectively. States
draw power from a transmission and distribution grid and overdrawing by one state could
hurt the others.
Power theft
Power theft is an increasing menace; the culprits use the latest in technology: remote sensing
devices, high power electromagnet with capacity to effect recordings of meters.
Pitfalls in billing and revenue collection:
The free power given to farmers is unmetered, so their consumption is not known.

Opportunities
Natural sources
Use of digital technology
Rural electrification
Untapped hydro power in northeast

Threats
High AT & C losses (Aggregate technical and commercial losses)
AT&C loss (defined as the difference between the input energy and the units of energy from
which the payment is actually realized) has come down further in 2006/07, to 32.07%.
Compared to the last two years, this marks an improvement in efficiency, of over 2%
Waste generation leading to environmental damage

Michael Porter Analysis

 Treat of New Entrent: LOW
> high fund requirment
> strict govt. policy regarding raw material and
prices.
> entry and exit barrier

Competitive Rivalry:
MODERATE
Bargaining Power of
> demand and supply
Supplier: HIGH Bargaining Power of
gap
> number of Buyer: LOW
> creation of power
companies-40 > no subsitute
excnange
> brand image of > high demand and
> no product
major power supply gap
differentiation ony
companies
> manufacturing process
is different

Product and Technology Development: HIGH

> other sources wind energy, bio fuel, solar energy

Company Analysis:
Company Overview
Suzlon Energy Limited (Suzlon) is a wind power company. The company along with its
subsidiaries engages in designing, developing and manufacturing of wind turbine generators
and related components such as rotor blades, control panels, nacelle cover, tubular towers,
generators and gearboxes. Further, the company also provides consultancy, design,
manufacturing, installation, operation and maintenance services as well as is involved in wind
resource mapping, identification of suitable sites and technical planning of wind power
projects. The company principally operates in India, China, The Americas, Europe, New
Zealand, South Korea, South Africa and Australia. Suzlon, a major force in Global Wind
Industry (Ranked 5th Worldwide) by installed capacity. It provides end-to-end power
solutions. The company holds nearly 10.5% share in the global market. Now, the company
has the total production capacity of over 3000 MW. The company currently has a combined
manufacturing base of 2,700 MW of annual capacity, and is undertaking an aggressive
expansion program to expand its base to 5,700 MW of capacity in FY2009.
Aggressive growth
The company has emerged as a formidable force in Mergers & Acquisitions. In March 2006,
it acquired Hansen Transmissions, the world's second largest turbine gearbox maker, for
US$585m.In June 2007, Suzlon finally saw off French nuclear group Areva in a hardfought
battle for Repower, paying US$1.9bn for its German rival.
STRENGTHS OF SUZLON
1. Integrated business model
Suzlon Energy Ltd. Is having an integrated business model that they don’t have to go
to other suppliers for raw products. They have very good vertical integration for
supporting their production activities. So they don’t have to be dependent for supplies.
2. In house technology and design capabilities
They are having enough in-house technology development capabilities as they have
skilled employees so that they can design their products of their own. They don’t have
to go to outsider experts for designing the products.
3. Market leadership in India and global presence
It is the only company of India which is having a global presence and as it is a market
leader it can have benefits of its brand image.

4. Prudent acquisitions and alliances

Suzlon has entered in to very prudent acquisition which is helping it for
increasing its main strength of vertical integration as well as provides chance of
global expansion also.For example: It has acquired HANSEN which was the worlds
second largest manufacturer of gear boxes.
5. Global Production
As Suzlon has a global presence, it produces the products which can be used globally.
Though it is not that much technically developed as compared to other global players,
but its products can work at global level also.
6. Pricing Power
As Suzlon is the market leader in India, it can drive the price and others will follow it.
But , it is now necessary for it to produce and sell at low cost and the production
must be cost effective, because new global players are entering in to the market.
7. Diversified Product line
Suzlon is producing each type of wind turbines working in India. Ithas a wide
range of products that has been sufficiently designed to cope with the specific
conditions and to that give optimum results.
8. Sophisticated and modernized research and development facilities
9. Highly qualified and energetic work force

WEAKNESSES OF SUZLON
1. Operational Risk
Suzlon as a market leader don’t have that much efficient operation management
team. We can say this because there are many complaints of customers
regarding their operating staffs who provide after sales service and it is also
looking up to some extent in operating the business. So proper implementation of
strategies is lacking.
2. Growth in Assets diminishing Growth in Profits
Since last few years, Suzlon has focused more on integration. So it has gone for
acquisition and backward integration which blocks its investments in assets.
 Thus its growth rate of profits has declined. So, compared to growth in assets the
growth in profits is low which is not favourable for the firm.
3. Unsupportive Stock Prices
When a company’s stock price is more than its book value, it can be
considered as a good sign for investors, but currently due to the unfavour
market conditions Suzlon’s stock prices has fallen below the book value, while
other competitor’s share prices has not declined below than their book value.
4. Unfavourable Ratings
Before sometime, only Moody, a credit rating agency has down-graded Suzlon
Energy Limited due ti its financial weaknesses. They have also found the improper
operation management at Suzlon.
5. Improper Working capital Management
Earlier Suzlon was a financially strong company. But the previous down-turn in
the world economy has brought the company in a critical situation. And Suzlon is also
facing this problem because of improper working capital management. Many experts
also think that Suzlon has paid more for its HANSEN acquisition.
6. Weak Strategic Financial Management
Suzlon when expanded its business through RE Power, it has signed a contract
that Suzlon will pay 65 million Euro in December 2007, 30 milliono in April 2009
and final payment of 175 million Euro will be paid in May 2009. It can be found out
that the cost of acquisition is too high and it has been provided that Suzlon will
arrange this payments from external sources as well as from working capital
which directly affects companies performance domestically as well as globally.
Such lacuna in appropriate and timely decision making in finance is the biggest
weakness of Suzlon.

OPPORTUNITIES FOR SUZLON

1. Environmental Awareness
Now a days environmental awareness has been increased among the population
of India. They have started saving energy and trying to reduce pollution. This
factor is favourable for the wind power energy as its an option to thermal
power, which is also responsible for polluting the environment. So wind energy is
having benefit of no pollution as it produces pollution free wind energy. And Suzlon
is the market leader in India in this sector which is the backup force for it.
Therefore, there is a high growth opportunity for Suzlon in future horizon.
2. Government Initiatives
As government has also understood the importance of natural resources, the govt. is
in favour for wind energy which uses wind and provide pollution free energy.
Govt. of India is supporting firms those provide untraditional energy. As a part
of this industry suzlon can gain advantage of govt. initiatives. Govt. is also
providing tax exemption on their earnings and also providing subsidies for
encouraging investment in backward areas of society to generate employment.
3. Untapped Offshore Market
Till now none of the Indian player other than Suzlon has gone for global
expansion. So it can have advantage of covering untapped offshore market as an
Indian player. Suzlon is also having strong financial backup compared to its
competitors in Indian market.
4. Steady Growth in Demand
 As awareness of wind energy is increasing and people understood the
importance of renewable energy sources which is cost effective, this leads to steady
growth in demand giving an opportunity to business more.
5. Vast coastlines of India and low cost
In India we have a vast coastal line which is very supportive to establish wind
mills at lower cost. So this can be a favourable factor for this industry as well as will
give an ample opportunity to Suzlon to extract more from this natural presence.

THREATES TO SUZLON
1. Intense Competition
The govt. of India has approved FDI limits up to 74%. This can be a
favourable factor for the whole industry, but for Suzlon it is a threat. Though it is a
market leader, its technology efficiency is not up to the mark as compared to
global giants like VASTAS. So entry of global players will affect Suzlon a lot.
2. Foreign Exchange Risk
As Suzlon is having a global presence, there is default risk of exchange rate
fluctuations. As the exchange rates are fluctuating highly since last couple of years, it
has become more risky for Suzlon to do business globally.
3. Technology Risk
Earlier technology was not become obsolete so fast, but currently technological
development is very fast and new technology is been introducing in to the market
very fast. So the company has to implement the new developed technology to
compete in the market where if is having more corporate customers who generally
know the product very well before using it.
4. Objections to Wind Power
The main objection to wind power is due to other environmental costs. Many
wind parks remain shut-down for a part of the year because of bird migration
patterns and numerous turbine related bart-deaths. Furthermore, turbines take up
lands; though larger turbines produce more power, they also take more land to
operate safely and effectively, and since any man-made installation can have
adverse effects on terrestrial ecosystems. Hardcore environmentalists may object
to the installation of wind parks, lobbing the govt. to look for other sources of
energy. Obviously, the oil and coal industries will lobby against govt.
subsidization of clean energy sources. Basing on this industry, effective lobbying
could greatly reduce the amount of government support given to the wind power
industry.

Strengths:
Skill Amalgamation
 Cost Reduction---It has blended the best resources across the globe. It has
competitive R&D in Europe. The Manufacturing Units in India and China proves to
be cost effective. Suzlon has continuously reduced capital cost per unit of power
generation and also has maintained a consistent new product launch schedule.
 Reverse outsourcing----The Company has international head offices in Aarhus,
Denmark where it has wide base of wind energy expertise and large network of
components suppliers. The skilled workforce is available to the company. Globally
 renowned wind energy companies’ presence like Vetas and NEG Micon makes it a
hub of talented workforce and technology.
End to End Solutions---Planning of Wind Farm Systems, Land Acquisition, Development
and Technical Design., Infrastructure and Equipment, O&M services. Suzlon offers
customers' endto-end wind energy solutions, including wind resource mapping, site
development and installation, and finally operations & maintenance services in India. This
allows Suzlon to offer Indian customers economies of scale, and eliminates the need for
customer involvement in the complex process of wind farm development.
Vertical Integration and Amalgamation-- Suzlon is a vertically integrated wind turbine
manufacturer – with manufacturing capability along the full value chain – ranging from
components to complete wind turbine systems.
Market leadership in India and Global Presence- The industry's outlook to turn favorable
by 2010 as easing credit and lower costs boost demand from the U.S., Europe, China and
India.
Growth-Growing at 29% CAGR for past 10 years, higher than industry rate.
Integrated Business Model-The Company plans to enter in to Solar and Bio-fuel Business.
The company is conducting feasibility study for the further approach in this business. This
will help the company to produce 10-20 MW additionally. It has become global/ world-wide
sponsor for CNN International innovative capsule on environment preservation.

Innovation- Suzlon’s R&D effort includes a highly successful practice of leveraging skill
and knowledge pools in the industry and allied areas the world over. This has resulted in a
R&D network located across geographies.

Human Resource-Suzlon’s true strength is seen not only in its technology, quality and
market share – but also its people. The Suzlon Group boasts one of the largest teams in the
wind energy business, totaling over 13,000 people from over a dozen
nationalities in operations around the world. Suzlon in its vision for future growth aims to
rank among the top three wind turbine manufacturers worldwide, maximizing growth while
maintaining margins to generate maximum value for all
stakeholders.
The Electricity Act, 2003, specifies that a minimum percentage of power generation should
come from non-conventional energy sources. For example, the Karnataka government has
mandated 5% from non-conventional sources, and the Madhya Pradesh government 0.5%
This reflects the government’s intention of reducing the dependence on fossil fuels and cut
down carbondioxide emission. Moreover, perennial power shortages assure a sustained
growth in demand for power generation.

Weakness:
Management Structure-The Company is fully dependent on promoter Tulsi Tanti. In fact
the board of directors have only two Tanti brothers as executive directors. Three other board
members are non-executive independent directors.
Capital Intensive-Wind power projects require high upfront capital investment per kWh of
energy. So demand will be sensitive to interest rates.
Overseas Business-Suzlon Energy is expanding overseas, where major players have
established markets. The advantage of new markets and new orders may take time, while
marketing, personnel and other initial costs could jump. Hence, this may
put pressure on the margin in the short run. Risks involved in overseas business are also
higher, Company is facing liquidity crunch to pay its debt recently promoters had sold their
holding in the company. So expansion plan may further increase the
burden on the company balance sheet.
Operational Risk
_ Cash Conversion-Company revenue mostly comes from the International clients that
involves exchange rate risk.
_ Growth in Assets overweighting Growth in Profits-
Root cause analysis shows cost overrun due to retrofitting in winter which is an operationally
challenging season results in low productivity and inefficiencies. As it is a rate sensitive
sector reduction in commodity prices, logistics costs, inventory, and overall project costs
affects the business as a whole.
_ Basic Infrastructure: Disruptions in telecommunications and basic infrastructure could
harm our ability to provide O&M services, which could result in client dissatisfaction and a
reduction of our revenues.
_ Local Units- The construction and operation of wind power projects has faced opposition
from local communities and other Parties.

Financial Performance:
_ Profitability- The Company faces foreign exchange loss of nearly Rs 435 crore because of
that 500 million zero coupon convertible foreign Currency Convertible Bond (FCCB) which
is still pending are due in 2012. The blade retrofits and consequentially availability charges of
nearly Rs 307 crore is another concern area and the third is the mark-to-market (MTM) loss
of nearly Rs 215 crore which is on account of foreign exchanges forwards options contract
which the company has taken to hedge. These are the three important areas – the foreign
exchange loss, blade retrofits and MTM loss which can affect the company’s profitability in
coming time.
_ Leverage-The total debt on the company’s book stands nearly Rs 14,860 crore .The
Redemption of 500 million Zero Coupon Convertible which are due in 2012 is
nearly Rs 273 cr.
_ Ratings—CRISIL has downgraded the rating of the Company to BBB/P3 from A-/P+2.It
reflects the significant delays in Private equity infusion into Suzlon resulting in a sharp
deterioration in its gearing, in contrast to the expected improvement.
_ Net Income- The allocation of Equity Shares pursuant to Employee Stock Option Plan will
result in a change to income statement and will adversely impact company
net income
Opportunities:
Environmental and Government initiatives- The projections of Ministry of Non-
Conventional Energy Sources says10% of the 2, 40,000MW (i.e. 24,000MW) installed
capacity requirement by the year 2012 A.D. will come from renewable. It
is envisaged that 50% of this capacity or 12,000MW may come from wind power. India has
now gained sufficient technical and operational experience, and is now on the threshold of
"taking off" in wind power.
Favourable tax exemptions-The Wind Energy industry enjoys special tax benefits from
government and subsidies from regulatory bodies. Better tariffs, policy support and optimistic
outlook are driving investment in this sector.
Untapped offshore Market-According to the estimate the demand for power is still
high in India even during the recent global slowdown. The gap between supply and demand
is increasing .According to the CEA estimates by 2012 the energy
demand is expected to increase by 44%.
Steady source of demand- In US by 2030, 20 % of the electricity would be generated
by wind energy as compared to today's 1%. In Europe, wind is expected to account for 34%
of new generating capacity. It'll account for 46% from 2020-2030.
Mexico is investing more than half a billion US dollars and plans to build a wind farm of 250
MW within ten years. Kenya plans to erect a wind farm that will provide up to 30 percent of
its electricity needs.
Green Power: The existing power sector emits around 40% of global carbon dioxide
emissions and there are only three options to substantially reduce these emissions between
now and 2020: energy efficiency, fuel switching, and renewable, predominantly wind power.
Wind power could produce 12% of the world’s energy needs and save 10 billion tones of
CO2 within 12 years. Thus addressing the environmental concerns all over the world.
Threats:
Intense competition- The Indian wind industry was placed third in terms of total
installed capacity of wind electricity in the world some years back. It suffered a great setback
when this rank shifted down to fifth after the United States, Germany,
Denmark, and Spain in later years. The fastest growing wind markets are Turkey, Mexico,
Brazil, China, and Poland.
Over dependence on US- USA accounts for 50% sales for Suzlon. Recent economic
slowdown results affects the States wind energy sector which results in liquidity crunch and
investment setback in India.
Foreign Exchange Risk-Fluctuation in the value of the Rupee against other currencies
could adversely affect the cost of our borrowings and repayment of indebtedness, the costs of
our raw materials and revenues from exports.
Technology Risk- The failure to keep technical knowledge confidential could erode
company competitive advantage.
Decreasing Price of crude- There is a direct correlation between Crude prices and
Wind energy demand. If the crude suffers from low prices which indicate the overall fall in
demand in infrastructure and energy demand then it would
affect the growth of the Sector.
Interest rate increase-Company agreements with whollyowned overseas subsidiaries
are subject to transfer pricing regulations. These agreements may be subject to regulatory
challenges, which may subject to higher taxes and adversely
affects the earnings.
Further Cancellation of orders- The construction and operation of wind power
projects is subject to regulation, including environmental controls and other regulations ,
global slowdown may hamper the demand for the energy in the host
countries which are most affected by the recession further blade quality issue in China and
Australia is a concern for the company
Financial Ratios analysis
Ratios 2005 2006 2007 2008
Current Ratio 2.32 2.98 3.37 2.73
Quick Ratio 1.59 2.05 2.40 2.12
Debt-Equity Ratio 0.44 0.13 0.33 0.46
Proprietary Ratio 0.84 0.90 0.94 0.97
Earning Per Shares 42.80 28.57 37.65 9.31
Ratio
Working Capital 2.08 1.55 1.54 1.58
Turnover Ratio
Fixed Assets Turnover 9.44 10.53 10.36 9.65
Ratio
Stock Turnover Ratio 3.96 3.56 3.96 4.70
Inventory Holding Period 90.90 101.12 90.90 76.59
Gross Profit Ratio 22.17 23.54 21.78 21.85
Operating Ratio 24.20 24.75 23.15 23.09
Interest Coverage Ratio 9.26 15.88 11.09 10.44