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Debt-hit Suzlon Energy plans drastic steps to cut costs by 20% in FY13

According to reports, burdened by mounting losses and huge debt, Suzlon Energy is gearing up to take drastic measures to reduce costs by 20% in the current financial year, chief financial officer Kirti Vagadia told ET.

Reluctant to share details of the plans with the media, Vagadia said the company would cut costs and reduce the number of staff. Suzlon has 13,000 employees globally, which includes around 9,000 persons in India. “We are trying to reduce 20% of fixed costs. Fixed costs for us are manpower and operational expenditure,” Vagadia said.

Suzlon’s global peers, such as Vestas and Gamesa, have undertaken large-scale layoffs amid slowdown in the sector and uncertainty over the extension of the Production Tax Credit in the US, which was the key driver for rapid growth of jobs and manufacturing capability in the country.

In India too, earlier this year, the government withdrew incentives given to the wind energy sector casting a shadow on the sector’s growth.

Last week, German engineering major Siemens said that it has put on hold its plans to open a manufacturing facility for wind solutions in India given the uncertainty in the market. Analysts foresee global wind installations contracting by almost 10% in 2012 due to lower demand from the US.

“We believe a decline in the global wind market will intensify pricing and margin pressure for wind equipment manufacturers, including Suzlon, not only in India but also globally. We note that Suzlon has already been losing market share in India (49% in 2009, 41% in 2010 and 35% in 2011) and 2012-13 could also be tough given the increasing competition,” HSBC Global Research said in a report in June.

Suzlon’s plans to cut costs come at a time when it has reported a huge consolidated loss of Rs 849 crore in April-June as against a profit of Rs 60.1 a year ago, burdened by low volumes, interest costs and foreign exchange losses.

The biggest quarterly loss in the last two months weighed on the shares which hit a new 52-week low of Rs 16.35 on Tuesday. Analysts said cost-cutting measures would be imperative for Suzlon given that its income rose only 9% year-on-year in the first quarter of 2012-13 while expenditure soared 29% in the period.

The next big challenge for Suzlon would be to repay a $209-million (Rs 1,164 core) liability on foreign currency convertible bonds (FCCBs) in October, amid low cash flows. Earlier this month, the company had redeemed FCCB liability worth $360 million by repaying in cash.

“We have a robust plan to repay our commitment in October and we are confident of meeting our liability,” Vagadia said. “We have targeted to raise $100-200 million through sale of non-core assets, of which we have already done sales worth $100 million. We have identified assets which are non-critical and we are working on merger and acquisition transaction,” he added.

Vagadia said that despite the dismal show in the first quarter of FY13, Suzlon would be able to meet growth guidance of 30% in the year driven by timely execution of its order book worth around Rs 39,700 crore.

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