Tulsi Tanti: Reviving Suzlon
Image: Kedar Bhat fo Forbes India
Profile: Chairman & managing director, Suzlon
Rich List Rank: 74 (ranked 8th in 2005, and 10th in 2007)
Wealth: $690 million
•Has questioned every key business assumption, virtually torn down every element of strategy and rebuilt a whole new business.
By the end of this year, Suzlon will become the most profitable wind energy company in the world.” Sitting in his new second floor office at One Earth, the impressive new campus he’s built for Rs. 430 crore on the outskirts of Pune, Tulsi Tanti sounds unusually composed and confident for a man who’s emerged from a near-death experience in the past 36 months.
Apparently, for him, it’s now no longer a question of survival. “I am not concerned about this or the next quarter. Today, 70 percent of my focus is on building the organisation for the long-term opportunity,” he says.
Ever since September 2008, when the financial crisis struck, Tanti had faced an uphill struggle to even stay afloat. He was grappling with a product recall crisis, an over-leveraged balance sheet, a messy acquisition of German wind energy major REpower Systems, a spate of senior level exits and, as credit markets froze, the market for wind turbines all but dried up.
Till then, Tanti had come to be regarded as one of the poster-boys of India Inc’s globalisation story. His was a story of entrepreneurship and unbridled ambition as Suzlon became the fastest growing wind energy company in the world, selling wind turbines to nearly 25 countries, across the US, Europe, Latin America and Asia. In 2005, when Tanti entered the Forbes list of the 40 richest Indians, not many had even noticed him. By 2007, he had created a business that was valued at Rs. 57,000 crore in less than 13 years.
Late last week, Suzlon’s second quarter results provided the first signs of a company on the mend. Suzlon reported revenues of Rs. 9,397 crore for the first six months of the 2011-2012 financial year, up 52 percent from last year. It also reported a profit of Rs. 108 crore, against a loss of Rs. 1,281 crore for the first six months of the same fiscal. But, at Rs. 11,100 crore, Tanti’s net debts are still substantial. However, Suzlon’s debt-equity ratio, which had ballooned to 2:1 at the height of the crisis, now stands at a more manageable 1.7:1.
But the numbers don’t quite tell the full story of Suzlon’s revival. During this 36-month period, Tanti has hunkered down, questioned every key business assumption, virtually torn down every element of his strategy and rebuilt a whole new business.
Take, for instance, the cost of wind energy itself. Suzlon was always one of the lowest cost producers of wind turbines in the world after the Chinese. In the past 18 months, Tanti has used the crisis to restructure the business even further. Around 2007-08, the cost of one unit of power from wind energy cost Rs. 5, compared to Rs. 2 to Rs. 2.75 for coal. Today, the cost of wind power has come down to between Rs. 3.25 and Rs. 3.5, while the price of power from coal has increased to Rs. 3 to Rs. 3.10.
Today, as the wind energy market begins to reboot — 36 gigawatt of new capacity was added last year, nearly half of it coming from the emerging markets of Brazil, Africa, China and India — Suzlon has once more emerged as one of the fastest growing wind energy players, and the most profitable as well (gross margins of 35 percent).
In a Lurch
But, in 2008, when disaster struck, Suzlon was completely caught on the wrong foot. “In September 2008, when Lehman Brothers collapsed, our sales team could not believe that the market was not there,” says Robin Banerjee, chief financial officer at Suzlon. The company still believed that it was a temporary situation and orders would come. Most of them were used to a situation where demand for wind turbines far out-stripped its supply.
“But December came and there were still no orders, and then there was nothing in January or February either. By March 2009, we realised it was going to be a long term,” adds Banerjee. For Tanti, this was a period for deep introspection.
“For about six months, Mr. Tanti questioned all the assumptions on which he had built the business. He wanted to understand why Suzlon was in the middle of such a big crisis,” says Sumant Sinha, former COO of Suzlon and now managing director of ReNew Power, an independent power producer. Tanti went back to the drawing board. After the go-go years, he realised it was time to consolidate operations. The crisis provided the perfect opportunity. “If I am in a growth situation, then I cannot consolidate my organisation, and for the past decade we had just been growing. So, now I had the chance to build the organisation for the next 10 years. Because a lot of change is needed, like product, organisational structure, management bandwidth and resource planning,” says Tanti.