Suzlon Energy Vs CG Power: India is currently experiencing a revolution in its energy space. The country, which has always been heavily dependent on burning coal, is now switching to something greener and cleaner.
The Companies we will look at are at the forefront of this space. Although the Companies are slightly different, one manufactures products that generate energy while the other manufactures products to store this energy.
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Suzlon Energy Vs CG Power
In today’s article, we will look at when both these companies came into existence and what they manufacture today. We will conduct a comprehensive fundamental analysis of their finances. Then we will reach a conclusion on which is the best stock to bet on India’s energy revolution.
Company Overview
Suzlon Energy
![Suzlon Energy Logo](https://tradebrains.in/wp-content/uploads/2023/11/Suzlon-Logo.png)
Suzlon Energy Limited is a global renewable energy solutions provider. It provides services such as design, manufacture, installation and maintenance of wind turbines and related renewable energy components.
The company was established by Late Shri Tulsi R. Tanti in 1995, in technical collaboration with Sudwind Energy, Germany. 1996 it built its first 0.27 Gw Wind Turbine Generator (WTG) in Gujarat.
Over the years, the Company has expanded its presence in more than 17 countries, built more than 12,700+ WTGs with 20.1 Gigawatts of cumulative capacity. Asia and North America are Suzlon’s largest markets contributing to 75% & 14% of the total installed capacity respectively.
The Suzlon Group has its in-house R&D centers in Germany, the Netherlands, Denmark & India. Apart from this, the Company has 14 manufacturing facilities across India, employing more than 6,000 professionals.
Suzlon offers its wind turbines in three specific variants: S111-120, S120-140 & S144-140/160
- S111-120: It is the smallest Wind Turbine offered by the Company which has a hub height of 120m from the ground. Its turbine rotors spread across 111m in diameter. It can generate 2.1 MW of power.
- S120-140: This is the mid-variant that can be placed at a maximum hub height of 140m above its ground and has slightly larger wings with a turbine of 120m.
- S144-140/160: This is the latest offering from the Company, with a peak capacity of producing 3 – 3.15 MW of maximum power. At 160m Nab height, these become India’s largest turbines. They are also 40-43% more efficient than the average variant offered by the Company.
Suzlon has a vast client base of Companies from both the private and public sectors. Public sector clients include GAIL, ONGC, IPCL, etc. The private players include like ACC, Bajaj, Hero, ITC and many more.
CG Power and Industrial Solutions Ltd
![CG power and Industrial Solutions logo](https://tradebrains.in/wp-content/uploads/2023/10/CG-power-logo.png)
CG Power (Crompton-Greaves) is a business whose history dates back as far as 1837 in Essex, England. Colonel REB Crompton started the business under the name REB Crompton to engage in the production of electrical equipment. The business then went on to merge with F&A Parkinson Ltd in England.
The company made its first presence in India, with the establishment of a wholly owned subsidiary Crompton Parkinson Works Ltdtogether with a sales organization called Greaves Crompton Parkinson Ltd. This led to the merging of the names Crompton & Greaves, the name that is synonymous with the Company today.
The Brand finally became Indian in 1947, as it was bought by an Indian industrialist Lala Karamchand Thapar. In 2020, the Murugappa Group through its subsidiary Tube Investments of India (TII) acquired a controlling stake in CG Power and Industrial Solutions Ltd.
CG Power’s business can be divided into two specific business segments: Industrial Systems and Power Systems
- Industrial Systems: The Company deals in manufacturing of High & Low – Voltage wires, discs and other automation tools for factories. It also produces heavy electric motors for Railways of both Electric and diesel-controlled locomotives.
- Electrical Systems: CG Power manufactures Power Transformers, Distribution and locomotive transformers, heavy duty switchgear and much more.
In addition to its India business, CG’s industrial systems business operates the Drives & Automation segment in Europe. With a production unit in Sweden and Germany, the European business deals with 4 core markets namely Nordic, Germany, Netherlands, and MEA through distributors and partners in multiple markets outside the home markets.
Industry Overview
According to the India Brand Equity Foundation (IBEF), India is the fourth largest in renewable energy and the fifth largest in solar power capacity. The sector is expected to grow at a CAGR of 16% doubling its capacity by 2026. The Government has allocated a budget of Rs. 19,500 Cr for manufacturing high efficiency solar modules through Production Linked Incentive (PLI) scheme for 280 GW addition of solar capacity by 2030.
As of October 2022, India’s installed renewable energy capacity (including hydro) stood at 165.94 GW, accounting for 40.6% of the total installed power capacity. The country has set a robust goal of reaching 500 GW of installed renewable energy capacity by 2030, with solar power expected to contribute more than 60% to that goal.
As of March 31, 2023, India’s total installed wind capacity stood at 42,633.13 MW, up 5.6% from the previous year. India is likely to add another 21 GW of onshore wind capacity between 2023 and 2027. According to the Central Electricity Authority (CEA), India’s electricity demand is expected to grow by 75% by 2031-32 and 170% by 2041-42.
Currently, Tamil Nadu has the highest total installed wind capacity of 10.01 GW, closely followed by Gujarat (9.97 GW), Karnataka (5.29 GW), Rajasthan (5.19 GW), Maharashtra (5.01 GW), Andhra Pradesh (4.09 GW) and Madhya. Pradesh (2.84 GW).
The Ministry of New and Renewable Energy (MNRE) has outlined a wind-specific renewable purchase obligation (RPO) plan for 2030 with a target of 8 GW onshore wind tender annually between 2023 and 2030. According to the MNRE, India will invite Renewable. Energy Project offers 50 GW per year, including 10 GW of Wind Energy Projects from FY24 to FY28.
The MNRE collaborated with the Danish Energy Agency to publish a conceptual plan for 15 offshore wind projects, paving the way for offshore wind development. The increase in commodity prices in Europe presents a significant opportunity for India in the wind energy supply chain, further boosting the wind energy sector in India.
Suzlon Energy Vs CG Power – Financials
Revenue & Net Profit
Suzlon Energy saw a 9% drop in its revenue falling from Rs. 6604 Cr in FY22 to Rs. 5990 Cr in FY23. The Company’s revenue has been on a roller coaster in terms of volatility. However, in the past 5 years, the Company has grown at a CAGR of only 4%.
CG Power saw a spectacular jump in revenue of 28%, from Rs. 5521 Cr in FY22 to Rs. 7040 Cr in FY23. Although the Company has grown revenues since FY21, its revenues have continued to be extremely volatile over the long term. The Company has seen a decline of 3% CAGR in the past 5 years.
Suzlon reported a Net Profit of Rs. 2887 Cr in FY23, a significant improvement from its Rs. 177 Cr loss in FY22. The high Net Profit is a result of an extraordinary gain worth Rs. 2720 Cr. Excluding the gain, its Net Profit would come to around Rs. 167 Cr.
CG Power’s Net Profits increased only marginally by 5%, from Rs. 913 Cr in FY22 to Rs. 963 Cr in FY23. This was due to the reporting of Profit from discontinued operations in FY22, which was higher than the current year.
Profit Margins
Suzlon & CG Power reported Operating Margins of 13.93% & 14.42% respectively. Suzlon turned Operating Profit positive only in FY21, while CG Power remained positive for the entire 5-year period.
In terms of Net Profit Margins, both Companies remained volatile. Suzlon reported its FY23 number as 48.36%, exponentially higher compared to CG Power’s 11.42%. Suzlon’s Margins are heavily impacted by regular one-off gains, while CG Power has been more stable since FY21.
Return Ratios
Extraordinary gains reported as a result of a change in its financial reporting led to Suzlon Energy reporting a Return on Equity of 262.69%. CG Power on the other hand also reported a strong ROE of 57.55%.
Return on Capital Employed by Suzlon Energy & CG Power came around 20.27% and 65.51% respectively. Both Companies significantly lowered their balance sheet, leading to better return ratios.
Debt Analysis
Despite working on reducing Debt, Suzlon’s Debt to Equity stands high at 1.73x. CG Power on the other hand successfully became almost debt free. Ever since CG Power was acquired by Tube Investments, the Company has been working on Corporate restructuring to improve its efficiency.
Both the Companies have a high Interest Coverage ratio of 7.87x & 36.57x respectively. This shows that both Companies earn enough in a year to pay off their interest bond.
Future Prospect
Suzlon Energy
- Suzlon, in recent times, has lost to other players like Adani Green or Tata Power. The Company plans to improve its market share and build its order book. It will also focus on expanding its wings in hybrid (wind and solar) space.
- In the past two years, the Company has sought to reduce debt and lower its balance sheet. It reduced its long-term borrowings by 73% in a year.
- Suzlon will work on developing futuristic windmills with an even lower Levelized Cost of Energy (LCOE) through better technology and products more specific to the market conditions.
CG Power
- CG is intensifying its focus on the export of Power transformers to emerging countries in Africa where the complete power grid is shifting to higher ratings from 132kV to 225kV & 330kV.
- It is also looking to expand its export footprint with dedicated strategies for Engines and alternators as well as Drives and automation. The Company wants to strengthen the distribution network in North America, Europe, Middle East and African regions.
- CG Power is also looking to expand its presence in the Cement, sugar, paper, steel and oil and gas sectors. It will do this by creating products of higher value in the specific segment.
Key Metrics Of Suzlon Energy Vs CG Power
We now understand both the business of the Companies and compare their finances well. Now let’s look at some Key Metrics.
Conclusion
We finally reach the end of our article Suzlon Energy Vs CG Power, having understood what these Companies do. One thing we can agree on is that both Companies operate in a very capital-intensive environment. This is what makes their earnings volatile, shifting between losses and profits.
However, since CG Power was acquired by Tube Investments, its finances have stabilised. The management has already succeeded in making it a debt free Company and has a clear focus on expanding its export market.
However, both Companies are still in a terrible state with some significant income in the form of extraordinary gains and not through ordinary business. Therefore, we suggest that Investors invest in these Companies with a ten-foot pole, because they still have a high risk.
So, what do you think of our understanding of these Companies? Do you think they are also destined for revolution just like the energy infrastructure of the country?
Written by Nasir Hussain
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