PROJECT SUBMISSION – Financial Statement Analysis

BY
Group 9

Sub Code: FIN 6022(S1)/VB

Financial Statement Analysis
Submitted to Prof. Vrishali Bhat
Submission Date: 24/09/2022

Submitted by:
Shubham Bhachawat (21F255)
Saurabh Singh (21F252)
Rishabh Bharadwaj (21F246)
Bridhi Saraf (21F215)
Question 3 A)
Renewable Energy Industry: -
The fourth most desirable renewable energy market in the world is the one in India. India ranked
fourth in the world for installed renewable energy capacity as of 2020, behind solar power in fifth
and wind power in fourth.

The installed capacity for renewable energy

has increased over the last few years, with a Installed Capacity for Different
CAGR of 15.92% between FY16 and FY22. RES (as of April 2022) (GW)
The government's increased backing and the 4.85
economy's improvement have made the 10.68
sector more appealing to investors.
Renewable energy will be crucial as India
attempts to satisfy its own energy needs,
which are anticipated to total 15,820 TWh 55.33
by 2040.

As the government focuses on electric 40.53

vehicles, green hydrogen, and the
production of solar equipment, India's
renewable energy sector is anticipated to
Solar Power Wind Power Bio-Power Small Hydro
grow in 2022 with a probable investment of
US$ 15 billion this year.

As increasingly effective batteries are utilized to store electricity, the cost of solar energy is predicted
to decrease by 66% by 2040 compared to the current cost, accounting for approximately 49% of all
electricity production. By using renewable energy sources instead of coal, India will save Rs. 54,000
crore ($8.43 billion) yearly.

By 2029–2030, the Central Electricity Authority (CEA) predicts that thermal energy generation will
decline from 78% to 52%, while the share of renewable energy generation rises from 18% to 44%.

Company Profile: -
Suzlon Energy is one of the leading providers of renewable energy in India. The whole lifespan of
wind energy projects is covered by its services. It develops, produces, and designs wind turbine
generators (WTGs). Additionally, it offers related services, giving it a significant presence throughout
the entire value chain of wind generation. It operates in 17 nations and on six continents. The
greatest wind energy capacity installed in India was 13.14 GW. In FY22, Suzlon earned a total of Rs.
6,603.97 crore ($843.46 million).

Suzlon's wide selection of durable products, supported by its cutting-edge R&D and more than two
decades of experience, are made to provide customers with the best performance, highest yields,
and highest return on investment possible.
The philosophy that guides Suzlon's unique activities to save the environment, build up
communities, and promote responsible progress is sustainable development. Suzlon's corporate
headquarters are located at One Earth - Pune, one of the greenest corporate campuses in the world
and a Platinum LEED (Leadership in Energy and Environment Design) certified and GRIHA 5-star site.

Suzlon has rapidly increased its global reach since its founding in 1995 and established a name for
itself via technology and product innovation. Suzlon is a leader in the field of wind energy and has
operations in 17 nations at present across Asia, Australia, Europe, Africa, and the Americas. Suzlon
wind energy solutions are now consistent with innovation and competitive advantage, with more
than 12,380 wind turbines installed on six continents and 14 top-notch production sites in India.

SWOT Analysis: -
Strengths of Suzlon: -

1. Integrated Business Model

2. End- to-end Business Solutions
3. Vertically Integrated Supply Chain
4. Market Leader
5. FII/FPI or institutions increasing their shareholding in last few years

Weaknesses of Suzlon: -

1. Low Interest Coverage Ratio

2. Promoter holding has decreased over last quarter: - -0.93%
3. Promoters have pledged 88.5% of their holding
4. Delivered a poor sales growth of -12.3% over past 5 years

Opportunities of Suzlon: -

1. Government Policies favoring Wind Energy

2. High demand in Off-Shore Market and Foreign Markets
3. Global presence across 5 continents

Threats To Suzlon: -

1. Increase Trend in Non-Core Income

2. Nuclear Energy with highest capacity factor
3. Environment degradation due to giant wind turbines

Porter’s Five Forces Analysis: -

Threat of New Entry: - (Low)

1. Huge Capital Requirement

2. Suzlon as a brand is preferred by clients
3. Advanced Technology Required
4. Access to Resources
5. Quality Control Standards

Supplier Power: - (Low to Moderate)

1. High Demand for components

 2. Suzlon has successfully adopted Backward integration which has reduced its dependency on
suppliers
3. For the suppliers forward integration is very costly

Buyer Power: - (Low)

1. Few Potential Buyers in the market

2. Buyers are Sensitive to pricing
3. Power purchase structure
4. In India, switching cost is very high
5. Backward integration for buyers is difficult

Threat of Substitutes: - (Moderate)

1. Other renewable technologies

2. Price substitution from conventional sources
3. Although financial incentives are there for wind energy from government

Competitive Rivalry: - (Moderate to High)

1. High Exit Costs in the market

2. Competitive Pricing in the market
3. Large global players like Vestas, GE wind etc.

Question 3 B)
Strengths

1. The company has shown a good profit growth of 23.35% for the Past 3 years.
2. The company has shown a good revenue growth of 16.68% for the Past 3 years.
3. The company has an efficient Cash Conversion Cycle of -49.10 days.

Limitations

1. The company has a low EBITDA margin of -49.26% over the past 5 years.
2. The company has negative book value.
3. The company is trading at a high EV/EBITDA of 136.91.
4. Promoter pledging is high as 88.54%.

Question 3 C)
Altman Z- Score calculation: -
A metric called the Altman Z-score can be used to predict if a company will declare bankruptcy. The
Altman Z-score, a statistical variant of the classic z-score, is based on five financial measures that
may be computed using information from financial statements of a corporation. It determines
whether a corporation has a high likelihood of going bankrupt using profitability, leverage, liquidity,
solvency, and activity. A corporation may be on the verge of bankruptcy if its Altman Z-score is close
to zero, while a score closer to 3 indicates sound financial standing. Companies with scores above 3
are less likely to file for bankruptcy than those with scores below 1.8, which indicates the likelihood
of bankruptcy. When deciding whether to purchase or sell a stock, investors can utilize Altman Z-
scores to assess the underlying financial strength of the company. If a stock's Altman Z-Score value is
closer to 3, investors might think about buying it, and if it's closer to 1.8, they might think about
selling it or shorting it. It can be calculated by using the formula given below: -

Altman Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

Where:

A = working capital / total assets

B = retained earnings / total assets

C = earnings before interest and tax / total assets

D = market value of equity / total liabilities

E = sales / total assets

For Suzlon: - (Fig. in crores)

A= working capital / total assets= -405.18/5,675.26= -0.07139

B = retained earnings / total assets= -21,873/5,675.26= -3.8541

C = earnings before interest and tax / total assets= 132.42/5,675.26 = 0.023333

D = market value of equity / total liabilities= 9,397/9,567.35= 0.982195

E = sales / total assets= 4,040.04/5,675.26= 0.711869

Altman Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

=1.2*(-0.07139) +1.4*(-3.8541) + 3.3* (0.023333) + 0.6*(0.982195) + 1*(0.711869)

=-4.1032

Since Suzlon's Altman Z-score is -4.1032, which is significantly less than 0, it is implied that the
business is on the verge of getting bankrupt.

KZ Index Calculations: -
The Kaplan-Zingales Index (KZ-Index) is a comparative indicator of dependency on outside funding.
When times are tough financially, businesses with higher KZ-Index scores are more likely to struggle
because they may find it harder to finance their continuous operations.

The KZ-Index (Kaplan-Zingales Index) is based on the following five-factor model as described in
Lamont, Polk and Saa-Requejo (2001):

KZ Index = -1.001909 x Cash Flows / K + 0.2826389 x Q + 3.139193 x Debt / Total Capital + '-39.3678
x Dividends / K + -1.314759 x Cash / K

Where:
Cash Flows = (Income Before Extraordinary Items(t) + Total Depreciation and Amortization(t)

K = PP&E(t-1)

Q = (Market Capitalization(t) + Total Shareholder's Equity(t) - Book Value of Common Equity(t) -

Deferred Tax Assets(t)) / Total Shareholder's Equity(t)

Debt = Total Long-Term Debt(t) + Notes Payable(t) + Current Portion of Long-Term Debt(t)

Dividends = Total Cash Dividends Paid(t) (common and preferred)

Cash = Cash and Short-Term Investments(t)

For Suzlon: -

Cash Flows = -224.42+47.73= -176.69

K= 461.70
Q= (9,397-3,892+3,892+0)/ (-3,892)= -2.41
Debt = 3,774.69+0+0= 3,774.69
Dividends= 0
Cash = 350.75

KZ Index =( -1.001909*(-176.69))/(461.70)+0.2826*(-2.41)+3.1391*3774.69/369.14-39.3678*0-
1.3147*(-350.75)/461.70

=32.784

Since the KZ Index value is excessively high, it indicates that the company is more likely to struggle
because it might be more difficult for them to finance ongoing operations.

Question 3 D)
PPE
Based on examination of sale deed and other documents property, plant and equipment are held in
the name of the company. In respect of immovable property that have been taken on lease and
disclosed in the financial statement as at the balance sheet date, the lease agreements are duly
executed in favour of the Company, except for the following:

Factory building constructed on land and measuring 34.5 acres at Coimbatore, carrying a gross value
of 44.47 crore. The reason for not being held in the name of the company is the lease in the name of
Suzlon Electrical company that was subsequently merged with the company.

Lease
During the year, the Group had total cash outflows for leases of ₹ 49.34 Crore (previous year: ₹
54.44 Crore). The Group also had non-cash additions to right-of-use assets and lease liabilities of ₹
24.19 Crore (previous year: ₹ 3.97 Crore). The effective interest rate for lease liabilities is 9.00% with
maturity between 2023 and 2025

Related Party
The Company has entered various transactions with related parties. Terms and conditions of
transactions with related parties Outstanding balances at the year-end are unsecured and
settlement occurs in cash. There have been no guarantees provided or received for any related party
receivables or payables. This assessment is undertaken each financial year through examining the
financial position of the related party and the market in which the related party operates.

Non-compliance with regard to capital market

National Stock Exchange of India Limited and BSE Limited have levied a penalty of ₹ 3,75,000/- each
plus GST for non-appointment of requisite number of Independent Directors including one Woman
Director in terms of the Listing Regulations for the period from January 1, 2020 till March 15, 2020.
The Company had already rectified the non-compliance by appointing requisite number of
independent directors (including woman director) during FY20 and is fully compliant with the
requirement

CSR
In financial year 2022, Suzlon conducted 3,582 impactful CSR events and reached over 30,00,000
villagers and 10,00,000 households. SF continued to catalyse the social development ecosystem
through its unique impact model ‘SUZTAIN’. SF, with its philosophy of creating ‘Sustainable
Development for Sustainable Economy,’ ensures that Suzlon Group integrates sustainability into its
core business strategy. Total amount spent on CSR was 0.94 Crore.

Sustainability
Skills, expertise and competencies of board of director mention their experience and knowledge
about sustainability, health, safety and environmental practises including CSR. Business
responsibility report mention: Business should provide goods and services that are safe and
contribute to sustainability throughout their life cycle.

Segment Reporting
Segments have been identified considering the internal reporting system and organisation structure.
Segment performance is evaluated based on profit or loss and is measured consistently with profit
or loss in the consolidated financial statements. Segment revenue, segment result, segment assets
and segment liabilities include the respective amount identified to each of the segments on
reasonable basis from the internal reporting system. Inter-segment transfers have been carried out
at mutually agreed prices.

Auditor comment
1. Opinion

Auditor stated a true and fair view was presented in the financial statements and it was in
conformity of the Indian Accounting Standard.

2. Material uncertainty related to Going Concern

Auditor stated that Group continued to incur losses during the year ended March 31, 2022, and as of
that date, the Group’s net worth is negative. Certain existing borrowings as at the balance sheet
date have been refinanced, and the Group has an obligation, to bring down the refinanced
borrowing from REC Limited from Rs. 3,553 Crores to Rs. 2,178 Crores within a period of one year
from the loan disbursement date that is May 24, 2022. These events or conditions indicate that a
material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a
going concern

Revenue from contracts with customers

Revenue from contracts with customers is recognised at the point in time when control of the asset
is transferred to the customer at an amount that reflects the consideration to which the Company
expects to be entitled in exchange for those goods or services.

The Company applied the following judgements that significantly affect the determination of the
amount and timing of revenue from contracts with customers:

1. Identifying performance obligations

The Company supplies WTG’s that are either sold separately or bundled together with project
execution activities to customers. The Company determined that both the supply of WTGs and
project execution activities can be performed distinctly on a stand-alone basis which indicates that
the customer can benefit from respective performance obligations on their own. Further, the
Company chose output method for measuring the progress of performance obligation.

2. Determining method to estimate variable consideration and assessing the constraint

Contracts for the supply of WTGs and project execution activities include a right for penalty in case
of delayed delivery or commissioning and compensation for performance shortfall expected in
future over the life of the guarantee assured that give rise to variable consideration.

Question 3 E)
1. The promoter holdings of Suzlon LTD have reduced by 2.9%. It was 17.8% in July 2020, and it is
14.9% in June 2022
2. FII has reduced their holdings from 17.9% to 6.3% in last 2 years.
3. The DII holdings increased from 0% to 15.5%
4. Pledge of shares by promoters has changed from 55.02% in 2020 to 88.54% in 2022
5. There is no such unexplained year on year changes in line items.
6. No major changes in accounting policy.