Thursday, June 16, 2011

Tulsi Tanti's Success Story


The Rise of Indian Wind Power


Indian businessman Tulsi Tanti has built one of the world's largest wind turbine companies in an incredibly short amount of time. Now that he has bought a German company, however, his popularity may be on the wane.

The water buffalo stands, like a statue, in the middle of the path, staring at the SUV bearing down on it at an alarming speed. The driver honks his horn and revs the engine, but the animal doesn't budge a centimeter. It's accustomed to giant machines -- much, much bigger than the one coming at it.

Long convoys of heavy, oversized trucks are a regular spectacle as they pass through the farming communities near the Indian city of Dhule. The flatbed vehicles carry steel pipes, heavy generators and 40-meter (131-foot) blades. The materials stand in stark contrast to the rural surroundings, where the India of the future is taking shape not far from the local farmers' teams of oxen. Dhule is the home of India's largest wind farm.

Hundreds of white towers already protrude from the barren landscape of the Maharashtra Plateau. The wind farm now produces 640 megawatts of electricity, and it will produce 1,100 once construction is complete -- the equivalent of one nuclear power plant. It is the fullfillment of Tulsi Tanti's dream, a dream he has turned into reality in the short space of 13 years. As dreams go, Tanti's is a big one. Suzlon Energy, the company he founded in 1995, is already the world's fifth-largest wind turbine manufacturer, and Tanti himself, who is worth $3 billion (€1.9 billion), is one of India's richest men.

His more established competitors in Europe realized long ago how much of a threat this short man, with his carefully combed hair and thin moustache, posed. Despite his serious demeanor and modest appearance, Tanti is known for his cunning and aggressive takeover tactics.

Interest in his Solution

His name is already mentioned in the same breath as that of steel magnate Lakshmi Mittal and Ratan Tata, president of the Tata Group, which acquired British carmaker Jaguar in 2008. And Tanti is still a long way from reaching his goal, even though his rise to prominence began with a great deal of aggravation.

At the time he was managing the family textile business in Surat, a city in western India. The business was languishing, mainly because electricity was extremely expensive for businesses and the power grid was plagued with outages. It was a source of great annoyance for Tanti. In 1994, he ordered two wind turbines from Danish manufacturer Vestas, essentially taking his factory off the power grid.

Other business owners began showing an interest in his solution, prompting Tanti to wonder whether he might be in the wrong business. Wasn't wind energy the real business of the future? He discussed his ideas with his three brothers. Together they scraped together $600,000 (€387,000) in seed capital, founded Suzlon Energy and moved to Pune, a city near Bombay in southwestern India.

There was only one problem. None of the four brothers, all engineers, knew anything about wind energy. But as customers, they were all too familiar with the inadequacies of the industry. The turbines were supplied by the manufacturer, installed by another company and maintained by a third. By the time a turbine was up and running, the customer was often at his wits' end.

Tanti, realizing that a change was sorely needed, came up with the idea of offering a complete package of wind energy services. Suzlon would simply handle everything. Customers would not even have to install wind turbines on their own premises -- instead, a customer could buy a turbine at a faraway wind farm and would then own that turbine's output.

Without a Fight

The innovative aspect of Tanti's idea had more to do with the service he was providing than with any feat of engineering. But it was a concept that would revolutionize the wind energy business.

The brothers planned to purchase the sophisticated technology abroad, eventually producing the turbines in India, where low production costs would give them an unbeatable competitive edge. But there was only one problem: The leading European manufacturers were not about to give up their engineering achievements without a fight.

Suzlon was forced, grudgingly, to enter into joint venture agreements without gaining access to the technology. Tanti began his operations as a distributor of wind turbines manufactured by the German company Südwind. Despite his initial reluctance, the arrangement would prove to be a stroke of luck for Tanti's business.

Although Südwind, a small company founded by students at the Technical University of Berlin, built exceptional turbines, its engineer-owners knew very little about running a business. Südwind went into bankruptcy in the late 1990s and Tanti seized the opportunity, acquiring parts of the Germany company's R&D division. But instead of simply moving the technology to India, Tanti hired the former Südwind employees and set up an R&D laboratory in the northern German city of Rostock. Existing designs were fine-tuned at the laboratory, which also served as a training ground for young Indian technicians, who would later return to India to build turbines with their newly acquired expertise.

Similarly, Tanti managed to acquire a Dutch blade manufacturer. In 1999, when the Indian state of Maharashtra, where his business was located, passed a law that allowed companies to claim the costs of installing wind turbines as a tax deduction, Tanti had it made. By 2002 sales at Suzlon quadrupled to $131 million (€85 million).

One of the World's Top Wind Companies

Four years ago, investors urged him to sell the company. Tanti begged off, telling them: "In a few years, Suzlon will be buying up the leading European companies." As it turned out, he was right.

A trip to Pondicherry reveals that the Indians were already closing in on the Europeans at the time. The plant that Suzlon opened in this former French colony on India's east coast in 2004 can easily hold its own with Western competitors. The plant's enormous production buildings are well lit and almost clinically clean. Many of the men who assemble the turbines and sand the rotors there learned their trade at Tanti's German laboratories.

There are more than 1,200 workers at the Pondicherry plant, many with German expertise -- but being paid Indian salaries. It is these local production conditions that enable Suzlon to boast a 14 percent profit margin. The standard in the industry is 8 percent.

Three years ago, in 2005, Tanti converted his advantages over the competition into cash when he orchestrated a brilliant initial public offering. Suzlon raised $340 million (€219 million) and, from one day to the next, catapulted its founder and his family in the realm of the subcontinent's ultrarich. Tanti himself currently owns 16 percent of Suzlon, while the family owns 66 percent.

The down-to-earth Tantis have yet to succumb to megalomania. The company's Pune headquarters occupies a modest fifth floor of an office building. The 50-year-old CEO lives with his wife in a rented apartment next door to his brothers. Their two children attend university. The large clan gets together for meals as often as possible.

Tanti spends 300 days a year traveling, and yet he hasn't splurged on a private jet. Instead of acquiring these playthings of the nouveau riche, Tanti is far more interested in pursuing his plan: He is determined that Suzlon become one of the world's top three wind companies.

Acquisitions have helped the company reach fifth place on the list, helped along by perhaps its greatest coup of all: In 2007, Tanti suddenly entered the bidding for Repower, a major German wind turbine producer, and ended up outbidding the French nuclear energy giant Areva.

A Bump in the Road Ahead?

It wasn't cheap, but it was a sensation. In May 2007, Suzlon paid €450 million ($698 million) for 33.6 percent of Repower. It was the largest acquisition an Indian company had ever made in Germany.

But from the very beginning, the German turbine builders were never quite comfortable with their new bosses, fearing that their turbine blueprints would soon be copied in India. Tanti, who had assumed the chairmanship of Repower's supervisory board, insisted that he had no such intentions.

In fact, German corporation law would have made such a technology transfer impossible. Suzlon would have needed a subordination agreement to gain access to the blueprints. To that end, Tanti would have had to submit a takeover bid to Repower shareholders, but first would have had to acquire shares from the major shareholders, including Areva. The French had an option, exercisable after a year, to sell their stake in Repower.

The year had not yet expired before the first dispute erupted over whether Repower was being sucked dry by the Indians. Tanti was annoyed and publicly complained about the Hamburg-based company's lack of respect for his commitment. After all, he said, he was creating jobs. But he left no doubt that he wanted to gain a majority stake in Repower. That was exactly what the market wanted to hear. In mid-May, the company's stock price shot up to over €240 ($372), from €160 (€248) at the time of the takeover.

Tanti's problem was that the Areva shares, which he planned to acquire in late May, were suddenly very expensive. What he did next, though, no one saw coming. Four days before the expiration of Areva's sales option, he suggested, during a financial press conference in Mumbai, that Suzlon might consider selling some of its Repower shares to turn a profit.

Talking Down the Shares

The news had its desired effect. Repower fell from €240 to €200 ($310) a share. Executives at Repower's Hamburg headquarters were livid. It was unprecedented, a major shareholder talking down the company's share price.

Tanti's behavior triggered "major irritations," a company spokesman says diplomatically. The Indian's effort to appease the Germans in an e-mail had little effect, as did the news, a few days later, that he intended to buy the shares owned by Areva and the Spanish energy company Martifer after all.

Whatever the purpose of Tanti's maneuver was, it attracted the attention of Germany's Federal Supervisory Authority for Financial Services (BaFin). "There is no investigation underway, but we are observing the situation," says BaFin spokeswoman Anja Engelland. Her agency's interest in the case is likely to have increased significantly last week.

On Thursday, Suzlon announced its purchase of the Areva shares. According to traders, Tanti paid less than the current share price, but Areva was apparently satisfied to walk away with a profit of €350 million ($543 million). In addition, the Indians have quietly bought Repower shares on the market in recent days, bringing their stake in the company to 66 percent of its stock. This was not welcome news to investors and, on Friday, the Repower stock price dropped by 6.5 percent. Once again, concerns over a possible know-how transfer are making the rounds. Although a Suzlon spokesman called these concerns "pure speculation," the company didn't exactly deny that they were justified.

But, more recently, Tanti faces problems that could be far more threatening than disgruntlement at Repower. In the United States, Suzlon is currently experiencing the biggest debacle in its relatively short history. The Indians were forced to recall 1,251 rotor blades from a wind farm in the Midwest when many of the blades broke after being used for only a short period of time.

A Suzlon spokesman blames the broken blades on an unpredicted, strong shift in wind direction and says that the company now plans to reinforce the giant blades -- at an estimate cost of $30 million (€19 million). Industry insiders doubt that this will be enough. Repairs to a weak point in a blade are costly, they say, and usually last only a few years. Besides, Suzlon could face claims for damages from the customer.

Numbers Are Good

But Tulsi Tanti sees none of these problems as being insurmountable. He has faith in his numbers, and the numbers are good.

The company's sales grew by 71 percent, three times the industry average, in the last fiscal year. Suzlon's revenues amounted to $3.4 billion (€2.2 billion), and its pre-tax gain climbed to $480 million (€310 million). The company dominates the Indian market and holds a 14 percent share of the global market. Its factories are humming away in Pipestone, in the US state of Minnesota and in Tianjin, China. It has orders on the books worth $4.3 billion (€2.8 billion). And it plans to double annual production by 2010.

But there could be a bump in the road ahead. What happens if the advantages he reaps from being based in India begin to fade? Suzlon owes much of its success to lower production costs. What if they go up? Even Indian farmers, the ones who toil away in the fields next to the wind turbines, have figured out that someone is making a lot of money with those turbines. "Suddenly they're asking 20 times as much for their land," officials at Suzlon complain. Others want lease payments for the turbine sites, as well as compensation for the use of their right-of-way.

If Suzlon refuses to pay, the farmers block the access routes with their buffaloes. In 2007, 44 wind turbines, or one-third of total capacity, had to be shut down temporarily in Sangli because of such campaigns. In another location, the poverty-stricken rural population made off with aluminum ladders and copper cables from 63 new turbines and sold the valuable parts to scrap metal dealers.

In the village of Chikhli in the Satara district, angry residents recently caused turbines to be shut down, because they felt that real estate brokers had cheated them when they sold their land. Although the sales took place 10 years ago, the former landowners are convinced that there is still money to be had. Whether or not Suzlon decides to play along, the company will suffer the consequences.

Translated from the German by Christopher Sultan

Source: spiegel.de

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