Tulsi Tanti: He's made it big, but not without controversy

Until a few months ago, chances are that you would not have heard of the hamlet of Sankaneri in Tamil Nadu on the road from Triruvananthapuram to Kanyakumari on the tip of the sub-continent. However, if you were to drive past that township, a colossal construction might catch your eye. Close to 125 metres high at its maximum (that is almost as high as a 50-storey building), you will notice India's (make that Asia's) largest land-based windmill. Capable of generating two megawatts (mw) of electricity, thanks to its three variable pitch 43-metre long blades, this is one mean machine.

Chances are that until a few months ago you would not have heard too much of the company that made this behemoth either- until it stormed the capital markets with a Rs 1,500-crore initial public offering last September. Today, Suzlon Energy is not only a darling of the Indian stock exchanges- with a market cap of Rs 37,000 crore at last count and expected sales of Rs 3,500 crore for 2005-06-it is trying to secure its place among the ranks of the world's leading renewable energy providers. That's quite a story for this 11-year-old company and its 48-year-old promoter Tulsi Tanti, whose first tryst with business was a quarter of century ago when he set up a polyester yarn business. But constantly rising electricity bills convinced this entrepreneur about the huge potential in wind power as an alternative source of energy. Today, Suzlon Energy, as Tanti never fails to mention, is the World's only 'fully integrated' wind energy company. The last missing piece in the value chain came in mid-March when Tanti acquired a Belgian wind turbine gearbox designer, developer and maker, Hansen, for all of $565 million or Rs 2,542.5 crore. With Hansen in the bag, Suzlon now owns the intellectual property of every stage of the windmill manufacturing process. "From the design to the manufacturing and the actual operation of the sites, we do it all," Tanti says proudly.

Harnessing wind energy: Suzlon's wind farm in Tamil Nadu

The numbers Tanti talks about are fantastic-"India has wind energy potential of 45,000 mw; with a current shortfall of 16,000 mw, wind energy can play a major role in bridging the gap". So much so, that Tanti says the cost per unit from a fully depreciated windmill is as low as 40 paise per unit. "Bajaj Auto invested in 60 mw of power from our windmills and after four years, their costs of electricity are the lowest in their peer group," Tanti adds proudly.

Indeed, in 2001-02, Bajaj Auto invested Rs 300 crore in two windfarms near Satara and Ahmednagar in Maharashtra. "Wind energy was deemed a high-return, low-risk investment as incentives by the government made this environment-friendly power source viable," says Chairman Rahul Bajaj. And he clearly isn't regretting it, as Bajaj Auto is spared the regular "Thursday power cut" that the Maharastra Electricity Board imposes on industry in Pune.

TO TAX OR NOT TO TAX?

Actor Rai: Celeb investors have caught the It department's attention The Income Tax (IT) department landed up at Suzlon's offices at Godrej Millennium Park in Pune in the first week of April. The charge: Suzlon had abetted the evasion of taxes. CMD Tulsi Tanti is, however, quick to point out that it's not Suzlon that's under a cloud. "As a manufacturer of renewable energy machinery, we are exempt from income tax," he points out. Despite Suzlon claiming that 'most' investors looked at wind farms as a revenue generating option, the massive growth in wind energy last year raised red flags at the IT department. In 2005-06, over 1,700 megawatts of wind energy generation was set up, as against only 1,200 mw of conventional energy. And much of the capacity came up in the last quarter of the fiscal year. Investors can claim accelerated depreciation and a 25 per cent rebate on income tax from an investment in electricity-generating windmills (as against 56 per cent in 1994-this is true for all renewable energy sources, including solar energy and biogas). However, IT officers believe that 'investors' in wind farms, which include prominent Bollywood personalities such as Aishwariya Rai, use them as a tax-saving device. They believe that investors manage to get 'power generation' certificates from state electricity boards even though their windmills were not operational (and in some cases hadn't even been constructed). Officials from the investigations department of the Pune IT circle did not comment, other than saying that their investigations into the issue were continuing. Suzlon admits a significant amount of its sales and installations do take place in the last quarter of the fiscal, and because they also manage and operate almost all the windmills they manufacture in India, they were a 'single source' point of information for the IT department. "Its simple: If the windmill starts operating by the end of March 31, you can claim benefits in the current fiscal, otherwise you claim them the next year. Sometimes, things might not be up and running by that time and, thus, tax issues might occur; usually these can easily be adjusted against advance tax. We are cooperating in their investigations, however, I feel that this is happening just because of the sudden rise in the popularity of wind energy," Tanti says.

THE 'SUZ'-MAN

So who is Tulsi Tanti? Well, the 48-year old aquarian heads a company with a market capitalisation in excess of Rs 37,000 crore (over $8 billion) in which he and his family control over 70 per cent (making the Tanti family one of India's richest families, virtually overnight). But, the commerce graduate from Rajkot in Gujarat had quite a rocky road to the top. In fact, he established the 'Suzlon' brand over 25 years ago, when he decided not to continue with his father's cold storage business and started a polyester yarn unit. So why 'Suzlon'? "In Gujarati, the term 'Suz-Bhuz' means 'intelligence'. So, the 'Suz' came from there and the 'Lon' came from 'loan', its really as simple as that," Tanti explains. However, the polyester business was hard for Tanti, squeezed by larger producers and erratic and expensive electricity supplies, Tanti wanted to secure his costs. "In 1994, I had heard that the government was giving a lot of benefits to people who set up windmills, so I decided to import a couple, thinking that it would ease the electricity pressures on my business. Once we got the machines, I thought that it might be a worthwhile business to enter," he says. So, on April 10, 1995, Suzlon Energy was incorporated with Rs 1 crore as its paid-up capital. "Because I was the eldest in my family, and my father had passed away while I was still quite young, my family did not question my decision, for better or for worse. We are a closely-knit joint family, we moved together from Rajkot to Ahmedabad and then to Pune. Even today, we all live together in Pune," he says. Soon the first overseas subsidiaries were established in Germany and the Netherlands. "It does make me quite proud," he says of his not-so-mean task, "but the travel does get to you." In the last couple of years, Tanti has spent only 50-odd days a year at home.

"Tulsi Tanti is a visionary and the most ambitious entrepreneur I have met" ASHISH DHAWAN/MD ChrysCapital

Bajaj as a customer may have been just what was needed to propel Suzlon into the big league. Today, its market share in India stands at a commanding 65 per cent. On the global stage, it is the world's fifth largest wind energy player with an installed base of 1,700 mw-that's 1.5 per cent of India's total installed power. The global average works out to just 0.6 per cent, and Tanti's ambition is to increase India's figure to at least 20 per cent. However, Suzlon has only one major international project in the us, but one reason for that could be that a majority of wind energy is consumed in Denmark and Germany. The market is dominated by Vestas (a Danish firm) and Enercon (a German firm). Suzlon is also hedging a considerable amount of its future growth on China. "China has the capacity for generating over 250,000 mw of wind energy and there is a massive demand for energy," Tanti says. With Chinese regulations insisting on localisation (the Chinese insist that 70 per cent of the product has to be built in China), Suzlon has established Suzlon Energy Tianjin Limited, which is expected to start manufacturing by the end of 2006.

The bright future scenario for the industry, coupled with Tanti's entrepreneurial instincts, have made investors like Ashish Dhawan, Managing Director of private equity firm ChrysCapital, particularly bullish on Suzlon. ChrysCapital holds just over 2 per cent in Tanti's company. "Tulsi Tanti is a visionary and the most ambitious entrepreneur I have met," says Dhawan. According to Dhawan, Suzlon is well equipped to take advantage of its low-cost manufacturing base and give large global players in the market like Vestas, Enercon and GE a run for their money. He predicts Suzlon will make it into the global top three in a "short while" and that international markets will start providing most of Suzlon's revenues in the near future.

"The incentives by the government made this environmentally-friendly power source viable" RAHUL BAJAJ Chairman/Bajaj Auto

Tanti has glamourised the wind energy business, according to the President of the Independent Power Producers Association of India (IPPAI) Harry Dhaul. "Not only that, he has made wind energy into an attractive investment for common people and not just a tax haven, and once depreciated, windmills can start generating money from year three." With independent producers selling electricity at between Rs 3 and Rs 3.25 a unit to state boards, a 2 mw plant running at an average of a 30 per cent load factor can generate Rs 1.7 crore a year in revenue. Subtracting costs, the potential profit for such a windmill can be upwards of Rs 1.4 crore a year. In windier areas, where windmills run at far higher loads, the profits can be much higher over Rs 2-2.5 crore a year and that does not include the tax breaks. That said, the capital costs for setting up a windmill are upwards of Rs 5 crore per mw, more than double that of conventional power plants driven by fossil fuels.

It is not as if Suzlon does not have its share of problems-a recent Income-Tax investigation (see To Tax Or Not To Tax?) hit the company and though it clarified the issue is a "misunderstanding", it highlighted how many individuals still use windmills as a tax break above all else. Another issue plaguing the company is its constant involvement in lawsuits, usually over land resources. The company and its associate and subsidiary companies (which run the wind farms) are involved in over 50 legal cases across India. Moans Tanti: "I don't see why India, a power-deficient place, makes land acquisition so difficult for non-polluting power projects." That perhaps may just one more provocation for Tanti to think global.