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Top Picks Daily Alert - 12/20/18

This Indian solar power company saw its revenues rise by 22% in its second quarter.

This Indian solar power company saw its revenues rise by 22% in its second quarter.

Azure Power Global Limited (AZRE)
From Global Investing

Indian statistics published by the country’s Ministry of Commerce and Industry are used to lure in direct investors by telling them how easy it is to do business in India. One of the dubious numbers says that businesses could get electricity in India more than 5x more quickly in the last fiscal year than four years earlier, with India gaining 113 places in global rank. I remain skeptical, thanks to an India-born relative in PR. Ease of doing business was never an Indian strong suit.

Unlike the other Asian giant, China, where thought control is rampant and minorities subject to harassment, India’s faults come with a vigorous parliamentary system, a critical press, an independent judiciary, and a tradition of cussedness which means that the electric system will improve. Given its 300 sunny days per year, India is ideally situated for solar power and the largest solar utility company operating there is our speculative pick.

Setting up in business in India itself is sufficiently daunting that my corporate choice, Azure Power Global Limited (AZRE), is incorporated in Mauritius. It was the first renewable energy company to list in 2016 when it did its initial public offering in October, raising $161 million. The founder and CEO since 2008 is a Silicon Valley professional of Indian heritage, Inderpreet Singh Wadhwa. His father Harkanwal is a director and chief operating officer. Most of the other brass are outsiders.

AZRE is an integrated project developer which offers guaranteed long-term electricity prices, whatever happens to oil. It bids for government supported sites like railway station rooftops with a very sharp pencil—thanks to a decade of experience and over three dozen plants. It also tapped the “green bond” market with success in 2017, and again this year, with many of the same lenders. It builds solar parks. Its solar tariffs are close to grid parity in many areas. It aims to generate 5 gigawatts by the end of 2020.

AZRE uses an Indian FY (to March 31) and in its Q2 this year, sales rose 22% to INR 2,225.7 billion rupees (I will not use crore) and operating income rose 20% to INR 1,210.2 billion rupees. Adjusted EBITDA hit INR 1,807.7 billion ($25 million), up 21% from Q2 2017-8.

The net loss was INR 297.6 billion vs a loss in the prior Q2 of INR 1,240.5 billion. The loss per share was 11 rupees vs. a loss of 42 a year before.

Azure makes solar power generating facilities, but it doesn’t yet make money. Moreover, India charges income tax at about 20% which adds to losses. By the end of this FY, AZRE expects to put an additional 1300-1400 megawatts (MW) of power generation in service and get revenues of $143-151 million from new projects—about INR 1,023 to 1,032 bn rupees, assuming the currency doesn’t fall further. It is close to break-even and may cross over into profit later next year.

Its cost per MW of new solar power in H1 fell to INR 44.3 million ($610,000) and the project cost per MW was INR 50.78 million ($700,000), thanks to cheaper modules and better skills in placing them.

From the start, the younger Mr. Wadhwa knew how to open international and New Delhi financial taps for solar plants: the International Finance Corp. (the market arm of the World Bank); German, Canadian, Quebec, and French development banks; Foundation Capital of Menlo Park; India’s Helion Ventures Fund; software firms SAP and Accenture; Indian Railways; and government bodies in 23 states including Rajasthan, Punjab, and Gujarat.

Vivian Lewis, Global Investing,, 212-758-9480, December 13, 2018