Azure Power Q2 Results. Not Enough To Enthuse Investors

The NYSE listed Azure Power Global Limited announced its consolidated results under United States Generally Accepted Accounting Principles (“GAAP”) for the fiscal second quarter 2022, period ended September 30, 2021.

Fiscal Second Quarter 2022 Period ended September 30, 2021 Operating Highlights:

• Megawatts (“MW”) Operating* were 2,210 MWs, as of September 30, 2021, an increase of 31% over September 30, 2020. Operating, Contracted & Awarded MWs* were 6,955 MWs, as of September 30, 2021.
• Operating revenues for the quarter ended September 30, 2021 were Rs 4,386 million (US$ 59.1 million), an increase of 25% over the quarter ended September 30, 2020.
• Net loss for the quarter ended September 30, 2021 was Rs 300 million (US$ 4.0 million) against the net loss of Rs 368 million for the quarter ended September 30, 2020. The decline in Net loss was primarily due to additional revenue from sale of carbon credits and reversal of stock appreciation rights (SARs) expense, offset by increase in legal and professional expense and tax expense.
• Adjusted EBITDA for the quarter ended September 30, 2021 was Rs 3,685 million (US$ 49.8 million), an increase of 59% over the quarter ended September 30, 2020.
• Non-GAAP Cash Flow to Equity (“CFe”) from operating assets for the quarter ended September 30, 2021 was Rs 1,406 million (US$ 18.9 million), an increase of 32% over the quarter ended September 30, 2020.

Key Operating Metrics

Electricity generation during the quarter and six-months ended September 30, 2021 was 1,001 million kWh and 2,113 million kWH, respectively, an increase of 231 million kWh or 30%, over the quarter ended September 30, 2020, and an increase of 460 million kWH or 28%, over the six months ended September 30, 2020. The increase in electricity generation was principally a result of an additional 529 MWs of AC (728 MWs DC) operating capacity, including our Rooftop portfolio commissioned since September 30, 2020.

Azure’s Plant Load Factor (“PLF”) for the quarter and six month ended September 30, 2021, was 20.2% and 21.9%, compared to 18.8% and 20.8%, respectively, for the same comparable periods in 2020, which increased principally due to the addition of AC and DC capacity and improved performance by its plants, including Rooftop portfolio. The Plant Load Factor (“PLF”), excluding rooftop portfolio, for the quarter and six month ended September 30, 2021, was 21.1% and 22.9% respectively.

The firm commissioned 158 MWs AC (188 MWs DC) during the three months ended September 30, 2021 and 220 MWs AC (252 MWs DC) during the six months ended September 30, 2021 against 25 MWs AC (25 MWs DC) during the comparative three months and 26 MWs AC (28 MWs DC) during the six months ended September 30, 2020.

The project cost per megawatt (DC) operating for the six months ended September 30, 2021 remains same as for comparative period i.e. Rs 34.7 million (US$ 0.47 million). The project cost per megawatt (AC) operating for the six months ended September 30, 2021 was Rs 39.6 million (US$ 0.53 million), compared to Rs 40.4 million, for the six months ended September 30, 2020. Excluding the impact of safeguard duties, the DC and the AC costs per megawatt for the six months ended September 30, 2021 would have been lower by approximately Rs 2.9 million (US$ 0.04 million) and INR 3.3 million (US$ 0.04 million), respectively, and for the six months ended September 30, 2020, the DC and the AC costs per megawatt would have been lower by approximately Rs 1.3 million and Rs 1.3 million, respectively.

As of September 30, 2021, Operating, Contracted & Awarded megawatts were 6,955 MWs. There was no change compared to prior comparable period, other than to reflect the disposal of the Rooftop Portfolio. Besides the pending 4000 MW manufacturing linked award, the Company has also received letter of awards (LOA), for its first 120 MWs wind project and first 150 MWs solar – wind hybrid project, from Solar Energy Corporation of India (SECI)

The firm confirmed that for the 4000 MW manufacturing tender, it has signed PPAs for 600 MWs with SECI at a fixed tariff of INR 2.54 per kWh for supply power for 25 years.

Net profit/ (Loss)

Net loss for the quarter ended September 30, 2021 was Rs 300 million (US$ 4.0 million), decline of Rs 68 million (US$ 0.9 million) compared to a net loss of INR 368 million for the quarter ended September 30, 2020. The loss was lower primarily on account of additional income on sale of carbon credits amounting Rs 408 million (US$ 5.5 million) and reversal of stock appreciation rights (SARs) expense by Rs 242 million (US$ 3.3 million), offset by higher legal and professional expenses of Rs 177 million (US$ 2.4 million). However there has been increase in tax expense and interest expense which led to net reduction of Rs 68 million (US$ 0.9 million) in net loss for the quarter.

As of September 30, 2021, we had INR 9,513 million (US$ 128.3 million) of cash, cash equivalents. In addition, we had INR 9,780 million (US$ 131.9 million) of short-term restricted cash as at September 30, 2021 that we expect to be utilised primarily for capital expenditures over the next twelve months. We had undrawn project debt commitments excluding Rooftop portfolio of INR 17,803 million (US$ 240.1 million) as of September 30, 2021.

Other updates

During the current quarter, the Company has issued Solar Green bonds (the “Bond”) of US $414 Million, through its wholly owned subsidiary, Azure Power Energy Ltd at coupon of 3.575% maturing in 2026. The proceeds from this bond were used to repay the existing 5.50% US$ 500 Million Solar Green Bond issued in 2017. The Bond has a tenor of 5 years with amortisation and waterfall structures and is a leverage-positive transaction for the Group.

During the current year, the Company received complaints and anonymous whistle-blower reports which made various claims against certain of the Company’s Key Managerial Personnel, related to their and the Company’s actions in relation to the acquisition of and use of land in Rajasthan, Assam and Uttar Pradesh, as well as certain other corporate actions. The Company, through its Audit Committee, and with the assistance of external counsel and forensic auditors, has completed its investigation to determine whether the allegations made in the complaints or contained in the whistle-blower reports are substantive. The issues raised, including those raised against Key Management Personnel, have been resolved or found to be groundless; however, the Company determined that its ethics policies regarding external consultants should be enhanced. The Company, through its Audit Committee, and with the assistance of external counsel will be taking remedial steps (including training and policy review).

During the current period, Company had received a favorable order from the Appellate Tribunal for Electricity (“APTEL”) relating to our ongoing litigation in relation to the 40 MW Karnataka project, where APTEL had set aside the order of Karnataka Regulatory Commission (“KERC”), wherein the KERC had reduced extension of time, reduced the PPA tariff and imposed liquidated damages. Subsequent to period end, the KERC has further filed an appeal with Supreme Court against the order.

Guidance for Fiscal Year 2022 and third fiscal quarter of 2022

For the fiscal year ending March 31, 2022, the firm has projected  MWs operational to be between 2,750 – 2,955, excluding the rooftop portfolio. Revenues of between Rs.17,900 – 18,900 million (or US$ 241 – 255 million converted exchange rate of INR 74.16 to US$ 1.00 on September 30, 2021).

For the third fiscal quarter of 2022, revenues of between INR 4,100 – INR 4,300 million (or US$ 55.3 – US$ 58.0 million at the September 30, 2021 exchange rate of INR 74.16 to US$ 1.00) and a PLF of between 19.5% and 20.5%.