Azure Power Global Limited

AZRE Details

Azure Power Global Limited (NYSE: AZRE) is India's leading independent renewable energy generator. It leverages its in-house engineering, procurement, and construction experience and competence to develop, construct, and operate utility-scale renewable projects and manage development and operation processes. As of January 12, 2022, the company's market capitalization stood at USD 769.86 million.

Latest News:

• Right Issue: On December 27, 2021, AZRE stated that its Board of Directors had approved a right offering to raise USD 249.94 million, wherein each shareholder of the company (record date of January 06, 2022) will receive one non-transferable subscription right for each equity share, par value USD 0.000625 per share, as part of the rights offering. Each right entitles the holder to buy 0.3275 Equity Shares at a subscription price of USD 15.79 per whole equity share. On January 24, 2022, the offer will expire at 05:00 PM ET.
• Key Commercial Contract: On January 03, 2022, AZRE announced the successful commissioning of its largest project, a 600 MW solar project connected to the Interstate Transmission System (ISTS) allocated by the Solar Energy Corporation of India (SECI). The project will be located in Bikaner, Rajasthan, and the power generated will be sold to SECI at a rate of INR 2.53 (USD 3.5 cents) per kWh for 25 years. It is India's largest solar power facility, owned and controlled by a single developer at a single location.

Q2FY22 Results:

• Significant Growth in Revenue: The company reported YoY growth of 25.17% in operating revenues to INR 4.39 billion (USD 59.1 million) in Q2FY22 (ended September 30, 2021) compared to INR 3.50 billion in Q2FY21, resulting from an increase in sales of carbon credits.
• Reduction in Net Loss: Its Q2FY22 net loss amounted to INR 300 million (USD 4.0 million) vs. INR 368 million reported in Q2FY21.
• Leveraged Balance Sheet: AZRE exited the quarter with a cash balance of INR 9.51 billion (USD 128.3 million) and total debt of INR 115.31 billion (USD 1.55 billion).

Key Risks:

• Regulatory Scrutiny: AZRE operates in India's highly regulated power generation industry, which requires the company to obtain and maintain various licenses, registrations, and permits to develop and manage power projects. If the company cannot obtain such a license, it could harm its operation.
• Extensive Debt: As of September 30, 2021, AZRE has a significant amount of outstanding debt, most of which is for project financing and is secured by project assets. This debt could influence the company's operations by limiting cash flow for working capital, capital expenditures, and other expenses and increasing the cost of getting new financing.

Outlook:

Q3FY22 and FY22 Guidance (Source: Q2FY22 Earnings Presentation, December 13, 2021)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

AZRE Daily Technical Chart (Source: REFINITIV)

Stock Recommendation

AZRE's stock price has fallen 68.02% in the past twelve months and is currently leaning towards the lower band of its 52-week range of USD 14.88 to USD 51.86. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 38.24. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 19.80.

Considering the significant correction in the stock price, recent commercial contracts, positive outlook, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 15.97, traded flat, as of January 12, 2022.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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