When Azure Power secured 100 MW of PV generation capacity in Gujarat for a tariff of just INR2.45/kWh ($0.035) in September, analysts voiced fears the contract would see the New Delhi-headquartered solar developer lose money on the contract.
With Azure having bid for all the 500 MW being re-tendered by state utility Gujarat Urja Vikas Nigam Ltd (GUVNL) but securing only a fifth of it, solar industry watchers pondered whether the uber low tariff would be feasible.
Azure’s full-year figures, announced to the New York Stock Exchange after hours yesterday, would appear to vindicate the developer, which turned around its first annual profit.
The INR138,493 ($1,990) total – a characteristically specific figure on the 146-page form 20-F filing – may appear modest but marks a significant turnaround in fortunes from the INR10 lakh ($14,700) loss reported a year ago.
The fourth-quarter and full year update warns investors patient enough to plow through a lengthy ‘risk to the business’ section that there is no guarantee of a repeat performance in the year ahead given Azure plans to set to work on additional capacity in 2019-20 but investors may be encouraged to think the business has turned the corner.
Full year revenues rose 29% to just short of a crore (INR10 million/$144,000) with the figure for January to March up 26% on the previous quarter, to INR28,472 lakh.
With Azure setting its sights on having 1.8-1.9 GW of operating solar assets by this time next year – up from 1,441 MW – the borrowing figures bear out the warning about future profits however.
While the press release summary of the results issued yesterday mentions a rise in interest expenses from INR5,930 lakh to INR14,267 lakh “on account of borrowings for new projects”, the balance sheet buried way down the U.S. Securities and Exchange Commission filing fleshes out a fuller picture of Azure’s expansionist policy.
Short-term debt had risen to INR28 lakh by the end of March, up from just INR8.35 lakh a year earlier with accounts payable also on the rise during that period, from INR15 lakh to almost INR35 lakh. The current portion of long-term debt is even more notable, with a rise from INR8.7 lakh to a thumping total of almost INR73 lakh. “Other liabilities” rose from INR6.1 lakh to more than INR23 lakh over the 12 months.
With Azure anticipating revenue of INR1.28-1.34 crore in the current fiscal year, the aforementioned business risks paint an interesting picture of conducting business in India.
The developer remarks upon the failures of the federal government to achieve its hugely ambitious solar targets with reference to the fact only 47% of the 16.6 GW of new PV envisioned under the nation’s 12th five-year plan – for 2012-17 – was achieved.
Mention is also made of the parlous financial position of state power distribution companies with the remark: “There can be no assurance that the utility companies that are currently our customers will have the resources to pay on time or at all.” Azure posits the possibility of solar incentives being reduced retroactively and also highlights the attempt by GUVNL to renegotiate a power purchase agreement for projects including a 10 MW Azure facility in Gujarat, a case which is now pending at the Supreme Court.
The impact of safeguarding duties applied by the government, and the prospect of them morphing into a more permanent anti dumping charge on Southeast Asian solar imports, rates a mention and there is even a warning about the potential impact of the U.K.’s painfully drawn out Brexit process, not to mention the burgeoning trade war between President Trump and China.
On that question of PPA viability however, Azure said only that a failure to keep costs down could see it secure fewer new projects, adding: “We expect prices for system components to decline as part of our bidding process and if that does not occur our project economics may be harmed and we may need greater subsidies to remain economically viable.”