Azure has exercised terrific discipline, in our view, and continued to stay focused on lowering expense and enhancing its PLFs: AZRE has been adding greater DC capacity to its current plants and enhancing efficiency to make sure greater plant load things (PLFs). This has resulted in its FY21 PLF getting 20.9% vs. 19.5% in FY20 in spite of adverse isolation through the year. We have also seen the enterprise exercising terrific restraint in bids exactly where tariffs fell beneath Rs2/kWh. Our evaluation of its historical bidding trends also highlight that it hasn’t been the lowest bidder most of the time and even when it wins bids, it hasn’t generally been the lowest, demonstrating mature bidding.
But this is not sufficient, in our view, as difficulties common of any nascent sector, regulatory difficulties, rising competitive intensity, module price tag uncertainty, and delays in signing agreements are most likely to preserve returns restricted and development uncertain: We think the sector is but to sign PPAs for the letters of award to the extent of c22GW of capacity for want of demand from state discoms. Azure also has unsigned PPAs for 4GW of capacity and current news reports recommend the prospective of downward revisions in tariffs of 10-13% (Mercom India, 6 July 2021). Solar module costs, on the other hand, have gone up and module suppliers that are unable to absorb elevated charges are attempting to renege from their signed contracts. This is most likely to lessen the anticipated IRRs from currently bid out projects. While uncertainty remains in the sector and some consolidation is taking location, the renewables sector continues to see new entrants. We now see listed entities that have so far shied away from the tight bidding and government-owned old power firms with low charges of capital hunting to add green credentials.
Maintain Hold rating raise TP to $27.50 (from $27.00): While we do like the company’s strategy to company, the atmosphere remains challenging and uncertainties continue to disturb the development and profitability trajectory. We incorporate our new assumptions on solar module costs, capacity installation, tax assessment, and new tariff assumptions for 4GW of capacity. This benefits in alterations in our earnings estimates for FY22e/23e of (-)374%/(+)19.9% as the base of earnings is extremely low. We introduce and incorporate our estimate for FY24e. We worth the stock applying a DCF methodology, assuming a expense of equity of 13% (unchanged) to arrive at our fair worth for finish-FY22E, which we discount by nine months to arrive at our new TP of $27.50 (previously $27.00), reflecting our estimate alterations.