In the upcoming week, a couple of companies are expected to go public, including Avista Healthcare Public Acquisition (NASDAQ: AHPAU), Extraction Oil & Gas (NASDAQ: XOG), and Azure Power Global Limited (NYSE: AZRE). All three companies plan on making their market debut on Wednesday, October 12th — look out for them!
With that being said, I want to focus in particular on Azure Power Global Limited and what we can expect from this company’s initial public offering.
Azure Power Global Limited (NYSE: AZRE)
- Expected IPO Date: October 12, 2016
- Industry: Energy
- Price: $21–$23
- Share Offering: 3.4 million
- Underwriters: Barclays and Credit Suisse
- Market Cap: $520 million
- Estimated $ Volume: $75 million
- Revenues: $46.2 million
- Net Income: -$43.4 million
On September 22nd, Azure Power announced its initial public offering. It will be putting up 3.4 million shares in the price range of $21 to $23.
The company filed its IPO paperwork last December; however, at that time, it wasn’t ready to go public. It wasn’t until Barclays and Credit Suisse came on as book-runners and Roth Capital Partners as a co-manager that the company decided to make a public offer.
On October 3rd, Azure downgraded its share offering to 3.4 million — its initial offer was to sell 6.8 million shares.
However, with that downgrade came a new investor. Canada’s pension fund manager Caisse de dépôt et placement du Québec (CDPQ) arranged with Azure to purchase $75 million worth of shares at $22 or at their IPO price.
Azure will grant its underwriters a 30-day option to purchase an additional 1,022,727 equity shares.
Its expected IPO date is October 12, 2016.
By the Numbers
Azure has a market cap of $520 million. In the past year, it’s earned $46.2 million in revenues. Solar power made up $38.9 million of its revenues. During the past 12 months, it had a net income of negative $43 million.
Business and Market Summary
Azure Power Global was founded in 2008 and is headquartered in New Delhi, India. It produces and distributes solar power while also offering installation services.
It developed India’s first private utility-scale solar project in 2009 in Awan, Punjab.
As of July 31, 2016, Azure operated 24 utility-scale projects along with several rooftop projects that had a combined rated capacity of 357MW — giving it a compound annual growth rate (CAGR) of 114% from July 2012. It’s aiming to have at least 520 MW operating by the end of 2016.
Azure Power Global’s main goal is to be the lowest-cost power producer in the world. Currently, the company sells solar power through long-term fixed price contracts to government utilities and independent industrial and commercial customers.
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This gives it a significant advantage over the market because it allows the company to provide solar energy to a variety of customers throughout India instead of limiting itself to a certain consumer base.
Another factor that works in Azure’s favor is India’s persistent peak power deficits. The government needs to reduce those blackouts, which is forcing it to search for a more reliable and stronger energy source — leading it to solar power.
In addition to power deficiencies, India continues to have a demand/supply mismatch along with a five-year average energy deficit of 5% through March 2016 — resulting in forced power price increases.
This gives India a bigger incentive to start integrating solar power, and to do it quickly. The country doesn’t want power price increases, and it doesn’t want blackouts anymore, and that led the country to raise the 2022 target for solar capacity to 100GW from 20GW.
The government’s solar target increase will provide Azure with a long-term and stable cash flow, since it will have agreements with government agencies and independent commercial businesses that are at 25-year fixed price PPAs.
Azure’s long-term goals include achieving 1 gigawatt (GW) committed or operating by December 31, 2017 and 5 GW by December 21, 2020.
Along with providing solar power throughout India, the company is also working on the development of micro-grid applications for the highly fragmented and underserved market in India.
The Risk Factors
One significant risk involved with this company is that it hasn’t been profitable and could continue experiencing net losses in the future. It’s relying heavily on the Indian government to meet its expected targets for solar power and for continued solar power incentives.
Aside from Azure’s obvious flaws, it’s also really hard to gain traction in India’s solar market unless you have a lot of capital. It’s a difficult process trying to finance land for potential solar projects, in addition to the challenge of each state having different regulations to follow.
The solar market is definitely heating up, but as an investor, you should be wary of the companies you’re investing in. Azure will be competing alongside large companies like First Solar (NASDAQ: FSLR), which has been consistently generating revenues each quarter and has a market cap of $4.07 billion.
As of June 30, 2016, Azure is substantially indebted, and that could affect operations and cash flows for the future. If it is able to make the expected amount from its IPO, that might give the company a year, but after that it will need to figure out a solid business plan that will generate consistent revenue.
Until next time,