India's Solar Market Will Power Azure; Barclays Initiates At Overweight

Barclays’ Jon Windham believes the robust growth prospects of the internally developed solar projects of Azure Power Global Ltd AZRE, along with support from favorable policy, would drive rapid year-on-year increases in new solar installations in India.

Windham initiated coverage of the company with an Overweight rating and price target of $23.

Growth Expectations

“While we note that AZRE is a high risk/high reward investment, we expect management will meet its stated growth target of 5.0GW operational on or before CYE2020 based on a track record of prior execution,” the analyst mentioned.

Windham values Azure Power based on a 12-percent target yield applied to the $72 million in currently fully funded run-rate CAFD.

Following its IPO, the analyst expects the company to increase the pace of its COD project to achieve a fully funded 2.1GW operational portfolio by the end of CY2018.

“We forecast run-rate CAFD of $72 million on the 2.1GW, and FY2022 run-rate CAFD of $157 million for the targeted 5.0GW portfolio,” Windham went on to say.

Increasing Competition

While the analyst expects competition to become increasingly intense for contracted PPAs in the Indian market, Azure Power’s local expertise and execution track record are likely to support fairly consistent “profitability spread” between project costs and PPA rates over time.

Windham expects PPA rates to decline 39 percent, with installed cost per watt declining 34 percent by the end of 2020, from the Q3:16 levels.