Azure Power Stock: Why This Solar Stock Could Be Set for Big Gains

Azure Power Global Ltd Stock
iStock.com/suman bhaumik

Azure Power Global Benefits From Hot Indian Weather

If you go to the emerging markets, including many of the poorest regions in the world, one major thing you will notice is the lack of viable energy solutions.

Take India, for example. A country of 1.3 billion people that is rapidly growing, India has many regions that are devoid of any reasonably good energy source. In fact, hundreds of millions of Indians live in impoverished conditions, without access to adequate power.

Under the direction of Prime Minister Narendra Modi, India aims to become a significant producer of solar power. The government’s target is 100 GW of installed solar power by 2020—which is quite ambitious, given that the country churned out a mere four GW in 2015. (Source: “Rapid Growth in India’s Solar Energy Market: Stronger Policies to Achieve 100 GW by 2020,”  Natural Resources Defense Council, June 30 2015.)

The strong tailwinds mean fantastic opportunities for solar energy companies like India-based Azure Power Global Ltd (NYSE:AZRE). Azure is the first—and I believe only—India-based power company to list its stock in the United States.

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Azure Power offers integrated solar power solutions, ranging from developing and building solar assets to operation and maintenance. The projects vary in size, from small-scale rooftop solar grids to large-cap utility projects. The power generated is sold on long-term fixed contracts to government utilities and commercial clients.

The prospects for AZRE stock are high, but it is underperforming, with a 9.6% decline this year and a 2.7% decline over the past year.

A look at the weekly chart of Azure Power stock displays a bullish double bottom formation and a potential pathway toward resistance at $17.00, to above $20.00.
AZRE stock chart

Chart courtesy of StockCharts.com

My Bull Case for AZRE Stock

Azure Power Global Ltd increased its revenue in each of the past three fiscal years ending in March.

Revenue rose by over 700% from fiscal-year 2014 to fiscal-year 2018, growing by 91.5% in fiscal-year 2018 alone.

Fiscal Year Revenue (Millions) Growth
2014 $14.6
2015 $18.4 26.1%
2016 $40.1 118.2%
2017 $62.4 55.5%
2018 $119.5 91.5%

Looking ahead, Azure Power is expected to see its revenue growth moderate to 20.5% (to $136.4 million) in fiscal-year 2019, prior to rallying by 38.7% to $197.7 million in fiscal-year 2020. (Source:”Azure Power Global Limited (AZRE),” Yahoo! Finance, last accessed September 21, 2018.)

Azure Power has yet to turn a profit, but it is expected to narrow its losses from an adjusted $0.49 per diluted share in fiscal-year 2018 to $0.12 per diluted share in fiscal-year 2019.

For fiscal-year 2020, Azure Power is expected to report an adjusted $0.12 per diluted share, with a high estimate of $0.36 per diluted share.

Azure has yet to produce positive free cash flow, but the company is heading toward this as it becomes more profitable.

Analyst Take

My bull thesis for Azure Power stock is based on strong tailwinds and the Indian government’s support for the solar energy industry.

For now, Azure Power Global Ltd is all about ramping up its capacity and driving revenue growth.

If the company can deliver on growth, I would expect to see strong price appreciation for AZRE stock.