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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

(Mark One)

 

Registration statement pursuant to section 12(b) or 12(g) of the Securities Exchange Act of 1934

or

 

Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                    to                 

 

Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended March 31, 2021

or

 

Shell company report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

Date of event requiring this shell company report

Commission file number 001-37909

 

Azure Power Global Limited

(Exact name of Registrant as specified in its charter)

 

Mauritius

(Jurisdiction of Incorporation or Organization)

5th Floor, Southern Park, D-II,

Saket Place, Saket, New Delhi 110017, India

Telephone: (91-11) 49409800

(Address and Telephone Number of Principal Executive Offices)

Ranjit Gupta

Chief Executive Officer

5th Floor, Southern Park, D-II,

Saket Place, Saket, New Delhi 110017, India

Telephone: (91-11) 49409800

Facsimile: Fax: +91- 49409807

(Name, Telephone, email and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading symbol(s)

 

Name of each exchange on which registered

Equity Shares, par value US$0.000625 per share

 

AZRE

 

New York Stock Exchange

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of March 31, 2021, 48,195,962 equity shares, par value US$0.000625 per share, were issued and outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes       No  

If this annual report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes       No  

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  

 

Accelerated filer  

 

Non-accelerated filer             

 

Emerging Growth Company  

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP  

  

International Financial Reporting Standards as issued by the International Accounting Standards Board  

  

Other  

 

If “Other” has been checked in the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    Item 17       Item 18  

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes       No  

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court:    Yes       No  

 

 


TABLE OF CONTENTS

 

Contents

 

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

5

 

 

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

 

5

 

 

 

ITEM 3. KEY INFORMATION

 

5

 

 

 

ITEM 4. INFORMATION ON THE COMPANY

 

51

 

 

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

 

78

 

 

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

78

 

 

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

110

 

 

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

129

 

 

 

ITEM 8. FINANCIAL INFORMATION

 

130

 

 

 

ITEM 9. THE OFFER AND LISTING

 

130

 

 

 

ITEM 10. ADDITIONAL INFORMATION

 

131

 

 

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

136

 

 

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

138

 

 

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

 

139

 

 

 

ITEM  14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

 

139

 

 

 

ITEM 15. CONTROLS AND PROCEDURES

 

139

 

 

 

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

 

140

 

 

 

ITEM 16B. CODE OF ETHICS

 

140

 

 

 

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

141

 

 

 

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

 

141

 

 

 

ITEM  16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 

141

 

 

 

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

141

 

 

 

ITEM 16G. CORPORATE GOVERNANCE

 

141

 

 

 

ITEM 16H. MINE SAFETY DISCLOSURE

 

142

 

 

 

ITEM 17. FINANCIAL STATEMENTS

 

143

 

 

 

ITEM 18. FINANCIAL STATEMENTS

 

143

 

 

 

ITEM 19. EXHIBITS

 

144

 

 

 

 


CONVENTIONS USED IN THIS ANNUAL REPORT

Except where the context requires otherwise and for purposes of this annual report only:

 

 

 

“Our Company” or “Our holding company” refers to Azure Power Global Limited on a standalone basis.

“We,” “us,” the “Group,” “Azure” or “our” refers to Azure Power Global Limited, a company organized under the laws of Mauritius, together with its subsidiaries (including Azure Power Rooftop Private Limited (“AZR”), and Azure Power India Private Limited, or AZI, its predecessor and current subsidiaries).

 

AZI, a company organized under the laws of India, refers to Azure Power India Private Limited

 

APGL, a company organized under the laws of India, refers to Azure Power Global Limited

 

“CERC” refers to the Central Electricity Regulatory Commission of India, the state level counterparts of which are referred to as “State Electricity Regulatory Commission,” or “SERC”.

 

“INR,” “rupees,” or “Indian rupees” refers to the legal currency of India.

 

“MNRE” refers to Indian Ministry of New and Renewable Energy.

 

“NSM” refers to the Jawaharlal Nehru National Solar Mission.

 

“U.S. GAAP” refers to the Generally Accepted Accounting Principles in the United States.

 

“US$” or “U.S. dollars” refers to the legal currency of the United States.

 

“SECI” refers to Solar Energy Corporation of India

 

“PGCIL” refers to Power Grid Corporation of India Limited

 

“APDC” refers to Assam Power Distribution Company

 

“LPSC” refers to Late Payment Surcharge

 

“MOP” refers to Ministry of Power

“RPO” refers to Renewable Purchase Obligation

“LOA” refers to Letters of Award

“PPA” refers to Power Purchase Agreement

”PSA” refers to Power Sales Agreement

“VGF” refers to Viability Gap Funding

“APERC” refers to Andhra Pradesh Electricity Regulatory Commission

“KERC” refers to Karnataka Electricity Regulatory Commission

“APTEL” refers to Appellate Tribunal for Electricity

“CUF” refers to Capacity Utilization Factor

“EPC” refers to Engineering, Procurement and Construction

“PSPCL” refers to Punjab State Power Corporation Limited

“PSERC” refers to Punjab State Electricity Regulatory Commission

“CDPQ” refers to Caisse De Dépôt Et Placement Du Québec

"CDPQ Infrastructures" refers to CDPQ Infrastructures Asia Pte Ltd.

“ALMM” refers to Approved List of Models & Manufacturers

“NISE” refers to National Institute of Solar Energy

“NRE” refers to New & Renewable Energy

“PFIC” refers to Passive Foreign Investment Company

“RG” refers to Restricted Groups

“ISTS” refers to Inter State Transmission System

“IREDA” refers to Indian Renewable Energy Development Agency Limited

 

In this annual report, references to “U.S.” or the “United States” are to the United States of America, its territories and its possessions. References to “India” are to the Republic of India, its territories and its possessions. References to “Mauritius” are to the Republic of Mauritius.

1


Unless otherwise indicated, the consolidated financial statements and related notes included in this annual report have been presented in Indian rupees and prepared in accordance with U.S. GAAP. References to a particular “fiscal” year are to our fiscal year ended March 31 of that year, which is typical in our industry and in the jurisdictions in which we operate.

This annual report contains translations of certain Indian rupee amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise stated, the translation of Indian rupees into U.S. dollars has been made at INR 73.14 to US$1.00, which is the noon buying rate in New York City for cable transfer in non-U.S. currencies as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2021. We make no representation that the Indian rupee or U.S. dollar amounts referred to in this annual report could have been converted into U.S. dollars or Indian rupees, as the case may be, at any particular rate or at all.

As used in this annual report, all references to watts (e.g., megawatts, gigawatts, kilowatt hour, terawatt hour, MW, GW, kWh, etc.) refer to measurements of power generated.

2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains forward looking statements about our current expectations and views of future events. All statements, other than statements of historical facts, contained in this annual report, including statements about our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and future megawatt goals of management, are forward looking statements. These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under “Item 3. Key Information — D. Risk Factors,” which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, these forward looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions.

These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these forward-looking statements reflect our current views about future events and are not a guarantee of future performance. Actual outcomes may differ materially from the information contained in the forward-looking statements because of a number of factors, including, without limitation, the risk factors set forth in “Item 3. Key Information — D. Risk Factors” and the following:

 

 

the pace of government sponsored auctions;

 

changes in auction rules;

 

the Indian government’s willingness to enforce Renewable Purchase Obligations, or RPOs;

 

permitting, development and construction of our project pipeline according to schedule;

 

solar radiation in the regions in which we operate;

 

developments in, or changes to, laws, regulations, governmental policies, incentives, and taxation affecting our operations;

 

adverse changes or developments in the industry in which we operate;

 

our ability to maintain and enhance our market position;

our ability to enter new segments of the renewable energy market;

 

our ability to successfully implement any of our business strategies, including acquiring other companies and sale of our assets;

 

our ability to enter into power purchasing agreements, or PPAs, on acceptable terms, the occurrence of any event that may expose us to certain risks under our PPAs and the willingness and ability of counterparties to our PPAs to fulfill their obligations;

 

our ability to borrow additional funds and access capital markets, as well as our substantial indebtedness and the possibility that we may incur additional indebtedness going forward;

 

solar power curtailments by state electricity authorities;

our ability to establish and operate new renewable energy projects;

 

our ability to compete against traditional and renewable energy companies;

 

the loss of one or more members of our senior management or key employees;

 

impact of the COVID-19 pandemic and lockdowns in India and globally;

political and economic conditions in India;

 

material changes in the costs and availability of solar panels, raw materials, and other equipment required for our operations;

 

fluctuations in inflation, interest rates and exchange rates;

 

global economic conditions;

disruptions in our supply chain; and

 

other risks and uncertainties, including those listed under the caption “Item 3. Key Information — D. Risk Factors.”

 

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we reference in this annual report and have filed as exhibits with the SEC, of which this annual report is a part, completely and with the understanding that our actual future results or performance may be materially different from what we expect.

3


This annual report also contains statistical data and estimates, including those relating to the renewable energy industry and our competition from market research, analyst reports and other publicly available sources. These publications include forward looking statements being made by the authors of such reports. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

4


PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The following selected consolidated statement of operations data for the fiscal years ended March 31, 2019, 2020 and 2021 and the selected consolidated balance sheet data as of March 31, 2020 and 2021, have been derived from our audited consolidated financial statements included elsewhere in this annual report. The selected consolidated statement of operations data for the fiscal years ended March 31, 2017 and 2018 and selected consolidated balance sheet data as of March 31, 2017, 2018 and 2019 have been derived from our audited consolidated financial statements of the respective periods not included in this annual report. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate our results expected for any future period.

5


The following information should be read in conjunction with, and is qualified in its entirety by reference to, “Item 5. Operating and Financial Review and Prospects” and the audited consolidated financial statements and the notes thereto included elsewhere in this annual report.

 

 

 

Fiscal Year Ended March 31,

 

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2021 (1)

 

Consolidated Statement of Operations data:

 

(INR)

 

 

(INR)

 

 

(INR)

 

 

(INR)

 

 

(INR)

 

 

(US$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions except for per share amounts)

 

Operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from customers

 

 

4,183

 

 

 

7,701

 

 

 

9,926

 

 

 

12,958

 

 

 

15,236

 

 

208.3

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of operations (exclusive of depreciation and amortization shown separately below)

 

 

376

 

 

 

692

 

 

 

869

 

 

 

1,146

 

 

 

1,261

 

 

17.2

 

General and administrative

 

 

797

 

 

 

1,188

 

 

 

1,306

 

 

 

2,422

 

 

 

2,988

 

 

40.9

 

Depreciation and amortization

 

 

1,047

 

 

 

1,883

 

 

 

2,137

 

 

 

2,860

 

 

 

3,202

 

 

43.8

 

Impairment loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,255

 

 

44.5

 

Total operating costs and expenses:

 

 

2,220

 

 

 

3,763

 

 

 

4,312

 

 

 

6,428

 

 

 

10,706

 

 

146.4

 

Operating income

 

 

1,963

 

 

 

3,938

 

 

 

5,614

 

 

 

6,530

 

 

 

4,530

 

 

61.9

 

Other expense, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

2,444

 

 

 

5,335

 

 

 

5,022

 

 

 

7,962

 

 

 

8,410

 

 

114.8

 

Other (income)/expense

 

 

(72

)

 

 

(167

)

 

 

(140

)

 

 

(96

)

 

18

 

 

0.2

 

Loss (gain) on foreign currency exchange, net

 

 

(109

)

 

 

46

 

 

 

441

 

 

 

512

 

 

7

 

 

0.1

 

Total other expenses, net

 

 

2,263

 

 

 

5,214

 

 

 

5,323

 

 

 

8,378

 

 

 

8,435

 

 

115.1

 

(Loss)/ profit before income tax

 

 

(300

)

 

 

(1,276

)

 

 

291

 

 

 

(1,848

)

 

 

(3,905

)

 

 

(53.2

)

Income tax (expense)/ benefit

 

 

(892

)

 

 

253

 

 

 

(153

)

 

 

(489

)

 

 

(296

)

 

 

(4.0

)

Net (loss)/ profit

 

 

(1,192

)

 

 

(1,023

)

 

 

138

 

 

 

(2,337

)

 

 

(4,201

)

 

 

(57.2

)

Less: Net (loss) / profit attributable to non-controlling interest

 

 

(19

)

 

 

(202

)

 

 

60

 

 

 

(68

)

 

5

 

 

0.1

 

Net (loss)/ profit attributable to APGL

 

 

(1,173

)

 

 

(821

)

 

 

78

 

 

 

(2,269

)

 

 

(4,206

)

 

 

(57.3

)

Accretion to Mezzanine CCPS

 

 

(236

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accretion to redeemable non-controlling interest

 

 

(44

)

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

Net (loss)/ profit attributable to APGL equity shareholders

 

 

(1,453

)

 

 

(827

)

 

 

78

 

 

 

(2,269

)

 

 

(4,206

)

 

 

(57.3

)

Net (loss)/ profit per share attributable to APGL equity stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

(111.39

)

 

 

(31.84

)

 

 

2.37

 

 

 

(52.71

)

 

 

(87.66

)

 

 

(1.20

)

Diluted

 

 

(111.39

)

 

 

(31.84

)

 

 

2.31

 

 

 

(52.71

)

 

 

(87.66

)

 

 

(1.20

)

Shares used in computing basic and diluted per share amounts:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares used in basic

 

 

13,040,618

 

 

 

25,974,111

 

 

 

33,063,832

 

 

 

43,048,026

 

 

 

47,979,581

 

 

 

47,979,581

 

Weighted average shares used in diluted

 

 

13,040,618

 

 

 

25,974,111

 

 

 

33,968,127

 

 

 

43,048,026

 

 

 

47,979,581

 

 

 

47,979,581

 

 

The following table sets forth a summary of our consolidated statement of financial position as of March 31, 2017, 2018, 2019, 2020 and 2021:

 

 

 

As of March 31,

 

Balance Sheet data:

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2021 (1)

 

 

 

(INR)

 

 

(INR)

 

 

(INR)

 

 

(INR)

 

 

(INR)

 

 

(US$)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in millions)

 

Cash, cash equivalents, and current investments available for sale

 

 

8,757

 

 

 

9,730

 

 

 

10,545

 

 

 

9,972

 

 

 

11,107

 

 

151.8

 

Property, plant and equipment, net

 

 

40,943

 

 

 

56,581

 

 

 

83,445

 

 

 

95,993

 

 

 

108,847

 

 

 

1,488.2

 

Total assets

 

 

57,494

 

 

 

73,984

 

 

 

108,864

 

 

 

132,401

 

 

 

148,465

 

 

 

2,029.6

 

Project level and other debt (2)

 

 

35,158

 

 

 

53,944

 

 

 

71,772

 

 

 

89,864

 

 

 

103,523

 

 

 

1,415.4

 

Total APGL shareholders equity

 

 

13,222

 

 

 

12,117

 

 

 

25,129

 

 

 

27,018

 

 

 

24,248

 

 

331.5

 

Total shareholders’ equity and liabilities

 

 

57,494

 

 

 

73,984

 

 

 

108,864

 

 

 

132,401

 

 

 

148,465

 

 

 

2,029.6

 

 

6


Notes:

(1)

Translation of balances in the consolidated balance sheets and the consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows from INR into US$, as of and for the fiscal year ended March 31, 2021 are solely for the convenience of the readers and were calculated at the rate of US$1.00 = INR 73.14, the noon buying rate in New York City for cable transfers in non U.S. currencies, as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2021. No representation is made that the INR amounts could have been, or could be, converted, realized or settled into US$ at that rate on March 31, 2021, or at any other rate.

(2)

This balance represents the short term and long-term portion of project level secured term loans and other secured bank loans. This balance is net of ancillary cost of borrowing of INR 909 million as of March 31, 2017, INR 828 million as of March 31, 2018, INR 851 million as of March 31, 2019, INR 1,145 million as of March 31, 2020 and INR 1,107 million (US$ 15.1 million) as of March 31, 2021.

 

Note: There may be differences due to rounding

B. Capitalization and Indebtedness

Not applicable

C. Reasons for the Offer and Use of Proceeds

Not applicable

D. Risk Factors

If any of the following risks actually occur, our business, financial condition, results of operations and cash flows could be materially and adversely affected. In that event, the trading price of our equity shares could decline, and you may lose part or all of your investment. This annual report also contains forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including the risks described below and elsewhere in this annual report

Risks to our Business related to the COVID-19 pandemic

The COVID-19 pandemic’s adverse impacts on our business, financial position, results of operations, and prospects could be significant.

The COVID-19 pandemic has created disruptions to the global economy and to the lives of individuals throughout the world. Governments, businesses, and the public have taken unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and other regulatory changes. The Government of India imposed a nationwide lockdown in India on March 25, 2020 which continued until May 31, 2020, while gradually relaxing restriction during the period. Due to this lockdown, construction work on our solar projects stopped for several weeks, which resulted in some impact to our construction timelines. A second wave of COVID-19 infections have severely impacted India in April, May and June 2021. This second wave in India has seen new peaks in daily cases, daily deaths, active cases and positivity rates. The second wave has resulted in significant strain on the health infrastructure in the country resulting in several states announcing lockdown measures. Due to this second wave of infection in India, several state governments including Maharashtra, Rajasthan and the National Capital Region announced partial lockdowns during the months of April, May and June 2021. These lock downs and the COVID-19

7


pandemic have impacted and continue to impact construction work on our projects and the availability of labor, components and material. Even after the lockdowns are lifted or eased, we may continue to experience disruption in our construction activities and supply of components and materials till the supply chains are fully restored. Several of our employees have also been infected with the COVID-19 virus over in Fiscal 2021 and in Fiscal 2022 during the first and second wave. Accordingly, we have and may continue to lose key management and employee hours due to COVID-19 related illness and related issues.

Governments and organizations have broadly revised Gross Domestic Product (“GDP”) growth forecasts downward in response to the economic slowdown caused by the spread of COVID-19 and it is possible that the COVID-19 outbreak may cause a prolonged economic crisis or recession. While the scope, duration and full effects of the second wave of COVID-19 are rapidly evolving and not fully known, the pandemic and related efforts to contain it have disrupted global and domestic economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains. While these impacts continue, they will result in sustained economic stress or recession in India and many of the risk factors identified in this Risk Factors section of our annual report could be exacerbated and such effects could have a material adverse impact on us in a number of ways related to liquidity, operations, customer demand, interest rate risk, and human capital, as described in more detail below.

 

Liquidity risk: Our success may be affected by a variety of external factors that may affect the price or marketability of our products and services, including disruptions in the capital markets, changes in interest rates that may increase our funding costs, reduced demand for our solar products due to economic conditions and the various response of governmental and nongovernmental authorities. The COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global and domestic capital markets, which could increase the cost of capital and adversely impact access to capital. A period of extremely volatile and unstable market conditions would likely increase our funding costs and negatively affect market risk mitigation strategies. Furthermore, the volatility in global and domestic capital markets may cause increased volatility in currency exchange rates reducing our ability, or increase the costs, to mitigate these risks. Any depreciation of the Indian rupee could result in higher hedging cost and increased costs of imports for us. In addition, foreign exchange hedges on our restricted groups have a cap and heightened volatility in foreign exchange rates may result in additional payments.

 

Strategic risk: As a result of the business shutdown and facilities closures, the global and domestic economy has significantly slowed down, resulting in reduced electricity demand in India and globally. Customer demand for electricity may not swiftly recover to pre-COVID-19 level or at all, due to the potential of a prolonged global or domestic economic crisis or recession. Economic downturns may alter the priorities of governments (including the Government of India) to subsidize and/or incentivize participation in markets in which we operate. The global economic crisis may also prompt the Indian government to enact emergency measures such as electricity tariff adjustments to ease the financial burden on economically disadvantaged customers, each of which could have an adverse impact on our financial conditions, results of operations, and cash flows.

 

 

Operational risk: Current and future restrictions on our workforce’s access to any of our facilities and the health and availability of our workforce in constructing our solar projects could limit our ability to meet customer expectations and have a material adverse effect on our operations. We may experience increased difficulties in receiving payments from our distribution customers. These customers may not have adequate liquidity or may have greater difficulties in settling their electricity bills. Further, in response to COVID-19, our employees are working remotely from their homes but technology in employees’ homes may not be as robust as in our offices and could cause the networks, information systems, applications, and other tools available to employees to be more limited or less reliable than in our offices. The continuation of work-from-home measures introduces additional operational risk, especially cybersecurity risk. These cyber risks include greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential information, limited ability to restore systems in the event of

8


 

a systems failure or interruption, and a greater risk of a security breach resulting in destruction or misuse of valuable information.

 

Due to inadequate medical infrastructure in India, our employees may be at risk of not being able to access healthcare to treat COVID. Several of our employees have also been infected with the COVID-19 virus over in Fiscal 2021 and in Fiscal 2022 during the second wave.

 

Moreover, we rely on many suppliers and contractors. During the current year, we have faced several challenges and continue to face challenges currently to obtain materials from our suppliers and materials we do obtain often are at higher prices than in the past year. Certain suppliers have refused to provide material at the prices agreed under the terms of our supply agreements with them and have asked for price increases. Any further, fluctuations in prices of material could have a material adverse effect on our business, financial condition, results of operations and cash flows. We also rely on local and federal government agencies, offices, and other third parties in obtaining permits, conducting construction of our projects and transporting our solar products. In light of responses to the pandemic, these entities may limit the availability and access of their services. For example, we rely on frequent facility maintenance and improvement through operation and maintenance (“O&M”) activities to maintain efficient operation of our facilities. The COVID-19 pandemic could potentially limit our O&M activities due to labor shortages, materials, and limited availability of third-party service providers, resulting in an adverse impact on our revenues which may not be covered through insurance, as COVID-19 related risks are not covered under several of our existing insurance policies. If suppliers and third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our operations. Further, we may have disputes with suppliers, contractors or customers that could lead to litigation or arbitration due to contractual force majeure notices.

 

 

Delay in legal matters: The extension of the nationwide lockdown due to COVID-19 or other localised lockdowns/disruptions pandemic have delayed important legal hearings relating to legal proceedings to which we are a party. The commissions and courts during such period have only been hearing matters of urgent nature. If courts and commissions continue to have limited hearings for a prolonged period, it may lead to delay in finalization of our legal cases and may have negative impact on our operations.

 

Because there have been no comparable recent global pandemics that resulted in a similar global impact, we do not yet know the full extent of COVID-19’s effects on our business, operations, or the global economy as a whole. The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition will depend on future developments, including the timeliness and effectiveness of actions taken or not taken to contain and mitigate the effects of COVID-19 both in India and internationally by governments, central banks, healthcare providers, health system participants, other businesses, and individuals, which are highly uncertain and cannot be predicted. The uncertain future development of this crisis could materially and adversely affect our business, operations, operating results, financial condition, liquidity or capital levels.

Risks Related to our Business and Our Industry

We may not be able to sign PPAs in respect of the 4,000 MWs manufacturing linked tender for which letter of award has already been received.

During fiscal year 2020, we won a bid for 2,000 MWs manufacturing linked project with SECI and also elected to exercise a greenshoe option for an additional 2,000 MWs as per auction guidelines. We have received a Letter of Award (“LOA”) for the 4,000 MWs projects including for the greenshoe option for 2,000 MWs. We continue to work towards signing PPAs for these 4,000 MWs projects. SECI has informed us that so far there has not been adequate response from the DISCOMs for SECI to be able to sign the PSAs at this stage even though a LOA has been received. SECI has mentioned that they will be unable to sign PPAs until PSAs have been signed, and they have committed to inform us of developments in their efforts with the DISCOMS. Capital costs, interest rates and foreign exchange rates have improved since we won the 4 GWs auction in fiscal year 2020 which have resulted in lower tariffs in other recent SECI auctions. We expect these savings likely will be passed on to the DISCOMs. We expect a tariff markdown from the price achieved in the auction, which will facilitate signing of PSAs. We will continue

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our discussions with SECI towards signing PPAs in respect of the 4,000 MWs projects and expect the PPAs to be signed in tranches over a period. In case we are unable to sign PPAs in respect of these LOAs, it could have a material adverse effect on our cash flows projections.

Our long-term growth depends in part on the Indian government’s continued commitment to solar and renewable energy.

In 2015 the Government of India (the “Government” or “GoI”) set a target of 175 GW renewable energy capacity by 2022. However, actual capacity additions historically have been lower than the GoI’s announced targeted capacity additions. According to the MNRE, the installed capacity as of March 31, 2021 was approximately 94 GW, which includes approximately 39 GW of solar capacity. In 2020, Prime Minister of India announced a target of 450 GWs for India’s renewable energy capacity to be achieved by the year 2030. Any subsequent revision of targets by the GoI including a change in focus on other alternative sources for any reason (due to an economic slowdown resulting from the COVID-19 pandemic or other policy reasons), may have material impact on our long term growth and adversely affect our ability to achieve our long-term business objectives, targets and goals.

 

The reduction, modification or elimination of central and state government incentives may reduce the economic benefits of our existing solar projects and our opportunities to develop or acquire suitable new renewable energy projects.

The development and profitability of renewable energy projects in the locations in which we operate are dependent on policy and regulatory frameworks that support such developments. Further, the Indian Income Tax Act, 1961 as amended, provides for certain tax benefits, including 100% tax deductions of the profits derived from generation of power for any 10 consecutive years, out of the first 15 years, beginning from the year in which project is completed. However, the exemption was only available to the projects completed on or before March 31, 2017. In addition, certain state policies also provide economic incentives like single window clearance system and setting up of solar parks. In addition, as per The Taxation Laws (Amendment) Act, 2019, the Government reduced corporate taxes for certain companies to 25%. However, any companies that benefit from the reduced tax rate are not able to avail themselves of any exemptions or incentives such as an 80IA exemption or additional depreciation. As per 80-IA exemption, projects which were completed on or before March 31, 2017, qualified for a tax holiday for a period of ten consecutive years out of 15 years beginning from the year in which the undertaking first generates power (referred to as the tax holiday period). For newly incorporated manufacturing companies incorporated after October 1, 2019, the rate had been reduced to 15%. Further, there is also a reduction in the Minimum Alternate Tax (“MAT”). However, income tax rules are subject to change and such benefits may not be available in the future.

The availability and size of such incentives depend, to a large extent, on political and policy developments relating to environmental concerns in India and are typically available only for a specified time. Generally, the amount of government incentives for solar projects has been decreasing as the cost of producing energy has dropped below grid parity. None of the projects we have won in the last three fiscal years have received direct incentives or subsidies other than ISTS waiver.

Changes in central and state policies could lead to a significant reduction in or a discontinuation of the support for renewable energy. Reductions in economic incentives that apply to future solar projects could diminish the availability of our opportunities to continue to develop or acquire suitable renewable energy projects. Such reductions may also apply to existing renewable energy projects, which could significantly reduce the economic benefits we receive from our existing solar projects. Moreover, some of the renewable energy program incentives expire or decline over time, are limited in total funding, require renewal from regulatory authorities or require us to meet certain investment or performance criteria. In addition, although various SERCs have specified Renewable Purchase Obligation (RPOs) for their distribution companies, the implementation of RPO schemes has not been uniform across Indian states.

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Additionally, we may not continue to qualify for such incentives. We may choose to implement other renewable energy projects that are outside the scope of such incentives. Further, increased emphasis on reducing greenhouse gas emissions and the possibility of trading carbon dioxide emission quotas has led to extra duties being levied on sources of energy, primarily fossil fuels, which cause carbon dioxide pollution. The imposition of these duties has indirectly supported the expansion of power generated from renewable energy and, in turn, solar projects in general. If such direct and indirect government support for renewable energy were terminated or reduced, it would make producing electricity from renewable energy projects less competitive and may reduce demand for renewable energy projects.

A significant reduction in the scope or discontinuation of government incentive programs in our markets could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.

Our operations are subject to governmental, health, safety and environmental regulations, which require us to obtain and comply with the terms of various approvals, licenses and permits. Any failure to obtain, renew or comply with the terms of such approvals, licenses and permits in a timely manner or at all may have a material adverse effect on our results of operations, cash flows and financial condition.

The power generation business in India is subject to a broad range of environmental, health, safety and other laws and regulations. These laws and regulations require us to obtain and maintain a number of approvals, licenses, registrations and permits for developing and operating power projects. Additionally, we may need to apply for more approvals in the future, including renewal of approvals that may expire from time to time. For example, we require various approvals during construction of our solar projects and prior to the commissioning certificate is issued, including capacity allocation and capacity transfer approvals, approvals from the local pollution control boards, evacuation and grid connectivity approvals and approval from the chief electrical inspector for installation and energization of electrical installations at the solar project sites. In addition, we are required to comply with state-specific requirements. Certain approvals may not be obtained in a timely manner, as a global crisis such as the COVID-19 pandemic may lead to limited operations or no operations at Government offices, resulting in delays in obtaining approvals. Certain approvals may also be granted on a provisional basis or for a limited duration and require renewal. If the conditions specified therein are not satisfied at a later date, we may not be able to evacuate power from these projects. For example, with respect to our Assam 1 project, there were delays in obtaining an approval to adopt the discovered tariff and to approve the PPA from the appropriate commission.

In addition, we could be affected by the adoption or implementation of new safety, health and environmental laws and regulations, new interpretations of existing laws, increased governmental enforcement of environmental laws or other similar developments in the future. For instance, we currently fall under an exemption granted to solar photovoltaic projects that exempts us from complying with the Environment Impact Assessment Notification, 2006, issued under the Environment (Protection) Act, 1986. While we are not required to obtain consents under the Water (Prevention and Control of Pollution) Act, 1974, Air (Prevention and Control of Pollution) Act, 1981 and the Hazardous Waste (Management, Handling and Transboundary Movement) Rules, 2008, certain procedural requirements, such as informing the Pollution Control Board, exists. However, there can be no assurance that we will not be subject to any such consent requirements in the future, and that we will be able to obtain and maintain such consents or clearances in a timely manner, or at all, or that we will not become subject to any regulatory action on account of not having obtained or renewed such clearances in any past periods. Furthermore, our government approvals and licenses are subject to numerous conditions, some of which are onerous and require us to make substantial expenditure. We may incur substantial costs, including clean up or remediation costs, fines and civil or criminal sanctions, and third-party property damage or personal injury claims, as a result of any violations of or liabilities under environmental or health and safety laws or noncompliance with permits and approvals, which, as a result, may have an adverse effect on our business and financial condition. In addition, during a global crisis such as the COVID-19 pandemic, we may be required to obtain special permits from Government authorities to start construction at project sites, and we may not be able to obtain such consents or clearances in a timely manner leading to an adverse impact on us.

We cannot assure you that we will be able to apply for or renew any approvals, licenses, registrations or permits in a timely manner, or at all, and that the relevant authorities will issue any of such approvals, licenses, registrations or permits in the time frames anticipated by us. Further, we cannot assure you that the approvals, licenses, registrations and permits issued to us would not be subject to suspension or revocation for non-compliance or alleged

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non-compliance with any terms or conditions thereof, or pursuant to any regulatory action. Any failure to apply for, renew and obtain the required approvals, licenses, registrations or permits, or any suspension or revocation of any of the approvals, licenses, registrations and permits that have been or may be issued to us, or any onerous conditions made applicable to us in terms of such approvals, licenses, registrations or permits may impede the successful commissioning and operations of our power projects, which may adversely affect our business, results of operations and cash flows. For instance, a petition had been filed in 2019 before the Supreme Court of India aimed at the conservation of two species of birds, the Great Indian Bustard and the Lesser Florican, which are endangered species majorly existing in the states of Rajasthan and Gujarat. The petitioner through an Interlocutory Appeal (“IA”) had further sought directions to ensure predator proof fencing, barring installation of overhead power lines, and installation of solar infrastructure in priority and potential habitats for conservation of these two species. In an interim order in the IA proceedings, the Supreme Court on April 19, 2021, has ordered for immediate installation of diverters, as well as conversion of all overhead power lines to underground lines in priority and potential areas. However, for high voltage line due to complexity any technical non feasibility if identified can be referred for technical evaluation by a committee set up by the Supreme Court in this regard. The conversion of overhead cables into underground power lines, wherever considered feasible by such committee, is to take place within a period of one year. As per the order, any costs incurred on account of implementation of such steps would be compensated by the respective state governments/ authorities, and such cost could be passed on to the ultimate consumer, subject to approval of the competent regulatory authority. If the order necessitates for implementation of undergrounding after all provisions under the order are exercised and or otherwise, then we might face difficulties in recovering costs for such corrective measures from the respective state governments/authorities in a timely manner and may also face resistance from the regulators when we seek an increase in tariff rates. This may lead to disputes and impact our business, financial condition, results of operations and cash flows. We estimate majority of our projects currently located in Rajasthan, may be adversely impacted by the order. It may also impact our current awarded capacity, which we may install in the region.

The generation of electricity from solar and wind sources depends on suitable meteorological conditions. If weather conditions are unfavorable, our electricity generation, and therefore revenue from our renewable energy projects, may be below our expectations.

The electricity produced and revenues generated by our renewable energy projects are highly dependent on suitable solar and wind conditions and associated weather conditions and air pollution, which are beyond our control. Furthermore, components of our systems, such as solar panels and inverters, could be damaged by severe weather, such as dust-storms, tornadoes or lightning strikes. We generally will be obligated to bear the expense of repairing the damaged solar energy systems that we own, and replacement and spare parts for key components may be difficult or costly to acquire or may be unavailable. Unfavorable weather, high levels of air pollution and atmospheric conditions could impair the effectiveness of our assets or reduce their output beneath their rated capacity or require shutdown of key equipment, impeding operation of our solar assets and our ability to achieve certain performance guarantees pursuant to our PPAs, forecasted revenues and cash flows. Sustained unfavorable weather could also unexpectedly delay the installation of renewable energy systems, which could result in a delay in us acquiring new projects or increase the cost of such projects. We guarantee the performance of our solar power plants and could suffer monetary consequences if our plants do not produce to our contracted levels. Generally, our plants are in remote locations, that are far from densely populated and polluted areas; however, such areas may be subject to pollution from sources for which we may not have the visibility at the time of setting up of plants.

We base our investment decisions with respect to each solar project on the findings of related solar studies conducted on-site prior to construction. However, actual climatic conditions at a project site may not conform to the findings of these studies and therefore, our facilities may not meet anticipated production levels or the rated capacity of our generation assets, which could adversely affect our business, financial condition, results of operations and cash flows.

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Our limited operating history, especially with large-scale solar projects or managing such a large portfolio, may not serve as an adequate basis to judge our future prospects, results of operations and cash flows.

We began our business in 2008 and have a limited operating history. We established our first utility scale solar plant in India in 2009. As of March 31, 2021, we operated 45 utility scale projects with a combined rated capacity of 1,990 MWs. As of March 31, 2021, we were also constructing a combined rated capacity of 965 MWs comprising utility scale projects of 65 MWs of Assam 1, 300 MWs of Rajasthan 6, 300 MWs of Rajasthan 8 and 300 MWs of Rajasthan 9. We also had an additional 4,000 MWs Contracted & Awarded, bringing our total Operating, Contracted & Awarded capacity to 6,955 MWs. Contracted & Awarded megawatts include 4,000 MWs for which we have received Letters of Award (“LOA”), but the Power Purchase Agreements (“PPAs”) have yet to be signed. Accordingly, our relatively limited operating history, especially with large-scale projects, or managing such a large portfolio may not be an adequate basis for evaluating our business prospects and financial performance and makes it difficult to predict the future results of our operations. Period-to-period comparisons of our operating results, and our results of operations for any period should not be relied upon as an indication of our performance for any future period. In particular, our results of operations, financial condition, cash flows and future success depend, to a significant extent, on our ability to continue to identify suitable sites, acquire land for solar projects, obtain required regulatory approvals, arrange financing from various sources, construct solar projects in a cost-effective and timely manner, expand our project pipeline and manage and operate solar projects that we develop. If we cannot do so, we may not be able to expand our business at a profit or at all, maintain our competitive position, satisfy our contractual obligations, or sustain growth and profitability.

The delay between making significant upfront investments in our solar and other renewable energy projects and receiving revenue could materially and adversely affect our liquidity, business, results of operations and cash flows.

There are generally several months between our initial bid in renewable energy auctions to build solar or other renewable energy projects and the date on which we begin to recognize revenue from the sale of electricity generated by such projects. Our initial investments include, without limitation, legal, accounting and other third-party fees, costs associated with project analysis and feasibility study, payments for land rights, payments for interconnection and grid connectivity arrangements, government permits, engineering and procurement of solar panels, balance of system costs or other payments, which may be non-refundable. Our projects may not be fully monetized for 25 years given the average length of our PPAs, but we bear the costs of our initial investment upfront. Furthermore, we have historically relied on our own equity contribution, international lenders and bank loans to pay for costs and expenses incurred during project development. Solar and other renewable energy projects typically generate revenue only after becoming commercially operational and starting to sell electricity to the power grid through offtakers. There may be long delays from the initial bid to projects becoming shovel-ready, due to the timing of auctions, obtaining permits and the grid connectivity process. Between our initial investment in the development of permits for solar projects and their connection to the transmission grid, there may be adverse developments, such as unfavorable environmental or geological conditions, pandemics, labor strikes, panel shortages or monsoon weather. For instance, in respect of some of our rooftop projects, we had faced several operational challenges resulting further delays in sign-off of Joint Meter Readings (JMR) by customers and ultimate collections of revenues. Same had also resulted in financial issues amid high operational and maintenance cost. Furthermore, we may not be able to obtain all of the permits as anticipated, permits that were obtained may expire or become ineffective and we may not be able to obtain project level debt financing as anticipated. In addition, the timing gap between our upfront investments and actual generation of revenue, or any added delay due to unforeseen events, such as delays associated with COVID-19 could put strains on our liquidity and resources, and materially and adversely affect our profitability, results of operations and cash flows. For a full discussion of the risks to our business associated with the COVID-19 pandemic, see “Risks to our Business related to the COVID-19 pandemic”.

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Renewable energy project development is challenging, and our growth strategy may ultimately not be successful, which can have a material adverse effect on our business, financial condition, results of operations and cash flows.

The development and construction of renewable energy projects involve numerous risks and uncertainties and require extensive research, planning and due diligence. As a result, we may be required to incur significant capital expenditures for land and interconnection rights, regulatory approvals, preliminary engineering, permits, and legal and other expenses before we can determine whether a renewable energy project is economically, technologically, or otherwise feasible. The projects which are now awarded may not be viable in the future.

We may expand our business significantly with several new projects in both new and existing jurisdictions in the future. As we adopt new projects, we expect to encounter additional challenges to our internal processes, external construction management, capital commitment process, project funding infrastructure, financing capabilities and regulatory approvals and compliance. Our existing operations, personnel, systems, and internal controls may not be adequate to support our growth and expansion and may require us to make additional unanticipated investments in our infrastructure. To manage the future growth of our operations, we will be required to improve our administrative, operational, and financial systems, procedures, and controls, and maintain, expand, train, and manage our growing employee base. We will need to hire and train project development personnel to expand and manage our project development efforts. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, execute our business strategies successfully or respond to competitive pressures. As a result, our business, prospects, financial condition, results of operations and cash flows could be materially and adversely affected.

 

Success in executing our growth strategy is contingent upon, among others:

 

accurately prioritizing geographic markets for entry, including estimates on addressable market demand;

 

managing local operations, capital investment or components sourcing in compliance with regulatory requirements;

 

negotiating favorable payment terms with suppliers;

 

collecting economic incentives as expected, and

 

signing PPAs or other arrangements that are commercially acceptable, including adequate financing.

We may not be able to find suitable sites for the development of renewable energy projects.

Renewable energy projects require resource availability (for example wind resource for wind projects and solar insolation for solar projects) that is not uniformly available in all areas. Further, large utility scale renewable projects must be interconnected to the power grid to deliver electricity, which requires us to find suitable sites with capacity on the power grid available. We may encounter difficulties registering certain leasehold/sale interest in such sites. Even when we have identified a desirable site for a project, our ability to obtain site control with respect to the site is subject to growing competition from other renewable power producers that may have better access to local government support or financial support or other resources. If we are unable to find or obtain site control for suitable sites on commercially acceptable terms, our ability to develop new projects on a timely basis or at all might be harmed, which could have a material adverse effect on our business, financial condition, and results of operations. Moreover, our land leases for projects are typically for 30 to 35 years, but our PPAs are generally for a term of 25 years. If we are not able to sell the power produced by our systems after the initial PPA has expired, it may impact our future cash flows.

COVID-19 and related lockdowns have subjected and may continue to subject our construction activities to delays and cost overruns as well as component shortages and supply delays from suppliers.

Our contracts with our suppliers and contractors all contain provisions for force majeure. Due to the impact of COVID -19 related lockdowns in India and other parts of the world some of our suppliers have issued force majeure

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notices to us requesting a suitable time extension for delivery. In case the situation continues for a long period of time we may have to terminate these contracts.

The commissioning of our 65 MW projects in Assam faced delays due to force majeure reasons due to the COVID-19 and lockdowns in fiscal 2021, for which we had filed extension petitions in the regulatory commission, which was not admitted. We have filed an appeal against the said order before APTEL, disposal of which is pending. We believe in the merits of the case, however, we cannot provide assurances, that such proceedings will ultimately be decided in our favor. For a full discussion of the risks to our business associated with the COVID-19 pandemic, see “Risks to our Business related to the COVID-19 pandemic”.

During fiscal 2021, vide notification dated June 30, 2020, the MNRE directed all Renewable Energy (RE) implementing agencies of the MNRE to treat the lockdown due to COVID-19, as force majeure, and provided that these agencies may grant extensions of time for RE projects equivalent to the period of lockdown and additional 30 (thirty) days for normalization after end of such lockdown. Further, as per notification dated August 13, 2020, the MNRE conveyed that all RE projects under implementation as on the date of lockdown, i.e. 25th March 2020, through RE implementing agencies designated by the MNRE or under various schemes of the MNRE, shall be given a time extension of five months from March 25, 2020 to August 24, 2020. This blanket extension, if invoked by the RE developers, will be given without case-to-case examination and no documents or evidence will be asked for such extension. The developers of the projects may also pass on the benefit of such time-extension by way of granting similar time-extensions to other stakeholders down the value chain like engineering procurement construction (EPC) contractors, material equipment suppliers and original equipment manufacturers (OEMs). Further MNRE through its subsequent clarifications dated February 9, 2021 and March 30, 2021 communicated that further time-extension beyond 5 months can be granted by implementing agencies in exceptional cases. However, for any time-extension totaling beyond 6 months, a reference shall be made to MNRE.

Subsequent to year end, amid outbreak of second wave of COVID-19, MNRE vide their notification dated May 12, 2021, clarified that RE projects having their Scheduled Commissioning date (SCOD) on or after 1st April 2021 will be eligible to claim time-extension for completion of their project activities, provided such time-extensions are not used as a ground for claiming termination of Power Purchase Agreement (PPA) or for claiming any increase in the project cost. The actual quantum of time-extension shall be decided in due course depending on the COVID-19 related developments that take place in the coming future. However, implementing agency/ off taker shall not initiate any coercive action on the project for recovery of penalty on delayed commissioning, till the time-extension request is decided upon. We are uncertain what additional extensions will be allowed by the MNRE in light of the second wave and related state lockdowns. If MNRE, does not provide support to the RE developers in providing extension, our business, results of operations, could be adversely affected in the form of penalties for delays and other costs.

We may incur unexpected cost overruns and expenses if the suppliers of components in our solar projects default in their warranty obligations or delay in the delivery of products and services for any reason.

We enter into contracts with our suppliers to supply components in our solar projects. If our suppliers do not perform their obligations, we may have to enter into new contracts with other suppliers at a higher cost or may suffer schedule disruptions. In addition, our suppliers may have difficulty fulfilling our orders and incur delivery delays, or charge us higher prices, higher up-front payments and deposits, which would result in higher-than-expected prices or less favorable payment terms to develop our projects. Delays in the delivery of ordered components in our solar projects could delay the completion of our under-construction projects. In addition, our relationship with our suppliers may worsen or lead to disagreements or litigation which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Fluctuations in prices of material and the inability to secure the on-time delivery of components and raw materials could have a material adverse effect on our business, financial condition, results of operations and cash flows. In fiscal 2021, we faced several challenges in receipt of material from its suppliers relating to the Rajasthan-6 and Assam projects. In a high demand environment, certain suppliers refused to provide material at the prices agreed under the terms of our agreements and asked for price increases. We have agreed to certain price increases in this

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regard, but, if the prices continue to climb, returns on our projects could be impacted and our business, financial condition, results of operations, cash flows could be adversely affected.

In addition, COVID-19 and related lockdowns has and continue to impact our supply of components and raw materials for our projects. See “COVID-19 and related lockdowns have subjected and may continue to subject our construction activities to delays and cost overruns as well as component shortages and supply delays from suppliers” and “Risks to our Business related to the COVID-19 pandemic” above.

Furthermore, the solar panels, inverters and other system components utilized in our solar projects are generally covered by manufacturers’ warranties, which are typically for 5 to 25 years. In the event any such components fail to operate as required, we may be able to make a claim against the applicable warranty to cover all or a portion of the expense or losses associated with the faulty component. However, the warranties may not be sufficient to cover all of our expense and losses. In addition, these suppliers could cease operations and no longer honor the warranties, which would leave us to cover the expense and losses associated with the faulty component. Our business, financial condition, results of operations and cash flows could be materially and adversely affected if we cannot recover the expense and losses associated with the faulty component from these warranty providers.

Further during the year, we also received notices related to the non-execution of contracts, however, no legal proceedings have been commenced against us. Our business, financial condition, results of operations and cash flows could be materially and adversely affected in case such claim is settled against the Company.

Our construction activities may be subject to cost overruns or delays which may adversely affect our business, financial condition, results of operations and cash flows.

Construction of our solar and other renewable energy projects may be adversely affected by circumstances outside of our control, including inclement weather, adverse geological and environmental conditions, failure to receive regulatory approvals on schedule or third-party delays in providing supplies and other materials. Changes in project plans or designs, or defective or late execution may increase our costs from our initial estimates and cause delays. Increases in the prices of our materials may increase procurement costs. In particular, we have not yet placed orders for all equipment required to construct and operate all of our power projects that are presently Contracted and under construction. There can be no assurance that the prices of the equipment required for our power projects that are presently Contracted and under construction will not change, which may cause the economic returns available from these projects to differ from our initial projections. For example, during last two quarters of current year, there had been increase in price of components mainly due to a shortage of raw material such as poly silicon, glass and ethylene-vinyl acetate (EVA). Also, we faced several challenges in receipt of raw material from its suppliers mainly in respect of our Rajasthan 6 and Assam projects, where our suppliers refused to provide raw materials at the prices agreed under the terms of our agreements with these suppliers. Any further, fluctuations in prices of raw material could have a material adverse effect on our business, financial condition, results of operations and cash flows. If we experience unexpected increases in procurement costs, our forecasted revenues and cash flows could be materially adversely affected.

 

Labor shortages, work stoppages, labor disputes or disruptions in transportation bringing in labor for projects could also significantly delay a project, increase our costs or cause us to breach our performance guarantees under our PPAs, particularly because strikes and labor transportation disruptions are not considered a force majeure event under many of our PPAs. Moreover, local political changes and delays, for instance, caused by state and local elections, as well as demonstrations or protests by local communities and special interest groups could result in, or contribute to, project time and cost overruns for us.

In addition, we sometimes utilize and rely on third-party sub-contractors to construct and install portions of our renewable energy projects. If our sub-contractors do not satisfy their obligations or do not perform work that meets our quality standards or if there is a shortage of third-party sub-contractors or if there are labor strikes that interfere with the ability of our employees or contractors to complete their work on time or within budget, we could experience significant delays or cost overruns.

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We may not be able to recover any of these losses in connection with construction cost overruns or delays. Certain PPAs require that we connect to the transmission grid by a certain date. If a project is significantly delayed, such PPAs may be terminated or require us to pay liquidated damages computed based on number of days of delay in commissioning of the projects or reduction in the PPA tariff. In addition, if we are unable to meet our performance guarantees, most of our PPAs require us to pay liquidated damages to the offtaker in proportion to the amount of power not supplied, and also grant the offtaker a right to draw on bank guarantees posted by us, including up to 100% of certain bank guarantees. Also, certain PPAs provide that we are liable for government fines and penalties if we fail to deliver electricity required by the offtakers to meet their RPO requirements. Furthermore, in the case of projects with viability gap funding (“VGF”), 50% of which is paid out in the first year with the remaining 50% paid out over the course of next five years, if the project fails to generate power for a long period of time, the government agency can suspend the VGF and demand repayment of previously paid sums. During fiscal 2021, we faced various operational challenges in respect of our rooftop projects like delays in site clearances resulting in further delays in construction of projects, including short closure of projects, lower PLF reported on projects, higher maintenance cost and lower operational efficiencies in comparison to the size of the rooftop sites. Also, in some cases relating to rooftop projects, our customers forfeited VGF entitlements as we were not able to meet the conditions. Further, there can be no assurance that we will be able to perform at a level that we are able to claim VGF in the future for our projects, as there have been instances in the past wherein we have been unable to claim the benefit on certain projects.

Any of the contingencies discussed above could lead us to fail to generate our expected return from our solar and other renewable energy projects and result in unanticipated and significant revenue and earnings losses.

Our operating results may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our operating results for a particular period to fall below expectations, which may result in a severe decline in the price of our equity shares.

Our quarterly operating results are difficult to predict and may fluctuate significantly in the future. We have experienced seasonal and quarterly fluctuations in the past, especially in the winter months and we may experience similar fluctuations in the future. However, given that we are a rapidly growing industry, those fluctuations may be masked by our recent growth rates and thus may not be readily apparent from our historical operating results. As such, our past quarterly operating results may not be good indicators of future performance.

In addition to the other risks described in this “Risk Factors” section, the following factors could cause our operating results to fluctuate:

 

 

the expiration or initiation of any central or state subsidies or incentives;

 

our ability to complete installations in a timely manner due to market conditions or due to unavailable financing;

 

our ability to continue to expand our operations, and the amount and timing of expenditures related to such expansions;

 

announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments;

 

changes in auction rules;

 

changes in feed-in tariff rates for solar power, VGF, our pricing policies or terms or those of our competitors;

 

actual or anticipated developments in our competitors' businesses or the competitive landscape;

 

an occurrence of low global horizontal irradiation that affects our generation of solar power;

 

fluctuations due to the COVID-19 pandemic, related lockdowns and resulting operational disruptions;

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change in law or adoption of new accounting pronouncements; and

significant volatility in market conditions (including, but not limited to foreign currency rates, interest rates and our share price) can directly impact our expenses such as foreign exchange gains and losses, derivative gains and losses, interest costs and Stock Appreciation Rights (SARs) expense.

For these or other reasons, the results of any prior quarterly or annual periods should not be relied upon as indications of our future performance. In addition, with respect to the above factors our actual revenue, key operating and financial metrics and other operating results in future quarters may fall short of the expectations of investors and financial analysts, which could have a material adverse effect on the trading price of our equity shares.

Counterparties to our PPAs may not fulfill their obligations which could result in a material adverse impact on our business, financial condition, results of operations and cash flows.

We generate electricity income primarily pursuant to PPAs entered into with central and state government-run utilities. Some of the customers may become subject to insolvency or liquidation proceedings during the term of the relevant contracts, and the credit support received from such customers may not be sufficient to cover our losses in the event of a failure to perform. There may also be delays associated with collection of receivables from government owned or controlled entities on account of the financial condition of these entities that deteriorated significantly in the past. Where we are selling power to non-governmental entities, we take into account the credit ratings assigned by rating agencies and our ability to collect when assessing the counterparties’ creditworthiness. The Governmental entities to which we sell power generally may not have credit ratings for us to consider. For illustrative purposes, Moody’s Investor Services Inc. and Standard and Poor’s Financial Services LLC have rated the Indian government Baa3 during June’2020 and BBB-, respectively. As a result, many of the state governments in India, if rated, would likely rate lower than the Indian government. Although the central and state governments in India have taken steps to improve the liquidity, financial condition and viability of state electricity distribution utility companies, 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.

In addition, our PPA customers may, for any reason, become unable or unwilling to fulfil their related contractual obligations, refuse to accept delivery of power delivered thereunder or otherwise terminate such agreements prior to the expiration thereof. If such events occur, our assets, liabilities, business, financial condition, results of operations and cash flows could be materially and adversely affected. For instance, Gujarat Urja Vikas Nigam Limited had filed a petition with the Gujarat Electricity Regulatory Commission, seeking recalculation of the tariff under its PPA based on actual cash flow required for development of solar projects and consequent revision of the tariff payable by it, in relation to certain solar power projects including our 10 MWs Gujarat 1 project. While the Gujarat Electricity Regulatory Commission and the Appellate Tribunal for Electricity dismissed the claims made by Gujarat Urja Vikas Nigam Limited, an appeal filed by Gujarat Urja Vikas Nigam Limited is pending before the Supreme Court of India. Further, On July 7, 2019, the Government of Andhra Pradesh vide an order bearing no. GO RT No 63 (“Order”), constituted a High-Level Negotiation Committee to revisit and review PPAs for solar & wind projects in the state of Andhra Pradesh with a view to bring down the tariffs. Pursuant to the same, a letter dated July 12, 2019, was issued by Andhra Pradesh Distribution Company to the developers to reduce the quoted tariff to INR 2.43 per unit for wind projects for the pending bills, and INR 2.44 per unit for solar projects from the date of commissioning and threatened termination of the PPA in case of refusal of the developers to accede to such reduction (“Letter”). The developers challenged both the Order and the Letter in the High Court at Vijayawada. The High Court vide order dated September 24, 2019, set aside both the Order and the Letter. However, as an interim measure, until the issue of possibility of reduction of existing tariff is decided by the Andhra Pradesh Electricity Regulatory Commission (“APERC”), directed to honor the outstanding and future bills of the developers, and pay at an interim rate of INR 2.43 and INR 2.44 per unit for wind and solar projects, respectively. This order of the single judge had been challenged in an appeal filed by the developers including Azure Power. The matter is listed for further hearing in the court and matter had been adjourned until disposal of the writ appeals before Vijayawada.

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For instance, in connection with an extension of the date of commissioning of the 40 MWs project in Karnataka of one of our subsidiaries, our distribution company customer reduced its payable tariff under the PPA. After certain litigation, the subsidiary executed a supplementary PPA with the customer allowing extension of time without reducing the PPA tariff, however when the supplementary PPA went for the approval of the Karnataka Electricity Regulatory Commission (“KERC”) the KERC, pursuant to an order directed our customer to retrospectively withdraw the extensions, and to enforce a reduced tariff and recover liquidated damages due to delay based on “actual commercial operation date”. Against the order of the KERC, we filed an appeal before the Appellate Tribunal for Electricity (“APTEL”). The matter is pending adjudication before APTEL. Although, in a similar matter, pertaining to the same issue, we have received a favorable order from APTEL vide order dated February 28, 2020, where APTEL set aside the order of KERC, wherein the KERC had reduced the extension of time and reduced the tariff and imposed liquidated damages. We cannot provide any assurances, however, that our appeal at APTEL will ultimately be decided in our favor. Further, the commissioning of a 10 MWs project in Punjab by another of our subsidiaries faced delays due to a delay by the customer, and our subsidiary had sought an extension of the commercial operation date at the same tariff rate as per the PPA. This matter is also currently pending before the APTEL. We cannot provide assurances, however, that such proceedings will ultimately be decided in our favor. In respect of our 222 MWs capacity projects in Punjab, our offtaker Punjab State Power Corporation Limited (PSPCL) had refused to accept power generated from these projects for the first week of April 2020 on account of COVID-19. Further, PSPCL had also deducted 5% of billed amount relating to the months of April-June 2020. We had filed petition before Punjab State Electricity Regulatory Commission (PSERC) through the Solar Power Developer Association against the same. The matter is currently pending with the appellant authority. However, we cannot provide assurances that such proceedings will ultimately be decided in our favor.

Furthermore, to the extent any of our customers are, or are controlled by, governmental entities, bringing actions against them to enforce their contractual obligations is often difficult. Also, our counterparties may be subject to legislative or other political action that may impair their contractual performance.

Our obligations under our PPAs and the tariffs set under our PPAs may expose us to certain risks that may affect our future results of operations and cash flows.

Our profitability is largely a function of our ability to manage our costs during the terms of our PPAs and operate our power projects at optimal levels. If we are unable to manage our costs effectively or operate our power projects at optimal levels, our business and results of operations may be adversely affected. In the event we default in fulfilling our obligations under the PPAs, such as supplying the minimum amount of power specified in some of the PPAs or failing to obtain regulatory approvals, licenses and clearances with respect to our solar projects, we may be liable for penalties and in certain specified events, customers may also terminate such PPAs. Further, any failure to supply power from the scheduled commercial operation date may result in levy of liquidated damages and encashment of bank guarantees provided by us under the terms of certain PPAs. The termination of any of our projects by our customers would adversely affect our reputation, business, results of operations and cash flows.

Further, the tender which involves manufacturing of solar modules, wherein we had entered into a joint venture agreement with a local solar panel manufacturer, to set up a new facility in accordance with the terms of the contract, any deviation from the contract terms, or non-performance by the joint venture partner could cause adverse impact to us financially as well as reputationally.

Under a long-term PPA, we typically sell power generated from a power plant to state distribution companies at pre-determined tariffs. Our PPAs are generally not subject to downward revisions unless we elect to utilize accelerated rate of depreciation or if there is a delay in commissioning our projects, although we have entered into contracts that provide for downward adjustments in the past and may do so in the future. Accordingly, if there is an industry-wide increase in tariffs or if we are seeking an extension of the term of the PPA, we will not be able to renegotiate the terms of the PPA to take advantage of the increased tariffs. In addition, in the event of increased operational costs, we will not have the ability to reflect a corresponding increase in our tariffs. Further, any delay in commissioning projects or supplying electricity during the term of the PPA may result in reduction in tariffs, based on the terms of the PPA.

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Therefore, the prices at which we supply power may have little or no relationship with the costs incurred in generating power, which may lead to fluctuations in our margins. All the above factors limit our business flexibility, expose us to an increased risk of unforeseen business and industry changes and could have an adverse effect on our business, results of operations and cash flows.

The term of most of our PPAs are also less than the life of the power projects they are tied to. We will need to enter into other offtake agreements, or seek renewals or extensions of the existing PPAs, for the balance of the life of those power projects. Moreover, there are often other restrictions on our ability to, among other things, sell power to third parties and undertake expansion initiatives with other consumers. Failure to enter into or renew offtake arrangements in a timely manner and on terms that are acceptable to us could adversely affect our business, results of operations and cash flows. There could also be negative accounting consequences if we are unable to extend or replace expiring PPAs, including writing down the carrying value of assets at such power project sites.

The Government also provides Viability Gap Funding (“VGF”) to various companies to support infrastructure projects that are economically justified but fall short of financial viability. Benefits under VGF are linked to certain conditions as set by the Government like achievement of minimum Capacity Utilization Factor (“CUF”) during the fiscal year. We have obtained VGF benefits in some of our projects. During fiscal year ended March 31, 2020, we could not avail the VGF for our Uttar Pradesh 40 MWs project due to our inability to meet the conditions. Further, there can be no assurance that we will be able to perform at a level that we are able to claim VGF in the future for our projects.

Additionally, under the PPAs, our remedies in case of delays in payment by our customers may also be limited. For example, certain PPAs only permit us to terminate the PPA on account of non-payment of dues upon 90 days of our inability to recover such dues. Such risks limit our business flexibility, expose us to an increased risk of unforeseen business and industry changes and could have an adverse effect on our business, results of operations and cash flows.

In addition, most of the government agencies we enter into PPAs with under the NSM or the relevant state policies require us to agree to their standard form contracts and we cannot negotiate for commercial terms or other terms of funding that are more favorable to us.

In respect of some of our rooftop projects, we faced several operational challenges in fiscal 2021 resulting further delays in the sign-off of Joint Meter Readings (JMR) by customers and delay in collections of revenues.

Our substantial indebtedness could adversely affect our business, financial condition, results of operations and cash flows.

As of March 31, 2021, we had INR 10,462 million (US$ 143.2 million) in current liabilities, excluding the current portion of long-term debt and short-term debt, and INR 103,523 million (US$ 1,415.4 million) in outstanding long-term borrowings, including the current portion of long-term debt and short-term debt. Generally, these borrowings relate to the financing for our projects and are secured by project assets.

Our debt could have significant consequences on our operations, including:

 

reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes as a result of our debt service obligations;

 

limiting our ability to obtain additional financing;

 

limiting our flexibility in planning for, or reacting to, changes in our business, the industry in which we operate and the general economy;

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potentially increasing the cost of any additional financing; and

 

limiting the ability of our project operating subsidiaries to pay dividends to us for working capital or return on our investment.

In addition, our borrowings under certain project-specific financing arrangement have floating rates of interest. Therefore, an increase or decrease in interest rates will increase or decrease our interest expense associated with such borrowing. A significant increase in interest expense could have an adverse effect on our business, financial condition, results of operations and cash flows impacting our ability to meet our payment obligations under our debt.

Any of these factors and other consequences that may result from our substantial indebtedness could have an adverse effect on our business, financial condition, results of operations and cash flows impacting our ability to meet our payment obligations under our debt. Our ability to meet our payment obligations under our outstanding debt depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. In addition, US$850.0 million of our debt is in the form of Green Solar bonds, which may be subject to refinancing risk, when they become due, as market conditions may not be possible to refinance the bonds at all or to refinance the bonds on favorable terms. In addition, our hedges on these bonds are covered up to INR 90.0/US$ and INR 93.0/US$ for the US$ 500.0 million and US$ 350.0 million bonds, respectively, which may expose us to additional hedging costs in the future. There has been a rating downgrade of the Government of India by Moody’s during June’2020. In case there is a negative outlook for the Government of India, it may make global access to funds difficult.

In addition, US$500.0 million of our debt in form of solar green bonds are due for refinancing in fiscal 2023. We are unable to make any assurance that we will be able to refinance these solar green bonds or refinance the bonds on favorable terms.

The Interest rates under our credit facilities may be adjusted for the phase-out of LIBOR

LIBOR, the London Interbank Offered Rate, is the rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rates on loans globally. We generally use LIBOR as a reference rate to calculate interest rates under our credit facilities. In 2017, the United Kingdom’s Financial Conduct Authority, which regulated LIBOR, announced that it intends to phase out LIBOR by the end of 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing LIBOR with a new index, the Secured Overnight Financing Rate (SOFR), calculated using short-term repurchase agreements backed by Treasury securities. SOFR may be more volatile than LIBOR. If LIBOR ceases to exist, we may need to renegotiate our credit agreements to replace LIBOR, and the interest rates under certain of our credit agreements may change. The new rates may not be as favorable to us as those currently in effect. We may also find it desirable to engage in more frequent interest rate hedging transactions.

Our growth prospects and future profitability depend to a significant extent on global liquidity and the availability of additional funding options with acceptable terms.

We require a significant amount of cash to fund the installation and construction of our projects and other aspects of our operations, and expect to incur additional borrowings in the future, as our business and operations grow. We may also require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue in order to remain competitive.

Historically, we have used loans, equity contributions, and government subsidies to fund our project development. We expect to expand our business with proceeds from third-party financing options, including any bank loans, equity partners, financial leases and securitization. However, we cannot guarantee that we will be successful in

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locating additional suitable sources of financing in the time periods required or at all, or on terms or at costs that we find attractive or acceptable, which may render it impossible for us to fully execute our growth plan. In addition, rising interest rates could adversely impact our ability to secure financing on favorable terms. In addition, a global or domestic economic crisis such as the current crises related to the COVID-19 pandemic, can cause a global or domestic recession or could adversely impact our ability to secure financing on favorable terms. Exchange rate fluctuations impact our ability to import capital goods as per the budget cost or on favorable terms. For a full discussion of the risks to our business associated with the COVID-19 pandemic, see “Risks to our Business related to the COVID-19 pandemic”.

Installing and constructing solar projects requires significant upfront capital expenditure and there may be a significant delay before we can recoup our investments through the long-term recurring revenue of our solar projects. Our ability to obtain external financing is subject to a number of uncertainties, including:

 

 

our future financial condition, results of operations and cash flows;

 

the general condition of global equity and debt capital markets;

 

our credit ratings and past credit history;

 

the prevailing exchange rate of Indian rupee against major currencies, in particular, the U.S. dollar;

 

regulatory and government support in the form of tax incentives, preferential tariffs, project cost subsidies and other incentives;

 

the continued confidence of banks and other financial institutions in Azure Power and the solar power industry;

 

economic, political and other conditions in the jurisdictions where we operate; and

 

our ability to comply with any financial covenants under our debt financing.

Any additional equity financing may be dilutive to our Company’s shareholders and any debt financing may contain restrictive covenants that limit our flexibility going forward. Furthermore, our credit ratings may be downgraded, which would adversely affect our ability to refinance debt and increase our cost of borrowing. Failure to manage discretionary spending and raise additional capital or debt financing as required may adversely impact our ability to achieve our intended business objectives.

If we fail to comply with financial and other covenants under our loan agreements, our financial condition, results of operations, cash flows and business prospects may be materially and adversely affected.

We expect to continue to finance a significant portion of our project development and construction costs with project financing. The agreements with respect to our existing project-level indebtedness contain financial and other covenants that require us to maintain certain financial ratios or impose certain restrictions on the disposition of our assets or the conduct of our business. In addition, we typically pledge our solar project assets or accounts or trade receivables, and in certain cases, shares of the special purpose vehicles, to raise debt financing, and we are restricted from creating additional security over our assets. Such accounts or trade receivables generally includes all income generated from the sale of electricity in the solar projects.

Our financing agreements also include certain restrictive covenants whereby we may be required to obtain approval from our lenders to, among other things, incur additional debt, undertake guarantee obligations, enter into any scheme of merger, amalgamation, compromise, demerger or reconstruction, change our capital structure and controlling interest, dispose of or sell assets, transfer shares held by major shareholders to third parties, invest by way of share capital, lend and advance funds, make payments, declare dividends in the event of any default in repayment of debts or failure to maintain financial ratios, place deposits and change our management structure. Most of our lenders

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also impose significant restrictions in relation to our solar projects, under the terms of the relevant project loans taken by our respective subsidiaries. For example, we are required to obtain lenders’ consent to make any changes to, or terminate, project documents, waive any material claims or defaults under the project documents, make any changes to financing plans relating to our projects, and replace suppliers or other material project participants. There can be no assurance that such consent will be granted in a timely manner, or at all. In the event that such lender consents are granted, they may impose certain additional conditions on us, which may limit our operational flexibility or subject us to increased scrutiny by the relevant lenders. The time required to secure consents may hinder us from taking advantage of a dynamic market environment. These agreements also grant certain lenders the right to appoint nominee directors on the Board of Directors of AZI or its subsidiaries and require us to maintain certain ratings or other levels of credit worthiness. If we breach any financial or other covenants contained in any of our financing arrangements, we may be required to immediately repay our borrowings either in whole or in part, together with any related costs.

Our failure to comply with financial or restrictive covenants or periodic reporting requirements or to obtain our lenders’ consent to take restricted actions in a timely manner or at all may result in the declaration of an event of default by one or more of our lenders, which may accelerate repayment of the relevant loans or trigger cross defaults under other financing agreements. We cannot assure you that, in the event of any such acceleration or cross-default, we will have sufficient resources to repay these borrowings. Failure to meet our obligations under the debt financing agreements could have an adverse effect on our cash flows, business and results of operations. Furthermore, a breach of those financial and other covenants or a failure to meet certain financial ratios under these financing agreements could also restrict our ability to pay dividends.

We have issued two Solar Green Bonds, consisting of 5.65% Solar Green Bonds for US$ 350.0 million in September 2019 and 5.5% Solar Green Bonds for US$ 500.0 million in August 2017, collectively (“the Green Bonds”). If we are unable to comply with the covenants as per the Green Bond indentures, or future debt obligations and other agreements, there could be a default under the terms of these agreements. In the event of a default under these agreements, the holders of the debt could accelerate repayment of the principal and interest accrued on the outstanding debt and declare all outstanding amounts due and payable or terminate the agreements, as the case may be. Furthermore, some of our debt agreements, including the Indenture for the green bonds, contain cross-acceleration provisions. As a result, our default under one debt agreement may cause the acceleration of repayment of not only such debt but also other debt, result in a default under our other debt agreements, increase pricing of loans or lender’s holding debt disbursement. If any of these events occur, our assets and cash flow may not be sufficient to repay in full all of our indebtedness, and we may not be able to find alternative financing on terms that are favorable or acceptable to us.

We may not be able to successfully complete its Rooftop asset sale entered into subsequent to March 2021 and may not complete other asset sales or complete such asset sales at the prices that we desire.

To optimize cost and to enhance returns on invested capital, in Fiscal 2021, we had decided to sell off certain subsidiaries on a going concern basis, which currently form part of our Rooftop business. Out of this identified portfolio, subsequent to March 2021, we entered a sales contract (the “Rooftop Sale Agreement”) with Radiance Renewables Pvt. Ltd. (“Radiance”) to sell certain subsidiaries (the “Rooftop Subsidiaries”) having an operating capacity of 153 MW, for INR 5,350 million (US$ 73.1 million), subject to certain purchase price adjustments. Pursuant to the Rooftop Sale Agreement, Radiance will acquire 100% of the equity ownership of the Rooftop Subsidiaries owned by the Company’s subsidiaries Azure Power India Pvt. Ltd. and Azure Power Rooftop Pvt. Ltd, as more fully described below.

The sale of Rooftop Subsidiaries having 94.4 MWs operating capacity is expected to be consummated within the next 12 months and accordingly the assets and related liabilities of these subsidiaries are shown as “Assets classified as held for sale” in our consolidated balance sheet as of March 31, 2021. We recognized an impairment loss of INR 2,498 million (US$ 34.1 million) in our Consolidated Statement of Operations in this regard.

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Further, under the terms of our Rooftop Sale Agreement with Radiance, 48.6% of the equity ownership in the 43.2 MWs operating capacity will be transferred to Radiance within next 12 months, and pursuant to the terms of the Green Bond Indentures, the remaining 51.4% may only be transferred to Radiance after our obligations under our Green Bonds are satisfied or such Green Bonds are refinanced. All of the cash flows related to such 43.2 MWs will continue to service our Green Bond obligations until the remaining 51.4% equity ownership in the 43.2 MWs is transferred to Radiance. As the refinancing of our Green Bonds is not anticipated to occur within 12 months, the assets and liabilities of these subsidiaries are not presented as “Assets classified as held for sale” and instead continue to be classified within the respective balance sheet captions as of March 31, 2021. In the event transference does not occur, we must reimburse Radiance the equity value of the assets not transferred along with an 10.5% per annum equity return, which could have a material adverse effect on our financial condition, results of operations and cash flows. Based on management’s assessment the above sale transactions are probable over the period defined in the agreement.

There is also a restriction on transfer of equity ownership relating to the 16 MW project with Delhi Jal Board (DJB), wherein 49% of the equity ownership will be transferred to Radiance by the closing date with in next 12 months, and the remaining 51% will be transferred on or after March 31, 2024. Accordingly, the related assets and liabilities of the DJB 16 MW project are not presented as “Assets classified as held for sale” and instead continue to be classified within the respective balance sheet captions as of March 31, 2021.

We determined that the decision to sell the Rooftop Subsidiaries and the subsequent execution of the Rooftop Sale Agreement are indicators of impairment, and therefore, we undertook an impairment assessment for the Rooftop Subsidiaries. Management used the sale price in the Rooftop Sale Agreement as our best estimate of the recoverable value of the Rooftop Subsidiaries. The impairment loss recorded in relation to the Property, Plant and Equipment of the Rooftop Subsidiaries not shown as “Assets classified as held for sale” was INR 657 (US$ 9.0 million).

The Company has further identified a subsidiary for sale, on a going concern basis at expected consideration of INR 123 million (US$ 1.7 million). Subsequent to year end, Company has entered into a sale agreement with buyer and pursuant there to, 100% of the ownership of this subsidiary was transferred to the buyer on receipt of consideration. The Company has recognized an impairment loss of INR 100 million (US$ 1.4 million) in the Consolidated Statement of Operations in this respect.

We recognized an impairment loss in relation to the rooftop subsidiaries aggregating to INR 3,255 million (US$ 44.5 million) during the fiscal year ended March 31, 2021 on account of the sale of the Rooftop Subsidiaries.

In addition, we may sell other assets when suitable opportunities arise to recycle capital for future growth. However, our ability to consummate divestitures is subject to various risks and uncertainties, including:

 

 

failure to identify suitable investors and reach agreement on commercially reasonable terms;

 

failure to obtain regulatory approvals and third-party (lenders, offtakers etc.) consents necessary to consummate the proposed divestiture; and

 

other companies may provide similar assets depressing valuations for the targeted assets.

We are not profitable in the current fiscal year, previous fiscal year or past several fiscal years and we may not be able to continue to be profitable in the foreseeable future.

We have incurred losses since our inception. Although we had a net profit for the fiscal year ended March 31, 2019, we were not profitable in the current fiscal year ended March 31, 2021, previous fiscal year ended March 31, 2020 or for the fiscal years prior to the fiscal year ended March 31, 2019. During the fiscal year ended March 31, 2020 and March 31, 2021, we had a net loss of INR 2,337 million and INR 4,201 million (US$ 57.2 million), respectively and we may not be profitable in future periods. In addition, our costs may increase in the future, reducing our margins for our significant future investment in renewable projects.

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A significant number of power projects are presently Contracted and under construction, and we may be only able to monetize them, if at all, after each project is completed, which is subject to several factors, including receiving regulatory approvals, obtaining project funding, entering into transmission arrangements with the central or state transmission utilities, and acquiring land for projects. In addition, even after a project is operational, the monetization process may be quite long term with contracts running up to 25 years. Moreover, we may not succeed in addressing certain risks, including our ability to successfully develop or supervise the commissioning, operations and maintenance of our projects or maintain adequate control of our costs and expenses. Also, we may find that our growth plans are costlier than we anticipate and that they do not ultimately result in commensurate increases in revenue. Our results of operations will depend upon numerous factors, some of which are beyond our control, including the availability of other subsidies, global liquidity and competition. In addition, the global crisis due to the COVID-19 pandemic, could hamper growth, increase our costs, and may result in losses. As a result, we may not be profitable in the foreseeable future. For a full discussion of the risks to our business associated with the COVID-19 pandemic, see “Risks to our Business related to the COVID-19 pandemic”.

For instance, to optimize cost and to enhance returns on invested capital, in Fiscal 2021, we identified certain subsidiaries to sell off on a going concern basis which currently form part of our Rooftop business. Out of this identified portfolio, subsequent to March 2021, we entered a sales contract with Radiance to the Rooftop Subsidiaries having an operating capacity of 153 MW for INR 5,350 million (US$ 73.1 million), subject to certain purchase price adjustments. We reported a loss of INR 2,598 million (US$ 35.5 million) on assets classified as held for sale, which is reported separately in our Consolidated Statement of Operations and related assets (net) are reported at their fair value. Further, we also recognized an impairment loss of INR 657 million (US$ 9.0 million) in relation to the Property, Plant and Equipment of the Rooftop Subsidiaries not shown as “Assets classified as held for sale”, which are expected to be settled beyond 12 months after March 31, 2021. For detailed information relating to loss on rooftop business sale, see “Our Company may not be able to successfully complete its Rooftop asset sale entered into in March 2021 and may not complete other asset sales or at the price that we desire”.

We face uncertainties in our ability to acquire the rights to develop and generate power from new solar projects due to highly competitive PPA auctions and possible changes in the auction process.

We acquire the rights to develop and generate power from new projects through a competitive bidding process, in which we compete for project awards based on, among other things, pricing, technical and engineering expertise, financial conditions, including specified minimum net worth criteria, availability of land, financing capabilities and track record. The bidding and selection processes are also affected by a number of factors, including factors which may be beyond our control, such as market conditions or government incentive programs. If we misjudge our competitiveness when submitting our bids or if we fail to lower our costs to submit competitive bids, we may not acquire the rights on new solar projects. Furthermore, we have expected 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 not remain economically viable.

In addition, rules of the auction process may change. Each state in India has its own regulatory framework and several states have their own renewable energy policy. The rules governing the various regional power markets may change from time to time, in some cases, in a way that is contrary to our interests and adverse to our financial returns. For example, most national auctions currently use the reverse auction structure, in which several winners take part in the same project. There can be no assurance that the central and state governments will continue to allow us to utilize such bidding structures and any shift away from the current structures, such as to a Dutch auction, could increase the competition and adversely affect our business, results of operations and cash flows.

For information on the risk of not executing PPAs in respect of our 4GW manufacturing linked tender, see “We may not be able to sign PPAs in respect of the 4 GWs manufacturing linked tender for which a letter of award has been received.”

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We face significant competition from traditional and renewable energy companies.

We face significant competition in the markets in which we operate. Our primary competitors are local and international developers and operators of solar projects and other renewable energy sources. We also compete with utilities generating power from conventional fossil fuels. Recent deregulation of the Indian power sector and increased private sector investment have intensified the competition we face. The Electricity Act, 2003, or the Electricity Act, removed certain licensing requirements for power generation companies, provided for open access to transmission and distribution networks and also facilitated additional capacity through captive power projects. These reforms provide opportunities for increased private sector participation in power generation. Specifically, the open access reform enables private power generators to sell power directly to distribution companies and, ultimately, to the end consumers, enhancing the financial viability of private investment in power generation. Competitive bidding for power procurement further increases competition among power generators and there have been bids that were less than INR 2.00 per kWh, almost 20% lower than our lowest PPA. Furthermore, given the decline in electricity demand in India including due to COVID-19, there could potentially be surplus power capacity. We cannot assure you that we will be able to compete effectively, and our failure to do so could result in an adverse effect on our business, results of operations and cash flows.

Furthermore, our competitors may have greater operational, financial, technical, management or other resources than we do and may be able to achieve better economies of scale and lower cost of capital, allowing them to bid in the same auction at more competitive rates. Our competitors may also have a more effective or established localized business presence or a greater willingness or ability to operate with little or no operating margins for sustained periods of time. Our market position depends on our financing, development and operation capabilities, reputation and track record. Any increase in competition during the bidding process or reduction in our competitive capabilities could have a significant adverse impact on our market share and on the margins, we generate from our projects.

Our competitors may also enter into strategic alliances or form affiliates with other competitors to our detriment. As our competitors grow in scale, they may establish in-house engineering, procurement and construction (“EPC”), and O&M capabilities, which may offset a current advantage we may have over them. Moreover, suppliers or contractors may merge with our competitors which may limit our choices of suppliers or contractors and hence the flexibility of our overall project execution capabilities. For example, some of our competitors may have their own internal solar panel manufacturing capabilities. As the renewable energy industry grows and evolves, we may also face new competitors who are not currently in the market. There can be no assurance that our current or potential competitors will not win bids for projects or offer services comparable or superior to those that we offer at the same or lower prices or adapt to market demand more quickly than we do. Increased competition may result in price reductions, reduced profit margins and loss of market share.

In addition, we face competition from developers of other renewable energy facilities, including biomass and nuclear , as well as other forms of renewable electricity generation. Competition from such producers may increase if the technology used to generate electricity from these other renewable energy sources becomes more sophisticated, or if the Indian government elects to further strengthen its support of such renewable energy sources. As we also compete with utilities generating power from conventional fossil fuels, a reduction in the price of coal or diesel would make the development of solar energy less economically attractive and we would be at a competitive disadvantage. Hence, we cannot guarantee that some of our competitors do not or will not have advantages over us in terms of larger size, internal access to solar panels and greater operational, financial, technical, management, lower cost of capital or other resources. For example, French state-controlled energy group, Electricité de France (EDF) has made a binding offer to build six third-generation European Pressurised Reactor (EPR) nuclear reactors at Jaitapur in Maharashtra, which will be “world’s most powerful” nuclear plant in India. On April 22, 2021, EDF submitted to the Nuclear Power Corporation of India (NPCIL), the offer to supply engineering studies and equipment for the construction of six, third-generation EPR reactors at the Jaitapur in Maharashtra. The project once completed will produce 10 gigawatts (GW) of electricity enough to power 70 million Indian households. Considering, the Indian Government’s commitment to grow India’s nuclear power capacity as part of its infrastructure development programme a shift of

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focus to other sources of renewable energy in future years may adversely impact our ability to achieve our intended business objectives.

We face significant risk of curtailment/refusal to take electricity by DISCOMs.

Certain DISCOMs have been curtailing/refusing to take electricity from renewable electricity generation companies on the pretext of grid security whereas during the same duration they are buying cheap electricity from conventional sources. In this regard, we have experienced such curtailments in our Andhra Pradesh projects. We have challenged these curtailments and have filed a petition in Andhra Pradesh Electricity Regulatory Commission which is currently pending adjudication. We have also filed a contempt petition on illegal curtailment in the Andhra Pradesh High Court since the single judge had in its order dated September 24, 2019 stated that curtailment should happen only upon prior notice and only for reasons strong and germane. Our contempt petition is pending adjudication.

Further, in respect of our 222 MWs capacity projects in Punjab, our offtaker Punjab State Power Corporation Limited (PSPCL) had refused to accept power generated from these projects in the first week of April 2020 on account of COVID-19. Further, PSPCL had also deducted 5% of billed amount relating to the months of April-June 2020. We filed a petition before Punjab State Electricity Regulatory Commission (PSERC) through the Solar Power Developer Association against the same. The matter is currently pending with the appellant authority. However, we cannot provide assurances that such proceedings will ultimately be decided in our favor.

Any constraints in the availability of the electricity grid, including our inability to obtain access to transmission lines in a timely and cost-efficient manner could adversely affect our business, results of operations and cash flows.

Delivering power to our power purchasing customer is our responsibility. We generally rely on transmission lines and other transmission and distribution facilities that are owned and operated by transmission or distribution utilities. Where we do not have access to available transmission and distribution networks, we may engage contractors to build transmission lines and other related infrastructure. In such a case, we will be exposed to additional costs and risks associated with developing transmission lines and other related infrastructure, such as the ability to obtain right of way from land owners for the construction of our transmission lines, which may delay and increase the costs of our projects. We may not be able to secure access to the available transmission and distribution networks at reasonable prices, in a timely manner or at all.

In addition, India’s physical infrastructure, including its electricity grid, is less developed than that of many developed countries. As a result of grid constraints, such as grid congestion and restrictions on transmission capacity of the grid, the transmission and dispatch of the full output of our projects may be curtailed. We may have to stop producing electricity during the period when electricity cannot be transmitted. Such events could reduce the net power generation of our projects. If construction of renewable energy projects outpaces transmission capacity of electricity grids, we may be dependent on the construction and upgrade of grid infrastructure by the transmission utilities. We cannot assure you that the relevant Transmission utilities will do so in a timely manner, or at all. The curtailment of our power projects’ output levels will reduce our electricity output and limit operational efficiencies, which in turn could have an adverse effect on our business, results of operations and cash flows.

There are a limited number of strong credit purchasers of utility scale quantities of electricity which exposes us, and our utility scale projects to risk.

In fiscal year 2020 and 2021, we derived 72.2% and 71.5%, respectively, of our revenue from our top five customers. Since the transmission and distribution of electricity are either monopolized or highly concentrated in most jurisdictions, there are a limited number of possible purchasers for utility scale quantities of electricity in a given geographic location, including transmission grid operators and central and state-run utilities. For instance, for projects established pursuant to the NSM, solar project developers are required to enter into PPAs with specified implementation agencies/DISCOMs. As a result, there is a concentrated pool of potential buyers for electricity generated by our plants and projects, which may restrict our ability to negotiate favorable terms under new PPAs and could impact our ability to find new customers for the electricity generated by our generation facilities should this become necessary.

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Furthermore, if the financial condition of these utilities and/or power purchasers deteriorate or the NSM or other solar policy to which they are currently subject and that compel them to source renewable energy supplies change, demand for electricity produced by our plants could be negatively impacted.

Land title in India can be uncertain and we may not be able to identify or correct defects or irregularities in title of the landowner in respect of the land which we own, lease or intend to acquire in connection with the development or acquisition of our power projects. Additionally, certain land on which our power projects are located may be subject to onerous conditions which may adversely affect its use.

There is no central title registry for real property in India and the documentation of land records in India has not been fully computerized. Property records in India are genera