F-1/A 1 d851850df1a.htm AMENDMENT NO. 2 TO FORM F-1 Amendment No. 2 to Form F-1
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Index to Financial Statements

As Filed with the Securities and Exchange Commission on March 30, 2016

Registration No. 333-208584

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

FORM F-1

REGISTRATION STATEMENT

Under

The Securities Act of 1933

 

 

Azure Power Global Limited

(Exact name of Registrant as specified in its Constitution)

 

 

 

Mauritius   4931   Not Applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

Inderpreet Singh Wadhwa

Chief Executive Officer

8 Local Shopping Complex

Pushp Vihar, Madangir, New Delhi 110062, India

Telephone: (91-11) 49409800

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

CT Corporation System

111 Eighth Avenue, 13th Floor, New York, NY 10011

Telephone: (212) 894-8940

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Thomas J. Ivey, Esq.

Andrea Nicolas, Esq.

Rajeev Duggal, Esq.

Skadden, Arps, Slate, Meagher

& Flom LLP

525 University Avenue

#1400

Palo Alto, CA 94301

 

Kirk A. Davenport II, Esq.

Wesley C. Holmes, Esq.

Latham & Watkins LLP

885 Third Avenue

New York, NY 10022

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of
securities to be registered
 

Proposed

maximum
aggregate

offering price(1)(2)

  Amount of
registration fee(3)

Equity shares, par value US$0.01 per equity share

  US$ 100,000,000   US$ 10,070

 

 

(1) Includes (a) all equity shares that may be purchased by the underwriters pursuant to an over-allotment option, and (b) all equity shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this Registration Statement and the date the equity shares are first bona fide offered to the public. The equity shares are not being registered for the purpose of sales outside the United States.
(2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.
(3) Previously paid.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a) may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. Neither we nor the selling shareholder may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion, dated March 30, 2016

PROSPECTUS

 

 

             Equity Shares

 

LOGO

Azure Power Global Limited

 

 

This is the initial public offering of the equity shares of Azure Power Global Limited. We are offering                      equity shares and the selling shareholder identified in this prospectus is offering                      equity shares. We will not receive any of the proceeds from the sale of the shares by the selling shareholder. No public market currently exists for our equity shares.

We have applied to list our equity shares on the New York Stock Exchange under the symbol “AZRE.”

We anticipate that the initial public offering price will be between US$         and US$         per equity share.

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements.

Investing in our equity shares involves risks. See “Risk Factors” beginning on page 18 of this prospectus.

 

     Per Share      Total  

Price to the public

   US$                    US$                

Underwriting discounts and commissions(1)

   US$         US$     

Proceeds to us (before expenses)

   US$         US$     

Proceeds to the selling shareholder (before expenses)

   US$         US$     

 

(1) We refer you to “Underwriting” beginning on page 171 of this prospectus for additional information regarding total underwriter compensation.

We have granted the underwriters the option to purchase             additional equity shares on the same terms and conditions set forth above if the underwriters sell more than             equity shares in this offering.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the equity shares on or about                     , 2016.

 

 

Barclays

Prospectus dated                     , 2016


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LOGO

Azure Power
India’s first private grid connected MW Solar Plant
Largest owner & operator of NSM projects
Pan-India portfolio of solar assets in 14 states
India’s First distributed MW scale rooftop solar project
Commited & Under Construction
Operating
Solar Resource (KWh/m2/Day)
0 .3 .6 .9 1.2 1.5
Land Area (Million km2)


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LOGO

Azure Power
POWERING UTILITIES
-Developed India’s first utility scale solar project in 2009
-21 operational utility scale projects
-Integrated project development, EPC, financing, O&M services
POWERING COMMERCIAL
-First distributed solar rooftop project operational in india
-500+ rooftop covered across the country
-solar tariffs in most states are already at grid parity
COMMUNITY ENGAGEMENT
-We hire from local communities
-lease land that has few alterative uses
-provide a stream of discretionary cash flow without displacing alternative businesses
555 KW, INDUSTRIAL ROOFTOP SOLAR PLANT, CHEAPER THAN GRID POWER
100 MW, LARGEST OPERATING PROJECT UNDER NATIONAL SOLAR MISSION


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TABLE OF CONTENTS

 

     Page  

STATISTICAL AND OTHER INDUSTRY AND MARKET DATA

     ii   

TRADEMARKS

     ii   

CONVENTIONS THAT APPLY TO THIS PROSPECTUS

     ii   

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     18   

FORWARD-LOOKING STATEMENTS

     48   

USE OF PROCEEDS

     50   

EXCHANGE RATE INFORMATION

     51   

DIVIDENDS AND DIVIDEND POLICY

     52   

CAPITALIZATION

     54   

DILUTION

     56   

SELECTED CONSOLIDATED AND PRO FORMA FINANCIAL DATA

     58   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     63   

INDUSTRY

     96   

BUSINESS

     106   

MANAGEMENT

     130   

PRINCIPAL AND SELLING SHAREHOLDERS

     143   

RELATED PARTY TRANSACTIONS

     146   

DESCRIPTION OF SHARE CAPITAL

     149   

SHARES ELIGIBLE FOR FUTURE SALE

     161   

TAXATION

     163   

ENFORCEABILITY OF CIVIL LIABILITIES

     169   

UNDERWRITING

     171   

EXPENSES RELATING TO THIS OFFERING

     178   

LEGAL MATTERS

     179   

EXPERTS

     179   

WHERE YOU CAN FIND MORE INFORMATION

     179   

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1   

You should rely only on the information contained in this prospectus and any related free-writing prospectus that we authorize to be distributed to you. We and the selling shareholder have not, and the underwriters have not, authorized any person to provide you with information different from that contained in this prospectus or any related free-writing prospectus that we authorize to be distributed to you. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus speaks only as of the date of this prospectus unless the information specifically indicates that another date applies, regardless of the time of delivery of this prospectus or of any sale of the securities offered hereby.

No action is being taken in any jurisdiction outside the United States to permit a public offering of the equity shares or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of the prospectus applicable to that jurisdiction.


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STATISTICAL AND OTHER INDUSTRY AND MARKET DATA

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data.

TRADEMARKS

We have rights to trademarks and trade names that we use in connection with the operation of our business, including our corporate name, logos, product names and website names. Other trademarks and trade names appearing in this prospectus are the property of their respective owners. Solely for your convenience, some of the trademarks and trade names referred to in this prospectus are listed without the ® and TM symbols, but we will assert, to the fullest extent under applicable law, our rights to our trademarks and trade names.

CONVENTIONS THAT APPLY TO THIS PROSPECTUS

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

 

   

“Azure Power Global,” “we,” “us” or “our” refer to Azure Power Global Limited, together with its subsidiaries (including Azure Power India Private Limited, or AZI, its predecessor and current subsidiary).

 

   

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

 

   

“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.

 

   

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

In this prospectus, 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, and references to “Mauritius” are to the Republic of Mauritius.

Unless otherwise indicated, the consolidated financial statements and related notes included in this prospectus have been presented in Indian rupees and prepared in accordance with 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. Our fiscal quarters end on June 30, September 30, December 31 and March 31. References generally to a fiscal year refer to the Indian fiscal year ended March 31 of the respective period.

This prospectus 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 Rs. 66.19 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 December 31, 2015, which is the date of our last reported financial statements. We make no representation that the Indian rupee or U.S. dollar amounts referred to in this prospectus 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 prospectus, all references to watts (e.g., megawatts, gigawatts, kilowatt hour, terawatt hour, MW, GW, kWh, etc.) refer to measurements of power generated.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and consolidated financial statements and the related notes thereto included elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our equity shares. You should read this entire prospectus carefully, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus, before making an investment decision.

Overview

Our mission is to be the lowest-cost power producer in the world. We sell solar power in India on long-term fixed price contracts to our customers, at prices which in many cases are at or below prevailing alternatives for these customers. We are also developing micro-grid applications for the highly fragmented and underserved electricity market in India. Since inception, we have achieved a 73% reduction in total solar project cost, which includes a significant decrease in balance of systems costs due in part to our value engineering, design and procurement efforts.

We developed India’s first utility scale solar project in 2009. As of January 31, 2016, we operated 21 utility scale projects and several commercial rooftop projects with a combined rated capacity of 276MW which represents a compound annual growth rate, or CAGR, of 114% from May 2012. As of such date we were also constructing ten projects with a combined rated capacity of 214MW and had an additional 314MW committed, bringing our total portfolio capacity to 804MW. Megawatts committed represents the aggregate megawatt rated capacity of solar power plants pursuant to customer power purchase agreements, or PPAs, signed or allotted but not yet commissioned and operational as of the reporting date. We are targeting having 520MW operating by December 31, 2016. Our longer term goals are to achieve 1GW committed or operating by December 31, 2017 and 5GW by December 31, 2020. Our ability to achieve these goals will depend on, among other things, our ability to acquire the required land for the new capacity (on lease or direct purchase), raising adequate project financing and working capital, the growth of the Indian power market in line with current government targets, our ability to maintain our market share of India’s installed capacity as competition increases, the need to further strengthen our operations team to execute the increased capacity, and the need to further strengthen our systems and processes to manage the ensuing growth opportunities, as well as the other risks and challenges discussed under the caption “Risk Factors.”

Utility scale solar projects are typically awarded through government auctions. We believe we have secured more megawatts of capacity in these auctions in the last six years than any other company in India. We believe the strong demand for our solar power is a result of the following:

 

   

Low levelized cost of energy. Our in-house engineering, procurement and construction, or EPC, expertise, purely solar focus, advanced in-house operations and maintenance, or O&M, capability and efficient financial strategy allow us to offer low-cost solar power solutions.

 

   

Strong value proposition for our customers. We manage the entire development and operation process, providing customers with long term fixed price PPAs in addition to high levels of availability and service. This helps us win repeat business.

 

   

Our integrated profile supports growth. Our integrated profile affords us greater control over project development, construction and operation, which provides us with greater insight and certainty on our construction costs and timeline.

 

   

Strong community partnerships. Our ability to build long term community relationships allows us to improve our time of completion, further reducing project development risk.

 



 

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We take a leading role in policy initiatives. We provided input to the government to help it design an auction process supporting multiple winners at differentiated price points and implementing a transparent bidding process open to all participants. For example, we suggested that the government include compulsorily convertible debentures in the calculation of a bidder’s net worth for the purposes of tender qualification, which was ultimately adopted by the government.

We generate revenue from a mix of leading government utilities and commercial entities. Because we have our own EPC and O&M capabilities, we retain the profit margins associated with those services that other project developers may need to pay to third-party providers.

Market Opportunity

India’s economic growth is intrinsically linked to the increasing consumption of energy and natural resources. Energy demand has outpaced capacity additions in recent years, which has resulted in persistent peak power deficits in the country. Solar is an attractive option to help address this energy gap driven by regional fundamentals and regulatory support by the Indian government. The Indian government increased its 2022 target for solar capacity from 20GW to 100GW.

The following trends have made solar a large, rapidly growing market opportunity:

 

   

Peak power deficits and rising power prices. India continues to be plagued by a persistent demand/supply mismatch with a five-year average energy deficit of approximately 8% through March 2015 according to the Ministry of Power, which has resulted in upward pressure in power prices.

 

   

Strong regulatory support. In order to reduce dependence on energy imports and curtail the current trade deficit and the resulting impact on the rupee, the Indian government has taken a number of steps to incentivize the use of renewable sources of energy. These include establishing state-level renewable power purchase obligations and providing capital subsidies (known as viability gap funding) to solar project developers to make solar tariffs competitive in the country. To provide further impetus to solar growth, the Indian government launched the Jawaharlal Nehru National Solar Mission, or the NSM, in 2010.

 

   

Solar positioned to win among alternatives. India ranks among the highest irradiation-receiving countries in the world with more than 300 days of sunshine per year in much of the country. Solar power generation is viable across most of India, unlike wind and hydro resources which are concentrated in specific regions. In addition, as solar plants can be built near the point of consumption, power produced generally does not incur expensive transmission charges or require infrastructure or transmission investments. Further, unlike nuclear and hydropower, solar power has fewer legal liabilities and environmental constraints.

 

   

Solar approaching parity. State utilities have seen power costs rise as domestic coal shortages have caused thermal generators to increasingly rely on more expensive imported fuels. An analysis of current tariffs in India indicates that solar power is now competitive with wind, new thermal capacity fueled by imported coal and grid power tariffs for commercial users. Further, diesel power, the most common replacement power source for commercial and off-grid users in the country, is far more expensive than solar power. Additionally, solar panel prices are expected to fall further, which in turn is expected to drive further reductions in solar tariffs.

 

   

Transparent solar auction process. Indian solar auctions are conducted in a transparent manner that ensures bids meet minimum technical and financial criteria. Bidders must meet requirements on project development and execution history in India or the regional market, including bidder experience in the development of similar utility scale power projects. Auctions are not winner-take-all; instead, they are constructed to ensure multiple high-quality developers are allotted portions of the total capacity block.

 



 

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These factors have increased the solar installation to approximately 5.2GW as of January 31, 2016, of which 4.2GW is operating under various state policies and the NSM. Approximately 7.8GW of tenders have been announced under various state policies. In addition, auctions allocating 4.3GW of projects are expected to be announced or completed under the NSM by the end of fiscal year 2017.

Our Approach

We sell energy to government utilities and independent industrial and commercial customers at predictable fixed prices. Since our energy generation does not rely on fossil fuels, our electricity prices are insulated from the volatility of commodity pricing. We also guarantee the electricity production of our solar power plants to our customers.

The typical project plan timeline for our projects is approximately one year. The major stages of project sourcing, development and operation are bidding, land acquisition, financing, material delivery and installation, and monitoring and maintenance. Once a bid is won, a letter of intent is issued and all of our departments initiate their activities. After that, the PPA is signed, which reflects the commercial operation date before which a plant should be commissioned. Generally once the letter of intent is received, we obtain the relevant land permits depending on whether the land is government-owned or private. We generally finance our projects with 75:25 debt-to-equity ratio. Once land is obtained, our EPC team works very closely to construct and deliver the plant in the most efficient manner. Once commissioned, our O&M team monitors performance of all the projects near real time.

We utilize our integrated project development, EPC, financing and O&M services without involving multiple third-party services. This approach has allowed us to generate efficiencies of scale that further drive down system costs. A low cost structure allows us to bid for auctions strategically, which supports our high auction win rate and helps preserve our market leading position, which further reduces costs.

As the first developer and operator of utility scale solar assets in India, we believe that we are a well-established brand that has grown alongside the burgeoning Indian solar market since 2009. We have proven to be a reliable developer that successfully and expediently executes on our development pipeline and wins repeat business. Our reputation and track record give us an advantage in the auction evaluation process, improving our win rate. As a result, we believe we have become one of the largest purely solar operators in the space, which affords us greater negotiating power with original equipment manufacturers and project finance lenders. This in turn improves our cost and capital structure, which benefits our bid win rate.

 

LOGO

We lower the levelized cost of energy through our three-pronged approach as follows:

 

   

Value engineering. Our in-house EPC allows us to enhance our system design expertise with each successive project, be flexible with our choice of technology and source from top-tier suppliers that optimizes both the system cost and power yield of the total solar block.

 



 

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Operational performance monitoring. We operate a National Operating Control Center, or NOCC, that allows us to monitor project performance in real-time and allows us to respond rapidly to potential generation anomalies. Feedback from our operating projects also serves to further enhance our project designs, resulting in enhancements for current and new plants.

 

   

Financial strategy. We are able to offset project equity requirements through economic benefits generated by our EPC and O&M businesses. Coupled with our asset financing strategy we are able to optimize the overall cost of capital leading to enhanced economics for our customers and shareholders.

Our Competitive Strengths

We believe we differentiate ourselves from the competition in a number of key ways.

 

   

Market leadership. We have a first mover advantage from the construction of India’s first private utility scale solar photovoltaic power plant in 2009 as well as the implementation of the first megawatt scale rooftop smart city initiative in 2013. Additionally, our strong track record in policy and project development across utility scale, commercial rooftop and micro-grids projects has helped us gain a leading market share in India and a market leading auction win rate of 75% for bids we participated in from 2010 to January 31, 2016.

 

   

Scale and brand-name recognition. We have proven to be a reliable developer with successful and expedient execution of our development pipeline, which has helped us win repeat business. Our reputation and track record provide us an advantage in the auction evaluation process, thereby improving our win rate. As a result, we believe we have become one of the largest solar developers and operators in India.

 

   

In-house EPC and O&M expertise enable cost efficiencies. Our in-house EPC capabilities enhance our ability to be flexible with our choice of technology, which allows us to choose high quality equipment while optimizing the combination of total solar project cost and yield. Our in-house O&M capabilities maximize project yield and performance through proprietary system monitoring and adjustments. We have demonstrated a 73% decrease in total solar project cost since inception in part through continual innovation in our EPC and O&M capabilities.

 

   

Superior technical and execution capabilities. We have developed proprietary systems that significantly reduce the time it takes to design, finance, commission, operate and maintain projects. Our lean and efficient execution expertise facilitates completion of our plants ahead of contracted completion dates, enables us to easily scale our operations without significant increases to headcount, and allows us to construct several projects in parallel without compromising on efficiency.

 

   

Long term, stable cash generation. We typically enter into 25-year, fixed price PPAs with government agencies and independent commercial businesses. As a result of generally reliable solar irradiation in India, our energy production under these PPAs has historically had little volatility, which, coupled with our low operating expenses, makes for predictable cash flows from these agreements.

 

   

Long term community support. We hire from local communities and generally lease land that has few alternative uses, providing local communities with a stream of discretionary cash flow without displacing alternative businesses. As a result we are able to build long term community relationships, which allows us to improve our time of completion, further reducing project development risk.

 

   

Strong management. Our senior leadership team and board of directors include widely recognized experts in solar energy, energy finance and public policy, with track records of building successful businesses.

 



 

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Our Business Strategy

Key elements of our business strategy include the following.

 

   

Continue to drive project cost reductions. We will continue to reduce costs by leveraging our in-house EPC and O&M capabilities and by improving our negotiating power with technology providers and project lenders. We expect to further innovate our financing solutions to reduce the cost of energy for our customers and achieve grid parity with local alternatives in the utility market in the next few years.

 

   

Rapidly grow our project portfolio to achieve scale benefits. We intend to rapidly grow our project portfolio, which will enable us to achieve further economies of scale. We plan to significantly expand our presence in commercial and micro-grid applications. In order to continue this growth, we plan to reinvest our operating cash flow into new project development and construction.

 

   

Maintain position as a top Indian solar company. We are the longest tenured solar power producer in India and we believe we have the largest portfolio of operating projects under the NSM and one of the largest portfolios of operating projects in India. We have developed critical operational expertise and regional knowledge that improves project performance and expedites project execution, all of which should help us preserve our market leading position.

 

   

Leverage track record and management relationships to shape policy. We have petitioned governments at the local, state and central levels for substantial changes to solar policy that are essential to the advancement of the solar industry. We plan to leverage our track record, together with our management’s long-running relationships with policy-makers, to influence policy at all governmental levels.

 

   

Expand into new locations. We participate in both national and state level renewable energy auctions. We intend to continue to expand our presence into other states in India and other emerging markets with underserved electricity markets.

Risk Factors

Our business and the successful execution of our strategies are subject to certain risks and uncertainties related to our business and our industry, regulation of our business and our corporate structure, doing business in India and ownership of our equity shares, our trading market and this offering. The risks and uncertainties related to our business and our industry include, but are not limited to:

 

   

we have never been profitable, and believe we will continue to incur net losses for the foreseeable future;

 

   

the reduction, modification or elimination of central and state government subsidies and economic incentives in India may reduce the economic benefits of our existing solar projects and our opportunities to develop or acquire suitable new solar projects;

 

   

our long term growth depends in part on the Indian government’s ability to meet its announced targeted capacity;

 

   

our operations are subject to extensive governmental, health and 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;

 

   

our limited operating history, especially with large-scale solar projects, may not serve as an adequate basis to judge our future prospects, results of operations and cash flows;

 



 

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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, resulting in a severe decline in the price of our equity shares;

 

   

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

 

   

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

 

   

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; and

 

   

we and our independent registered public accounting firm have identified a material weakness in our internal control over financial reporting, which could make it difficult to maintain an effective system of internal control over financial reporting, reduce the reliability of our financial reporting, harm investor confidence in our company and affect the value of our equity shares.

See “Risk Factors” and “Forward-Looking Statements” for a more detailed discussion of these and other risks and uncertainties that we may face.

Corporate Structure

Azure Power Global Limited is a company incorporated in Mauritius and is the holding company of AZI. All of our operations at present and following the completion of this offering will be conducted through AZI and its subsidiaries. For details of the current shareholders of Azure Power Global Limited, see “Principal and Selling Shareholders.”

On July 25, 2015, Azure Power Global Limited purchased from the non-founder investors in AZI (i.e., International Finance Corporation, Helion Venture Partners II, LLC, Helion Venture Partners India II, LLC, FC VI India Venture (Mauritius) Ltd., DEG — Deutsche Investitions — Und Entwicklungsgesellschaft mbH and Société de Promotion et de Participation Pour la Coopération Économique) the equity shares and convertible securities held by them in AZI and issued an equivalent number of equity shares and convertible securities of Azure Power Global Limited to such non-founder investors on equivalent terms. Immediately prior to the consummation of this offering and the listing of the equity shares pursuant to the offering, the convertible securities of Azure Power Global Limited issued to the non-founder investors will be converted into equity shares of Azure Power Global Limited in an amount that depends, among other factors, on the initial public offering price in the offering. Assuming an initial public offering price of US$             per equity share, which is the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus, a total of              equity shares of Azure Power Global Limited will be issued to the non-founder investors upon the conversion of such convertible securities and there will be a total of              equity shares of Azure Power Global Limited issued and outstanding as of such time, which includes the equity shares issuable upon exercise of outstanding stock options under our 2015 Employee Stock Option Plan. A US$1.00 increase or decrease in the assumed initial public offering price of US$             would decrease or increase the number of equity shares to be issued to the non-founder investors, and the total number of equity shares of Azure Power Global Limited issued and outstanding as of the consummation of this offering by              shares and              shares, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Corporate Structure” for a more detailed discussion

Assuming an initial public offering price of US$             per equity share, which is the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus, IW Green

 



 

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LLC (in which Mr. Inderpreet S. Wadhwa is the sole member), Azure Power Inc. and Mr. Satnam Sanghera, collectively referred to as the APGL Founders, and the non-founder investors will own             % of the equity shares in Azure Power Global Limited and             % will be owned by the public investors. The percentage of Azure Power Global Limited that is owned by such shareholders will vary if the initial public offering price changes. For example, a US$1.00 decrease in the assumed initial public offering price would decrease the aggregate percentage of Azure Power Global Limited that is owned by the APGL Founders and the non-founder investors to             % and would increase the percentage of Azure Power Global Limited that is owned by the public investors to             %, while a US$1.00 increase in the assumed initial public offering price would increase the aggregate percentage of Azure Power Global Limited that is owned by the APGL Founders and the non-founder investors to             % and would decrease the percentage of Azure Power Global Limited that is owned by the public investors to             %.

Azure Power Global Limited intends to utilize substantially all of the net proceeds of this offering (other than approximately US$5 million to be retained by Azure Power Global Limited to fund its future operating expenses, including rent, professional fees and other corporate overhead expenses) to purchase              million equity shares to be issued by AZI at a price of US$             per equity share, assuming that the initial public offering is priced at US$             per equity share of Azure Power Global Limited, which is the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus. Following the completion of this offering and the purchase of additional equity shares of AZI by Azure Power Global Limited, Azure Power Global Limited will own             % of the equity shares of AZI. The percentage ownership of Azure Power Global Limited will vary if the offering size or the initial public offering price changes. For example, a US$1.00 decrease in the assumed equity share price would decrease Azure Power Global Limited’s ownership of AZI by             %. Alternatively, a decrease of US$10 million in the net offering proceeds would decrease Azure Power Global Limited’s ownership of AZI by             %. The remaining             % of the equity shares of AZI will be held by Mr. Inderpreet S. Wadhwa, Mr. Harkanwal S. Wadhwa, Azure Power Inc. and Mr. Satnam Sanghera, collectively referred to as the AZI Founders. Azure Power Global Limited has an option to purchase such equity shares from the AZI Founders. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Corporate Structure” for a more detailed discussion of the option. For details of the intended use of proceeds by AZI upon investment by Azure Power Global Limited into AZI, see “Use of Proceeds.”

The AZI employee stock option plan has been terminated and all options granted pursuant to such plan have been cancelled. Employees who were granted options under the AZI employee stock option plan have been granted options to purchase equity shares of Azure Power Global Limited pursuant to the 2015 Employee Stock Option Plan. Immediately upon the completion of this offering, the 2015 Employee Stock Option Plan will be terminated and replaced by the 2016 Equity Incentive Plan. Options issued pursuant to the 2015 Employee Stock Option Plan will be cancelled and replaced with options to be issued pursuant to the 2016 Equity Incentive Plan. Upon the closing of the offering, and without assuming any stock-split, there will be 25,930 equity shares issuable upon exercise of outstanding stock options at a weighted average exercise price of Rs. 3,418 (US$51.65) per share under our employee stock option plan.

 



 

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The diagram below illustrates our corporate structure upon the completion of this offering assuming an offering price of US$             per equity share, which is the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus, and subsequent subscription of shares of AZI from the proceeds of this offering as described above.

 

LOGO

 

(1) The sole member of IW Green LLC is Mr. Inderpreet S. Wadhwa.
(2) Refers to Mr. Inderpreet S. Wadhwa and Mr. Harkanwal Singh Wadhwa.
(3) Azure Power Global Limited has an option to purchase the equity shares from the Founders. See “Management Discussion and Analysis of Financial Condition and Results of Operations—Corporate Structure”.

Corporate Information

We are a public company limited by shares incorporated in Mauritius on January 30, 2015. Our registered office is located at c/o AAA Global Services Ltd., 1st Floor, The Exchange 18 Cybercity, Ebene, Mauritius. Our principal executive offices are located at 8 Local Shopping Complex, Pushp Vihar, Madangir, New Delhi 110062, India, and our telephone number at this location is (91-11) 49409800. Our principal website address is www.azurepower.com. The information contained on our website does not form part of this prospectus. Our agent for service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, 13th Floor, New York, NY 10011.

Dividends

As we are a holding company, we will have to rely on dividends paid to us by our subsidiaries (in particular, our subsidiary in India, AZI) for our cash requirements, including funds to pay dividends and other cash

 



 

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distributions to our shareholders, service any debt we may incur and pay our operating expenses. As of the date of this prospectus, AZI has not paid any cash dividends on its equity shares and does not intend to pay dividends to its equity shareholders, including Azure Power Global Limited, in the foreseeable future. See “Dividends and Dividend Policy” for more information.

Enforcement of Civil Liabilities

There is uncertainty as to whether the courts in Mauritius would enforce judgments obtained in the United States against us or our directors or executive officers, as well as the experts named herein, based on the civil liability provisions of the securities laws of the United States or allow actions in Mauritius against us or our directors or executive officers based only upon the securities laws of the United States. Further, foreign judgments may not be given effect by a Mauritius court where it would be contrary to any principle affecting public policy in Mauritius or to the extent that they constitute the payment of an amount which is in the nature of a penalty and not in the nature of liquidated damages.

In addition to and irrespective of jurisdictional issues, neither Mauritian nor Indian courts will enforce a provision of the U.S. federal securities laws that is either penal in nature or contrary to public policy. Specified remedies available under the laws of U.S. jurisdictions, including specified remedies under U.S. federal securities laws, would not be available under Mauritian or Indian law or enforceable in a Mauritian or Indian court, if they are considered to be contrary to Mauritian or Indian public policy. An award of punitive damages under a United States court judgment based upon United States federal securities laws is likely to be construed by Mauritian and Indian courts to be penal in nature and therefore unenforceable in both Mauritius and India. Further, no claim may be brought in Mauritius or India against us or our directors and officers, as well as the experts named herein, in the first instance for a violation of U.S. federal securities laws because these laws have no extraterritorial application under Mauritian or Indian law and do not have force of law in Mauritius or India.

Implications of Being an Emerging Growth Company

As a company with less than US$1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth company need not comply with any new or revised financial accounting standard until such date that a non-reporting company is required to comply with such new or revised accounting standard. We have in this prospectus utilized, and we plan in future filings with the Securities and Exchange Commission, or the SEC, to continue to utilize, the modified disclosure requirements available to emerging growth companies. Furthermore, we are not required to present selected financial information or any management’s discussion herein for any period prior to the earliest audited period presented in connection with this prospectus.

We will remain an emerging growth company until the earliest of (a) the last day of our fiscal year during which we have total annual gross revenues of at least US$1.0 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the previous 3-year period, issued more than US$1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, or the Exchange Act. When we are no longer deemed to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above. If we choose to take advantage of any of these reduced reporting burdens, the information that we provide shareholders may be different than you might get from other public companies.

 



 

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Even if we no longer qualify as an emerging growth company, as a foreign private issuer, we are exempt from certain rules under the Exchange Act that impose disclosure requirements as well as procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as a company that files as a domestic issuer whose securities are registered under the Exchange Act, nor are we generally required to comply with the SEC’s Regulation FD, which restricts the selective disclosure of material non-public information. We intend to take advantage of these exemptions as a foreign private issuer.

 



 

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THE OFFERING

 

Equity shares offered by us

            equity shares (            equity shares if the underwriters exercise in full their option to purchase additional equity shares).

 

Equity shares offered by the selling shareholder

            equity shares.

 

Option to purchase additional equity shares

We have granted the underwriters an option, which is exercisable within 30 days from the date of this prospectus, to purchase up to             additional equity shares from us at the public offering price less the underwriting discount.

 

Equity shares to be outstanding before this offering

            equity shares.

 

Equity shares to be outstanding immediately after this offering

            equity shares (            equity shares if the underwriters exercise in full their option to purchase additional equity shares).

 

Use of Proceeds

We anticipate that we will receive net proceeds from this offering of approximately US$        million, or approximately US$        million if the underwriters exercise their option to purchase additional equity shares in full. These estimates are based upon an assumed initial public offering price of US$        per equity share, the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts, commissions and estimated aggregate offering expenses payable by us.

 

  We intend to use US$        million to fund the purchase by Azure Power Global Limited of equity shares to be issued by AZI, which will occur contemporaneously with the completion of this offering. Net proceeds to be received by AZI as a result of such purchase are intended to be used for project development, working capital needs and other general corporate purposes. We intend to retain US$5.0 million to fund future operating expenses of Azure Power Global Limited. To the extent the underwriters exercise their option to purchase additional equity shares, the net proceeds from the sale of the additional equity shares will be used to purchase additional equity shares of AZI. See “Use of Proceeds.”

 

  We will not receive any of the proceeds from the sale of equity shares by the selling shareholder.

 

Directed Share Program

At our request, the underwriters have reserved         % of the equity shares offered by this prospectus for sale, at the initial public offering price, to our directors, officers, employees, business associates and related persons. If these persons purchase equity shares, this will reduce the number of shares available for sale to the public.

 



 

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Risk Factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in the equity shares.

 

Dividend Policy

We currently intend to retain our earnings, if any, to finance the development and growth of our business and operations as well as expand our business and do not currently anticipate paying dividends on our equity shares in the near future. See “Dividends and Dividend Policy.”

 

Listing

We have applied to list our equity shares on the New York Stock Exchange.

 

Proposed Trading Symbol

“AZRE.”

Certain Assumptions

The number of our equity shares to be outstanding after this offering, the combined voting power that identified shareholders will hold after this offering and the economic interest in our business that identified shareholders will hold after this offering are based on the following assumptions:

 

   

the conversion of compulsorily convertible preferred shares and compulsorily convertible debentures into equity shares;

 

   

the effectiveness of a            -for-            stock split; and

 

   

our and the selling shareholder’s sale of equity shares in this offering.

The number of our equity shares to be outstanding after this offering, the combined voting power that identified shareholders will hold after this offering and the economic interest in our business that identified shareholders will hold after this offering excludes the following:

 

   

equity shares which may be issued upon the exercise of the underwriters’ option to purchase additional shares of our equity shares; and

 

   

equity shares issuable upon exercise of outstanding stock options at a weighted-average exercise price of Rs.              (US$        ) per share under our 2015 Employee Stock Option Plan.

Except as otherwise indicated, all information in this prospectus assumes that the underwriters do not exercise their option to purchase additional equity shares.

 



 

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SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA

Azure Power Global Limited is a company incorporated in Mauritius and is the holding company of AZI. All of its operations are conducted currently through AZI and its subsidiaries. The proceeds of this offering will be used towards a share subscription of AZI by Azure Power Global Limited and will occur contemporaneously with the completion of the offering.

The financial information in this section has been derived from the audited consolidated financial statements as of and for the years ended March 31, 2014 and 2015 included elsewhere in this prospectus.

The unaudited information for the nine months ended December 31, 2014 and 2015 was prepared on a basis consistent with that used to prepare our audited consolidated financial statements and includes all adjustments, consisting of normal and recurring items, that we consider necessary for a fair presentation of our financial condition and results of operations with respect to the relevant periods.

The summary unaudited pro forma balance sheet data as of December 31, 2015 gives effect to (i) the conversion of compulsorily convertible preferred shares and compulsorily convertible debentures into equity shares and (ii) the effectiveness of a         -for-         stock split of our equity shares. The pro forma as adjusted balance sheet data reflects the abovementioned transactions, the issuance and sale of equity shares in this offering and the use of proceeds therefrom as set forth in “Use of Proceeds,” based on an assumed offering price of US$         per equity share, which is the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 



 

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The following table should be read together with, and is qualified in its entirety by reference to, the consolidated financial statements and the accompanying notes appearing elsewhere in this prospectus. Among other things, the consolidated financial statements include more detailed information regarding the basis of presentation for the information in the following table. The historical results are not necessarily indicative of the results that may be expected in any future period, and the interim results are not necessarily indicative of the results to be expected for the full fiscal year. The table should also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     Fiscal Year Ended March 31,     Nine Months Ended December 31,  
     2014     2015     2014     2015  
     Rs.     Rs.     US$(1)     Rs.     Rs.      US$(1)  
     (In thousands)  

Consolidated Statement of Operations Data:

      

Operating revenue:

      

Sale of power

     881,345        1,124,138        16,984        767,362        1,858,911         28,084   

Operating costs and expenses:

       

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

     52,491        79,816        1,206        54,029        127,308         1,923   

General and administrative expenses

     235,300        425,952        6,435        241,884        481,528         7,275   

Depreciation and amortization

     252,352        322,430        4,871        218,016        495,647         7,488   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total operating cost and expenses

     540,143        828,198        12,512        513,929        1,104,483         16,686   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Operating income

     341,202        295,940        4,472        253,433        754,428         11,398   

Other expense:

       

Interest expense, net(2)

     520,219        831,790        12,567        563,928        1,389,289         20,989   

Loss on foreign currency exchange(3)

     580,566        299,628        4,527        368,631        337,112         5,093   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Total other expenses

     1,100,785        1,131,418        17,094        932,559        1,726,401         26,082   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Loss before income taxes

     (759,583     (835,478     (12,622     (679,126     (971,973      (14,684

Income tax expense

     (15,847     (253,112     (3,824     (205,804     (89,427      (1,351
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net loss

     (775,430     (1,088,590     (16,446     (884,930     (1,061,400      (16,035

Net loss attributable to non-controlling interest(4)

     (26,935     (5,595     (85     (5,311     (8,633      (130
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net loss attributable to APGL

     (748,495     (1,082,995     (16,361     (879,619     (1,052,767      (15,905

Accretion on Mezzanine CCPS(5)

     (366,552     (755,207     (11,410     (494,927     (1,076,087      (16,258
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Accretion to redeemable non-controlling interest(6)

     —          —          —          —          (18,837      (285
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net loss attributable to APGL equity shareholders

     (1,115,047     (1,838,202     (27,771     (1,374,546     (2,147,691      (32,448
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net loss per share attributable to equity shareholders

       

Basic and diluted(7)

     (10,241     (16,737     (253     (12,510     (19,546      (295 )

Shares used in computing basic and diluted per share amounts:

       

Proforma basic and diluted loss per share(8)

             

 



 

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     Fiscal Year Ended March 31,      Nine Months Ended December 31,  
     2014      2015      2014      2015  
     Rs.      Rs.      US$(1)      Rs.      Rs.      US$(1)  
     (In thousands)  

Proforma shares used in computing basic and diluted loss per share(8)

                 

Equity shares

     108,882         109,830         —          109,880         109,880         —    

Supplemental information (unaudited):

        

Adjusted EBITDA(9)

     593,554         618,370         9,343         471,449         1,250,075         18,886   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Azure Power Global Limited’s functional currency is the U.S. dollar and reporting currency is the Indian rupee. Further, AZI’s functional and reporting currency is the Indian rupee. Solely for the convenience of the reader, we have translated the financial information as of and for the fiscal year ended March 31, 2015 and the nine months ended December 31, 2015 into U.S. dollars. The rate used for this translation is Rs. 66.19 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 as of December 31, 2015, which is the date of our last reported financial statements.
(2) Interest expense, net consists of:

 

    Fiscal Year Ended March 31,     Nine Months Ended December 31,  
    2014     2015     2014     2015  
    Rs.     Rs.     US$(a)     Rs.     Rs.     US$(a)  

Interest expense:

     

Compulsorily convertible debentures

    217,751        248,831        3,759        202,051        238,113        3,597   

Series E compulsorily convertible preferred shares

    74,700        96,500        1,458        71,242        157,355        2,377   

Term loans

    316,519        598,845        9,048        374,806        1,108,360        16,745   

Bank charges and other

    36,151        55,454        838        33,661        78,682        1,189   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    645,121        999,630        15,103        681,760        1,582,510        23,908   

Interest income:

     

Term deposits

    111,842        151,860        2,294        107,778        159,137        2,404   

Interest income from related parties

    —          2,031        31        —          —          —     

Gain on sale of short term investments

    13,060        13,949        211        10,054        34,084        515   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense, net

    520,219        831,790        12,567        563,928        1,389,289        20,989   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  (a) Refer to note (1) above.

 

(3) Loss on foreign currency exchange consists of:

 

     Fiscal Year Ended March 31,     Nine Months Ended December 31,  
     2014     2015           2014           2015  
     Rs.     Rs.     US$(a)     Rs.     Rs.     US$(a)  

Unrealized loss on foreign currency loans

     578,571        240,656        3,636        319,778        345,474        5,219   

Realized loss on foreign currency loans

     39,989        (42,280     (639     (6,304     (46,429     (701

Unrealized loss on derivative instruments

     (16,384     7,342        111        (13,527     (2,364     (36

Realized loss on derivative instruments

     (21,610     93,910        1,419        68,684        40,431        611   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     580,566        299,628        4,527        368,631        337,112        5,093   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  (a) Refer to note (1) above.

The unrealized and realized foreign exchange loss represents the foreign currency fluctuations on our non-Indian rupee denominated borrowings.

 



 

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(4) Represents a non-controlling interest of 20% in a subsidiary.
(5) Our Series A, Series B, Series C, Series D, Series F and Series H compulsorily convertible preferred shares, or collectively the Mezzanine CCPS, are being accreted to their redemption value through February 25, 2016, the earliest redemption date, to earn the mandatory redemption amount on such date.
(6) Represents accretion to the redeemable non-controlling interest in a subsidiary which is accreted to its accretion value.
(7) Basic and diluted net loss per share attributable to Azure Power Global Limited equity shareholders is computed by dividing the net loss attributable to Azure Power Global Limited equity shareholders by the weighted average number of equity shares outstanding for the period. The potentially dilutive compulsorily convertible preferred shares, compulsorily convertible debentures and share options were excluded from the calculation of dilutive loss per share in those periods where inclusion would be anti-dilutive.
(8) Pro forma net loss per share attributable to Azure Power Global Limited equity shareholders for the fiscal year ended March 31, 2015 and the nine months ended December 31, 2015 is calculated as if the compulsorily convertible preferred shares and the compulsorily convertible debentures had been converted into equity shares at the beginning of the respective period presented or when compulsorily convertible preferred shares and compulsorily convertible debentures were issued, if later. Compulsorily convertible preferred shares and compulsorily convertible debentures upon the completion of this offering convert into (i)                     equity shares as of March 31, 2015 and (ii)                     equity shares as of December 31, 2015 based upon the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus.
(9) Adjusted EBITDA is a non-GAAP financial measure. We present Adjusted EBITDA as a supplemental measure of our performance. This measurement is not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. The presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

We define Adjusted EBITDA as net loss (income) plus (a) income tax expense, (b) interest expense, net, (c) depreciation and amortization, and (d) loss (income) on foreign currency exchange. We believe Adjusted EBITDA is useful to investors in evaluating our operating performance because:

 

   

securities analysts and other interested parties use such calculations as a measure of financial performance and debt service capabilities; and

 

   

it is used by our management for internal reporting and planning purposes, including aspects of our consolidated operating budget and capital expenditures.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:

 

   

it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments or foreign exchange gain/loss;

 

   

it does not reflect changes in, or cash requirements for, working capital;

 

   

it does not reflect significant interest expense or the cash requirements necessary to service interest or principal payments on our outstanding debt;

 

   

it does not reflect payments made or future requirements for income taxes; and

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or paid in the future and Adjusted EBITDA does not reflect cash requirements for such replacements or payments.

Investors are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis.

 



 

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The following table presents a reconciliation of net loss to Adjusted EBITDA:

 

     Fiscal Year Ended March 31,     Nine Months Ended December 31,  
     2014     2015     2014     2015  
     Rs.     Rs.     US$(a)     Rs.     Rs.     US$(a)  
     (In thousands)  

Net loss

     (775,430     (1,088,590     (16,446     (884,930     (1,061,400     (16,035

Income tax expense

     15,847        253,112        3,824        205,804        89,427        1,351   

Interest expense, net

     520,219        831,790        12,567        563,928        1,389,289        20,989   

Depreciation and amortization

     252,352        322,430        4,871        218,016        495,647        7,488   

Loss on foreign currency exchange

     580,566        299,628        4,527        368,631        337,112        5,093   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     593,554        618,370        9,343        471,449        1,250,075        18,886   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Refer to note (1) above.

 

     As of December 31,     As of December 31,
     2015     2015
(Pro forma)(5)
   2015
(Pro forma
as adjusted)(5)
     Rs.     US$(1)     Rs.    US$(1)    Rs.    US$(1)

Balance Sheet Data

               

Cash and cash equivalents

     3,744,450        56,571              

Property, plant and equipment, net

     21,058,666        318,155              

Total assets

     29,270,158        442,214              

Compulsorily convertible debentures and Series E & Series G preferred shares(2)

     3,340,619        50,470              

Project level and other debt(3)

     17,038,860        257,423              

Mezzanine CCPS shares(4)

     9,461,436        142,944              

Total APGL shareholders’ deficit

     (6,560,282     (99,112           

 

(1) Azure Power Global Limited’s functional currency is the U.S. dollar and reporting currency is the Indian rupee. Further, AZI’s functional and reporting currency is the Indian rupee. Solely for the convenience of the reader, we have translated the financial information as of and for the fiscal year ended March 31, 2015 and the nine months ended December 31, 2015 into U.S. dollars. The rate used for this translation is Rs. 66.19 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 as of December 31, 2015, which is the date of our last reported financial statements.
(2) The Series E and Series G compulsorily convertible preferred shares are classified as a current liability in the consolidated balance sheet because the preference shareholders have a right to convert their shares into variable number of equity shares to give them their required returns.
(3) This balance represents the short term and long term portion of project level secured term loans and other secured bank loans.
(4) Compulsorily convertible preferred shares include the Mezzanine CCPS and are classified as temporary equity in the consolidated balance sheet.
(5) The pro forma and pro forma as adjusted columns in the balance sheet data reflects the transactions described in the last paragraph of page 13.

The pro forma as adjusted information set forth in the table above is for illustrative purposes only and will be adjusted based on the actual initial public offering price and other terms of this offering as determined at pricing.

A US$1.00 increase or decrease in the assumed public offering price of US$         would increase or decrease each of pro forma as adjusted cash and cash equivalents, total assets, and total deficit by Rs.              thousands (US$        ), assuming the number of shares offered by us, as set forth on the cover page of the prospectus, remains the same, after deducting estimated underwriting discounts, commissions and estimated offering expenses payable by us.

 



 

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RISK FACTORS

You should carefully consider the risks described below and all other information contained in this prospectus before making an investment decision. 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 prospectus 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 prospectus.

Risks Related to Our Business and Our Industry

We have never been profitable, and believe we will continue to incur net losses for the foreseeable future.

We have incurred losses since our inception, including a net loss of US$16.0 million for the nine months ended December 31, 2015 and US$16.4 million for fiscal year 2015. We believe that we will continue to incur net losses as we expect to make continued significant investment in our solar projects. As of January 31, 2016, we operated 21 utility scale projects and several commercial rooftop projects with a combined rated capacity of 276MW. As of January 31, 2016, we were also constructing ten projects with a combined rated capacity of 214MW and had an additional 314MW of projects committed, bringing our total portfolio capacity to 804MW. A significant number of power projects are presently committed and under construction, and we can only 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 more costly than we anticipate and that they do not ultimately result in commensurate increases in revenue, which would further increase our losses. Additionally, we have not, and likely will not in the foreseeable future, generate sufficient cash flow required for our growth plans. We expect we will continue to experience losses, some of which could be significant. Results of operations will depend upon numerous factors, some of which are beyond our control, including the availability of preferential feed-in tariffs for solar power and other subsidies, global liquidity and competition.

The reduction, modification or elimination of central and state government subsidies and economic incentives in India may reduce the economic benefits of our existing solar projects and our opportunities to develop or acquire suitable new solar 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. The cost of generating electricity from solar energy in India currently exceeds, and very likely will continue to exceed for the foreseeable future, the cost of generating electricity from conventional energy sources such as domestic coal. These subsidies and incentives have been primarily in the form of preferential tariffs, project cost subsidies, tax incentives, tax holidays, and other incentives to end users, distributors, system integrators and manufacturers of solar energy products. For instance, the National Tariff Policy 2006 requires State Electricity Regulatory Commissions, or SERCs, to set Renewable Purchase Obligations, or RPOs, on their distribution companies of solar energy, and provides that procurement of electricity by such distribution companies must be done at preferential tariffs, which is determined by the relevant SERC from time to time. Further, the Indian Ministry of New and Renewable Energy, or the MNRE, has introduced the generation based incentive scheme to support small grid solar projects, pursuant to which the MNRE will pay incentives to the state utilities when they directly purchase solar power from project developers. Further, India’s Income Tax Act, 1961 as amended, provides for

 

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certain tax benefits, including 100% tax deductions of the profits derived from generation of power for 10 consecutive years. In addition, certain state policies also provide subsidies and economic incentives. For instance, the state policy in Punjab provides certain tax exemptions, including in relation to supply of capital goods used for setting up projects.

The availability and size of such subsidies and 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 duration. Generally, the amount of government subsidy for solar projects has been decreasing as the cost of producing energy has approached grid parity. Changes in central and state policies could lead to a significant reduction in or a discontinuation of the support for renewable energies. Reductions in government subsidies and economic incentives that apply to future solar projects could diminish the availability of our opportunities to continue to develop or acquire suitable newly developed solar projects. Such reductions may also apply retroactively to existing solar projects, which could significantly reduce the economic benefits we receive from our existing solar projects. Moreover, some of the solar program subsidies and 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 RPOs for their distribution companies, the implementation of RPO schemes has not been uniform across Indian states. Although states are beginning to enforce RPOs under the guidance from the central government, RPOs have historically been breached without consequences.

Additionally, we may not continue to qualify for such subsidies and incentives. We could also choose to implement other solar power projects, such as rooftop projects, that are outside the scope of such subsidies and 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 solar projects less competitive and reduce demand for new solar 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 long term growth depends in part on the Indian government’s ability to meet its announced targeted capacity.

The Indian government increased its 2022 target for solar capacity from 20GW to 100GW. However, new capacity additions have historically been lower than the government’s announced targeted capacity. For example, actual capacity additions represented only 70% of the targeted capacity of 78.7GW in the Eleventh Five-Year Plan. This shortfall in capacity additions was due to issues in timely commissioning of conventional power plants, which included delays in land acquisition, obtaining regulatory permits and difficulties in securing reliable and cost efficient fuel supplies. Under the prior Five Year Plans before the Eleventh Five-Year Plan, solar capacity targets were not included. As such, there is a short track record of meeting solar capacity targets. As for reaching target capacity for other renewable energy sources, in certain Five Year Plans those targets were met while others have fallen short. Any failure to meet the government’s targeted solar capacity may result in a slowdown in our growth opportunities and adversely affect our ability to achieve our long term business objectives, targets and goals.

 

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Our operations are subject to extensive governmental, health and 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, 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. 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.

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 required to obtain consents to establish and operate in certain Indian states 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 state policies in relation to solar projects exempt us from obtaining such consents or have reduced or simplified procedural requirements for obtaining such consents. 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. For instance, we are currently involved, along with the Government of Rajasthan, in a public interest litigation in relation to our 5MW project in Rajasthan. Members of the local community have alleged that the operation of this project has resulted in a water shortage for the local community and that the plant has been established on pasture land. The matter is currently pending adjudication before the High Court of Rajasthan.

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 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.

 

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Our limited operating history, especially with large-scale solar projects, 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 January 31, 2016, we operated 21 utility scale projects and several commercial rooftop projects with a combined rated capacity of 276MW. As of such date, we were also constructing ten projects with a combined rated capacity of 214MW and had an additional 314MW of projects committed, bringing our total portfolio capacity to 804MW. Accordingly, our relatively limited operating history 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.

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, resulting 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. However, given that we are an early-stage company operating in 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 inconsistently available 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, viability gap funding, or VGF, our pricing policies or terms or those of our competitors;

 

   

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

 

   

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

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, 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 severe adverse effect on the trading price of our equity shares.

 

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

As of December 31, 2015, we had US$35.22 million in current liabilities, excluding the current portion of long-term debt and short-term debt, and US$334.3 million in outstanding long-term borrowings, including the current portion of long-term debt and short-term debt. Long term borrowings as of December 31, 2015, after giving effect to the conversion of our convertible securities in connection with this offering, will be US$             million. Generally these borrowings relate to the financing for our projects and are secured by the 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;

 

   

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.

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 this initial public offering and third-party financing options, including any bank loans, equity partners, financial leases and securitization. However, we cannot guarantee that we will be successful in 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.

 

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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;

 

   

decline of the Indian rupee compared to 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 our company 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 the debt financing.

Any additional equity financing may be dilutive to our 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 disposition of our assets or the conduct of our business. We have not been in compliance with all financial and other covenants and we may not be able to comply with some of those financial and other covenants from time to time. For example, as of September 30, 2014 we were not in compliance with three financial covenants, the cash flow to debt service ratio, the current asset to current liability ratio and the indebtedness to tangible net worth ratio, for our Punjab 1 project and one financial covenant, the indebtedness to tangible net worth ratio, for our Gujarat 1 project. We have obtained waivers from the lender to cure the non-compliances. In addition, we typically pledge our solar project assets or account 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 account or trade receivables will include 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, 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 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

 

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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, 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 will also restrict our ability to pay dividends.

Any default or failure by us to repay our loans in a timely manner or at all could impact the ability of two of our directors who have personally guaranteed a portion of our loans to further guarantee our indebtedness and cause an adverse effect on our business and results of operation.

Mr. Inderpreet Singh Wadhwa and Mr. Harkanwal Singh Wadhwa have personally guaranteed the repayment of a number of AZI’s loans. In connection with the working capital facility provided by the Central Bank of India, Mr. Inderpreet Singh Wadhwa and Mr. Harkanwal Singh Wadhwa have each guaranteed Rs. 543.3 million and Rs. 69.7 million, respectively, in favor of the lender.

In addition, Mr. Inderpreet Singh Wadhwa and Mr. Harkanwal Singh Wadhwa have provided personal guarantees in favor of the Central Bank of India for the repayment of loans of three of our project subsidiaries in the amounts of Rs. 315 million, Rs. 639 million and Rs. 1,306 million in addition to the payment of any interest and other monies payable to the lender. Mr. Inderpreet Singh Wadhwa and Mr. Harkanwal Singh Wadhwa have each also personally guaranteed a loan from Reliance Capital Limited in the amount of Rs. 1 billion and a loan from IFCI Limited in the amount of Rs. 1 billion.

Any default or failure by us to repay these loans in a timely manner, or at all, could trigger repayment obligations on the part of Mr. Inderpreet Singh Wadhwa and Mr. Harkanwal Singh Wadhwa, which could impact their ability to guarantee our indebtedness and could cause them to forfeit the stock pledged in relation to such loans, thereby having an adverse effect on our business, results of operation and cash flows.

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

There are generally many months or even years between our initial bid in renewable energy auctions to build solar projects and the date on which we begin to recognize revenue from the sale of electricity generated by such solar 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. As such, 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 and bank loans to pay for costs and expenses incurred during project development. Solar 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, permitting and grid

 

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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, labor strikes, panel shortages or monsoon weather. 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 in between due to unforeseen events, could put strains on our liquidity and resources, and materially and adversely affect our profitability, results of operations and cash flows.

Solar 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 solar projects involve numerous risks and uncertainties and require extensive research, planning and due diligence. 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 solar project is economically, technologically or otherwise feasible.

We intend to expand our business significantly with a number of new projects in both new and existing jurisdictions in the future. As we grow, we expect to encounter additional challenges to our internal processes, external construction management, capital commitment process, project funding infrastructure and financing capabilities. Our existing operations, personnel, systems and internal control 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 operational, 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 solar projects.

Solar projects require solar and geological conditions that are not available in all areas. Further, large, utility scale solar projects must be interconnected to the power grid in order to deliver electricity, which requires us to find suitable sites with capacity on the power grid available. We may encounter difficulties registering certain leasehold interest in such sites. Even when we have identified a desirable site for a solar project, our ability to obtain site control with respect to the site is subject to our ability to finance the transaction and growing competition from other solar power producers that may have better access to local government support or financial 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 solar 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

 

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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, our liquidity and financial condition may be harmed.

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 solar 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 process is 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 need greater subsidies to 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.

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 and including SunEdison, Inc., First Solar, Inc. and ACME Cleantech Solutions Private Limited. 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 generation 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 recently there have been bids as low as Rs. 4.34 per kilowatt hour. 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 solar projects.

 

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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, or EPC, and operations and maintenance, or 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 solar energy industry grows and evolves, we will 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 solar 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 wind, biomass, nuclear and hydropower. If these non-solar renewable sources become more financially viable, our business, financial condition and results of operations could be adversely affected. 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 relative to solar energy. 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.

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.

Distributing power to a purchaser is our responsibility. We generally rely on transmission lines and other transmission and distribution facilities that are owned and operated by the respective state governments or public entities. 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.

Further, some of our projects may have limited access to transmission and distribution networks. 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, particularly because we are required to distribute power to customers across long distances from our project sites. 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 government or public entities. We cannot assure you that the relevant government or public entities 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 purchasers of utility scale quantities of electricity, which exposes us and our utility scale projects to risk.

In fiscal year 2014 and 2015 and in the nine months ended December 31, 2015, we derived 99.9%, 97.2% and 88.5%, respectively, of our revenue from our top five customers, respectively. Since the transmission and

 

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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 Jawaharlal Nehru National Solar Mission, or NSM, solar project developers are required to enter into PPAs with specified implementation agencies. 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.

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.

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 in the past to collect when assessing the counterparties’ creditworthiness. Governmental entities to which we sell power do not have credit ratings, so there are no credit ratings to consider. For illustrative purposes, Moody’s Investor Services Inc. and Standard and Poor’s Financial Services LLC have rated the Government of India Baa3 and BBB-, respectively. As a result, many of the state governments in India, if rated, would likely rate lower than the Government of India. 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 fulfill 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 on the basis of 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 10MW 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 is pending with the Supreme Court of India.

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 facilities may be subject to legislative or other political action that may impair their contractual performance.

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

 

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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 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.

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. 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. The above factors all 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 some 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.

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.

Land title in India can be uncertain and we may not be able to identify or correct defects or irregularities in title to 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 generally maintained at the state and district level and in local languages, and are updated manually through physical records. Therefore, property records may not be available online for inspection or updated in a timely manner, may be illegible, untraceable, incomplete or inaccurate in certain respects, or may have been kept in poor condition, which may impede title investigations or our ability to rely on such property records. In addition, there may be a discrepancy between the duration of the principal lease under different orders issued by state governments in respect of a particular parcel of revenue land. Furthermore, title to land in India is often fragmented, and in many cases, land may have multiple owners. Title may also suffer from irregularities, such as non-execution or non-registration of conveyance deeds and

 

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inadequate stamping, and may be subjected to encumbrances that we are unaware of. Any defects in, or irregularities of, title may result in a loss of development or operating rights over the land, which may prejudice the success of our power projects and require us to write off substantial expenditures in respect of our power projects. For instance, a portion of land leased from the Government of Rajasthan for our projects in Nagaur, Rajasthan, is presently disputed as third parties have sought establishment of mining rights through the Mining Department of the State of Rajasthan. We have filed a petition with the High Court of Rajasthan to disallow such renewal. Presently, the High Court of Rajasthan has issued an injunction over the alleged claims on this land for mining.

Further, improperly executed, unregistered or insufficiently stamped conveyance instruments in a property’s chain of title, unregistered encumbrances in favor of third parties, rights of adverse possessors, ownership claims of family members of prior owners or third parties, or other defects that a purchaser may not be aware of can affect title to a property. As a result, potential disputes or claims over title to the land on which our power projects are or will be constructed, may arise. However, an adverse decision from a court or the absence of an agreement with such third-parties may result in additional costs and delays in the construction and operating phases of any solar projects situated on such land. Also, such disputes, whether resolved in our favor or not, may divert management’s attention, harm our reputation or otherwise disrupt our business.

In addition, some properties used for our solar projects are subject to other third-party rights such as right of passage and right to place cables and other equipment on the properties, which may result in certain interferences with our use of the properties. Our rights to the properties used for our solar projects may be challenged by property owners and other third parties for various other reasons as well. For example, we do not always have the exclusive right to use a given site. Any such challenge, if successful, could impair the development or operations of our solar projects on such properties.

Additionally, the power projects that we may develop or acquire in the future may be located on land that may be subject to onerous conditions under the lease agreements through which we acquire rights to use such land and rights of way. Furthermore, the government may exercise its rights of eminent domain, or compulsory acquisition in respect of land on which our projects are or will be located. Any of this may adversely affect our business, results of operations and cash flows in the future.

A certain portion of the land on which our solar projects are or will be located, are not owned by us. In the event we are unable to purchase the land, or enter into or renew lease agreements, our business, results of operations, cash flows and financial condition could be adversely affected.

Some of our solar projects are located, or will be located, on revenue land that is owned by the state governments or on land acquired or to be acquired from private parties. The timeline for transfer of title in the land is dependent on the type of land on which the power projects are, or will be, located, and the policies of the relevant state government in which such land is located. In the case of land acquired from private parties, which is agricultural land, the transfer of such land from agriculturalists to non-agriculturalists such as us and the use of such land for non-agricultural purposes may require an order from the relevant state land or revenue authority allowing such transfer or use. For revenue land, we obtain a lease from the relevant government authority.

We cannot assure you that the outstanding approvals would be received, or that lease or sub-lease deeds would be executed in a timely manner, such that the operation of our solar projects will continue unaffected. In certain cases, any delay in the construction or commissioning of a solar project may result in termination of the lease. Further, the terms of lease and sub-lease agreements may also not be co-terminus with the lifetime of the power projects, taken together with the period of time required for construction and commissioning of the project. Accordingly, we will have to obtain extensions of the terms of such leases and sub-leases for the remainder of the terms of the corresponding PPAs. In the event that the relevant state authorities do not wish to renew the lease or sub-lease agreements, we may be forced to remove our equipment at the end of the lease and our business, results of operations, cash flows and financial condition could be adversely affected.

 

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If sufficient demand for solar projects does not develop or takes longer to develop than we anticipate, our business, financial condition, results of operations, cash flows and prospects could be materially and adversely affected.

The solar power market is at a relatively early stage of development in many of the markets that we have entered or intend to enter. This is especially true in the rooftop and micro-grid solar markets. The solar energy industry continues to experience improved efficiency and higher electricity output. However, trends in the solar energy industry are based only on limited data and may not be reliable. Many factors may affect the demand for solar projects in India, including:

 

   

fluctuations in economic and market conditions that affect the viability of conventional and non-solar renewable energy sources;

 

   

the cost and reliability of solar projects compared to conventional and other renewable energy sources;

 

   

the availability of grid capacity to dispatch power generated from solar projects;

 

   

public perceptions of the direct and indirect benefits of adopting renewable energy technology; and

 

   

regulations and policies governing the electric utility industry that may present technical, regulatory and economic barriers to the purchase and use of solar energy.

If market demand for solar projects fails to develop sufficiently, our business, financial condition, results of operations, cash flows and prospects could be materially and adversely affected.

If we are unsuccessful in our efforts to establish and/or maintain our compliance with the local content requirements in certain states, our financial results could be adversely affected.

In some cases, we are required by the central government in national auctions to procure solar panels solely from Indian manufacturers. Certain states or others may, in the future, require us to procure a defined portion of our solar system components from their designated geographical locales. Such requirements are commonly referred to as “local content requirements.” In order to satisfy these local content requirements, we may need to undertake localization initiatives in such geographical locale. Some of our competitors with more significant capital resources may implement or expedite their own localization efforts in these geographical locale, and those efforts may result in competitive advantages for them. We may be faced with shortages or quality issues if projects we bid on impose local content requirements. Our costs may also be higher as a result of these requirements. Our failure to successfully implement appropriate localization initiatives, or otherwise acquire and maintain the capability to satisfy applicable local content requirements, could result in our losing business to our competitors and/or our breaching the terms of agreements, potentially resulting in damages, including monetary penalties. Depending on the value to us of lost business or the amounts of any contractual penalties, these consequences could have a material adverse effect on our results of operations and cash flows.

We may incur unexpected expenses if the suppliers of components in our solar projects default in their warranty obligations.

The solar panels, inverters, modules and other system components utilized in our solar projects are generally covered by manufacturers’ warranties, which are typically for five 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.

 

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Our construction activities may be subject to cost overruns or delays.

Construction of our solar projects may be adversely affected by circumstances outside of our control, including inclement weather, adverse geological and environmental conditions, a 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. Labor shortages, work stoppages or labor disputes could significantly delay a project, increase our costs or cause us to breach our performance guarantees under our PPAs, particularly because strikes 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 solar 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.

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 the solar project is significantly delayed, such PPAs may be terminated. 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 VGF, which is paid out typically over two to 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.

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

Operation of power generation facilities involves significant risks and hazards that could have a material adverse effect on our business, financial condition, results of operations and cash flows. We may not have adequate insurance to cover these risks and hazards.

Power generation involves hazardous activities, including delivering electricity to transmission and distribution systems. In addition to natural risks such as earthquake, flood, lightning, hurricane and wind, other hazards, such as fire, structural collapse and machinery failure are inherent risks in our operations. These and other hazards can cause significant personal injury or loss of life, severe damage to and destruction of property, plant and equipment and contamination of, or damage to, the environment and suspension of operations. The occurrence of any one of these events may result in our being named as a defendant in lawsuits asserting claims for substantial damages, including for environmental cleanup costs, personal injury and property damage and fines and/or penalties. We maintain an amount of insurance protection that we consider adequate but we cannot provide any assurance that our insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject. Furthermore, our insurance coverage is subject to deductibles, caps, exclusions and other limitations. A loss for which we are not fully insured could have a material adverse effect on our business, financial condition, results of operations or cash flows. Further, due to rising insurance costs and changes in the insurance markets, we cannot provide any assurance that our insurance coverage will continue to be available at all or at rates or on terms similar to those presently available. Any losses not covered by insurance could have a material adverse effect on our business, financial condition, results of operations and cash flows.

 

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Maintenance and expansion of power generation facilities involve significant risks that could result in reduced power generation and financial output.

Our facilities may require periodic upgrading and improvement. Any unexpected operational or mechanical failure, including failure associated with breakdowns and forced outages, and any decreased operational or management performance, could reduce our facilities’ generating capacity below expected levels and reduce our revenues as a result of generating and selling less power. Degradation of the performance of our solar facilities above levels provided for in the related PPAs may also reduce our revenues. Unanticipated capital expenditures associated with maintaining, upgrading or repairing our facilities may also reduce profitability, especially because our costs are fixed in the PPAs and we may not pass through any unexpected costs in relation to the projects to our customers. Furthermore, we are not able to mitigate such project risks by shifting some or all of the risk to a third-party EPC or O&M contractor since we provide these services in-house.

Changes in technology may require us to make additional capital expenditures to upgrade our facilities. The development and implementation of such technology entails technical and business risks and significant costs of employee implementation.

The loss of one or more members of our senior management or key employees may adversely affect our ability to implement our strategy.

Our future success depends on the continued services and performances of the members of our management in our business for project implementations, management and running of our daily operations and the planning and execution of our business strategy. We depend on our experienced management team, and the loss of one or more key executives could have a negative impact on our business. In particular, we are dependent on the services of Mr. Inderpreet Singh Wadhwa and Mr. Harkanwal Singh Wadhwa, and the loss of either, including the loss of Mr. Harkanwal Singh Wadhwa as a result of an adverse outcome of the pending litigation against him described in “Management” could adversely impact our business. We also depend on our ability to retain and motivate key employees and attract qualified new employees. Neither our executive officers nor our key employees are bound by employment agreements for any specific term, and we may be unable to replace key members of our management team and key employees in the event we lose their services. There is intense competition for experienced management personnel with technical and industry expertise in the renewable energy business and if we lose the services of any of these individuals and are unable to find suitable replacements in a timely manner, our ability to realize our strategic objectives could be impaired. Integrating new employees into our management team could prove disruptive to our operations, require substantial resources and management attention and ultimately prove unsuccessful. An inability to attract and retain sufficient managerial personnel who have critical industry experience and relationships could limit or delay our strategic efforts, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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

The electricity produced and revenues generated by our solar projects are highly dependent on suitable solar conditions and associated weather conditions, which are beyond our control. Furthermore, components of our systems, such as solar panels and inverters, could be damaged by severe weather, such as hailstorms, 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 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 solar

 

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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.

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.

Fluctuations in foreign currency exchange rates may negatively affect our revenue, cost of sales and gross margins and could result in exchange losses.

As the functional currency of our Indian subsidiaries is the Indian rupee, our operating expenses are denominated primarily in Indian rupees. However, some of our capital expenditures, and particularly those for equipment imported from international suppliers, such as solar panels, are denominated in foreign currencies. To the extent that we are unable to match revenue received in our functional currency with costs paid in foreign currencies, exchange rate fluctuations in any such currency could have an adverse effect on our profitability. Substantially all of our cash flows are generated in Indian rupees and, therefore, significant changes in the value of the Indian rupee relative to the other foreign currencies could have a material adverse effect on our financial condition and our ability to meet interest and principal payments on debts. In addition to currency translation risks, we incur currency transaction risks whenever we or one of our projects enter into a purchase or sales transaction using a currency other than the Indian rupee. We expect our future capital expenditures in connection with our proposed expansion plans to include significant expenditures in foreign currencies for imported equipment and machinery.

A significant fluctuation in the Indian rupee and U.S. dollar and other foreign currency exchange rates could therefore have a significant impact on our other results of operations. The exchange rate between the Indian rupee and these currencies, primarily the U.S. dollar, has fluctuated in the past and any appreciation or depreciation of the Indian rupee against these currencies can impact our profitability and results of operations. Our results of operations have been impacted by such fluctuations in the past and may be impacted by such fluctuations in the future. For example, the Indian rupee has depreciated against the U.S. dollar over the past year, which may impact our results of operations in future periods. Such depreciation impacts the value of your investment. Furthermore, we have borrowings denominated in U.S. dollars and, as such, an annual decline in the rupee against the U.S. dollar effectively adds to the functional interest rate of our borrowings. Any amounts we spend in order to hedge the risks to our business due to fluctuations in currencies may not adequately hedge against any losses we incur due to such fluctuations.

The accounting treatment for many aspects of our solar projects is complex and any changes to the accounting interpretations or accounting rules governing our solar projects could have a material adverse effect on our GAAP reported results of operations and financial condition.

The accounting treatment for many aspects of our solar projects is complex, and our future results could be adversely affected by changes in the accounting treatment applicable to our solar projects. In particular, any changes to the accounting rules regarding the following matters may require us to change the manner in which we operate and finance our solar projects:

 

   

foreign loans accounting;

 

   

derivative contracts;

 

   

asset retirement obligations;

 

   

share based compensation;

 

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revenue recognition and related timing;

 

   

accounting for convertible debt and equity instruments;

 

   

income taxes;

 

   

foreign holding company tax treatment;

 

   

regulated operations; and

 

   

government grants.

Our international corporate structure and operations require us to comply with anti-corruption laws and regulations of the United States government and various non-U.S. jurisdictions. The implementation of compliance procedures and related controls may be time consuming and expensive, and if we are not in compliance with applicable legal requirements, we may be subject to civil or criminal penalties and other remedial measures.

Following this offering, we will be subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, which prohibits, in relevant part, U.S. nationals, companies that have securities registered in the U.S. and any officer, director, employee, or agent of such issuer or any shareholder thereof acting on behalf of such issuer from bribing foreign officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment and imposes obligations to keep accurate books and records and maintain appropriate internal controls. We have been and will continue to be subject to anti-corruption, anti-bribery and anti-facilitation payment legislation in other jurisdictions, which in certain circumstances go beyond the scope of the FCPA rules and regulations, including in India.

The current and future jurisdictions in which we operate our business may have experienced governmental corruption to some degree, and, in certain circumstances, strict compliance with anti-bribery and anti-facilitation payment laws may conflict with local customs and practices, which is likely to negatively impact our results of operations. We are currently in the process of developing and implementing formal controls and procedures to ensure that we are in compliance with the FCPA and similar U.S. laws and regulations as well as similar anti-corruption, anti-bribery and anti-facilitation payment laws and regulations in non-U.S. jurisdictions. Compliance with these new controls and procedures could make it more difficult for us to obtain timely permits or otherwise complete our projects on schedule in jurisdictions where strict compliance with anti-corruption and anti-bribery laws may conflict with local customs and practices.

Any historic or future violations of these laws, regulations and procedures by our employees, independent contractors, subcontractors and agents could be costly and time-consuming to investigate and expose us to administrative, civil or criminal penalties or fines (including under U.S. and Indian laws and regulations as well as foreign laws). If we were to be investigated for, charged with, or convicted of, violating these laws and regulations, our reputation could be harmed and it could cause some of our investors to sell their interests in our company to be consistent with their internal investment policies or to avoid reputational damage, and some investors might forego the purchase of our equity shares, all of which may negatively impact the trading prices of our equity shares. In addition, any administrative, civil or criminal penalties or fines could have a material adverse effect on our business results of operations and cash flows.

We may become involved in costly and time-consuming litigation and other regulatory proceedings, which require significant attention from our management.

We are not involved in any material litigation, administrative or arbitral proceedings. However, we may, in the ordinary course of our business, become involved in such proceedings. For example, we are, and may become subject to additional demands from Indian governmental or tax authorities, including, but not limited to, on account of differing interpretations of central and state tax statutes in India, which are extensive and subject to

 

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change from time to time. Changes in regulations or tax policies, or adoption of differing interpretations of existing provisions, and enforcement thereof by governmental, taxation or judicial authorities in India may become the subject of legal proceedings involving us from time to time.

Additionally, claims may be brought against or by us from time to time regarding, for example, defective or incomplete work, defective products, personal injuries or deaths, damage to or destruction of property, breach of warranty, late completion of work, delayed payments, intellectual property rights or regulatory compliance, and may subject us to litigation, arbitration and other legal proceedings, which may be expensive, lengthy, disruptive to normal business operations and require significant attention from our management.

If we were found to be liable on any of the claims against us, we would incur a charge against earnings to the extent a reserve had not been established for coverage. If amounts ultimately realized from the claims by us were materially lower than the balances included in our financial statements, we would incur a charge against earnings to the extent profit had already been accrued. Charges and write-downs associated with such legal proceedings could have a material adverse effect on our financial condition, results of operations and cash flow. Moreover, legal proceedings, particularly those resulting in judgments or findings against us, may harm our reputation and competitiveness in the market.

Employee shortages and rising employee costs may harm our business and increase our operation costs.

As of January 31, 2016, we employed 327 persons to perform a variety of functions in our daily operations. The low cost workforce in India provides us with a cost advantage. However, we have observed an overall tightening of the employee market and an emerging trend of shortage of skilled labor. Failure to obtain stable and dedicated employee support may cause disruption to our business that harms our operations. Furthermore, employee costs have increased in India in recent years and may continue to increase in the near future. To remain competitive, we may need to increase the salaries of our employees to attract and retain them. Our employee payroll and related costs amounted to US$1.6 million, and US$4.5 million in the nine months ended December 31, 2014 and 2015, respectively. Any increase in employee costs may harm our operating results, cash flows and financial condition.

Risks Related to Operations in India

Substantially all of our business and operations are located in India and we are subject to regulatory, economic, social and political uncertainties in India.

Substantially all of our business and employees are located in India, and we intend to continue to develop and expand our business in India. Consequently, our financial performance and the market price of our equity shares will be affected by changes in exchange rates and controls, interest rates, changes in government policies, including taxation policies, social and civil unrest and other political, social and economic developments in or affecting India.

An election or a new administration could result in uncertainty in the solar market, which could harm our operations. For example, we saw a slowdown in the solar market in fiscal year 2014 as a result of it leading up to an election year with uncertainty about the level of government support for solar initiatives going forward.

The Indian government has exercised and continues to exercise significant influence over many aspects of the Indian economy. Since 1991, successive Indian governments have generally pursued policies of economic liberalization and financial sector reforms, including by significantly relaxing restrictions on the private sector. Nevertheless, the role of the Indian central and state governments in the Indian economy as producers, consumers and regulators has remained significant and we cannot assure you that such liberalization policies will continue. The rate of economic liberalization could change, and specific laws and policies affecting solar power producers, foreign investments, currency exchange rates and other matters affecting investments in India could change as well, including exposure to possible expropriation, nationalization or other governmental actions.

 

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Further, protests against privatizations and government corruption scandals, which have occurred in the past, could slow the pace of liberalization and deregulation. A significant change in India’s policy of economic liberalization and deregulation or any social or political uncertainties could significantly harm business and economic conditions in India generally and our business and prospects.

The extent and reliability of Indian infrastructure could significantly harm our results of operations, cash flows and financial conditions.

India’s physical infrastructure is less developed than that of many developed nations. Any congestion or disruption with respect to communication systems or any public facility, including transportation infrastructure, could disrupt our normal business activity. Any deterioration of India’s physical infrastructure would harm the national economy, disrupt the transportation of people, goods and supplies, and add costs to doing business in India. These disruptions could interrupt our business operations and significantly harm our results of operations, cash flows and financial condition. For the risk of congestion or disruption with respect to India’s electricity grid and transmission lines, see “Risks Related to Our Business and Our Industry — 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.”

A slowdown in economic growth in India could cause our business to suffer.

Since inception, all of our revenue has been derived directly from sales by AZI and its various other subsidiaries in India. In addition, the CIA World Factbook estimates that consumer inflation in India was approximately 10% in 2013 and approximately 8% in 2014. The performance and growth of our business are necessarily dependent on economic conditions prevalent in India, which may be significantly harmed by political instability or regional conflicts, a general rise in interest rates, inflation and economic slowdown elsewhere in the world or otherwise. The Indian economy also remains largely driven by the performance of the agriculture sector which depends on the quality of monsoon, which is difficult to predict. Although the Indian economy has continued to grow in the past few years, any future slowdown in the Indian economy or a further increase in inflation could have a material adverse effect on the demand for power and, as a result, on our financial condition, results of operations and cash flows.

India’s trade relationships with other countries and its trade deficit may significantly harm Indian economic conditions. If trade deficits increase or are no longer manageable because of an unexpected rise in global crude oil prices or otherwise, the Indian economy, and therefore our business, our financial performance and the price of our equity shares could be significantly harmed.

India also faces major challenges in sustaining its growth, which include the need for substantial infrastructure development and improving access to healthcare and education. If India’s economic growth cannot be sustained or otherwise slows down significantly, our business and prospects could be significantly harmed.

Stringent labor laws may harm our ability to have flexible human resource policies and labor union problems could negatively affect our processing capacity, construction schedules, cash flows and overall profitability.

India has stringent labor legislation that protects the interests of workers, including legislation that sets forth detailed procedures for dispute resolution and employee removal, imposes financial obligations on employers upon employee layoffs and regulates contract labor. These laws may restrict our ability to have human resource policies that would allow us to react swiftly to the needs of our business, discharge employees or downsize. We may also experience labor unrest in the future, which may delay our construction schedules or disrupt our operations. If such delays or disruptions occur or continue for a prolonged period of time, our processing capacity and overall profitability could be negatively affected. We also depend on third party contract labor. It is possible under Indian law that we may be held responsible for wage payments to these laborers if their

 

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contractors default on payment. We may be held liable for any non-payment by contractors and any such order or direction from a court or any other regulatory authority may harm our business, results of our operations and cash flows.

Foreign investment laws in India includes certain restrictions, which may affect our future acquisitions or investments in India.

India regulates ownership of Indian companies by non-residents, although some restrictions on foreign investment have been relaxed in recent years. Under current Indian regulations, transfers of shares between non-residents and residents are permitted (subject to certain exceptions) if they comply with, among other things, the guidelines specified by the Reserve Bank of India in relation to pricing and valuation of such shares and certain reporting requirements for such transactions specified by the Reserve Bank of India. If the transfer of shares is not in compliance with such pricing guidelines or reporting requirements, or falls under any of the exceptions specified by the Reserve Bank of India, the prior approval of the Reserve Bank of India will be required before any such transfer may be consummated. We may not be able to obtain any required approval from the Reserve Bank of India or any other Indian regulatory authority on any particular terms or at all.

For example, under its consolidated foreign direct investment policy, the Indian government has set out additional requirements for foreign investments in India, including requirements with respect to downstream investments by Indian companies owned or controlled by non-resident entities and the transfer of ownership or control, from resident Indian persons or entities to non-residents, of Indian companies in sectors with limits on foreign investment. As substantially all of AZI’s equity shares will continue to be directly held by Azure Power Global Limited, it would be considered an entity owned and controlled by non-residents under applicable Indian laws. Accordingly, any downstream investment by Azure Power Global Limited into another Indian company will have to be in compliance with conditions applicable to such Indian entity, in accordance with the consolidated foreign direct investment policy. There are guidelines in relation to pricing and valuation of shares and restrictions on sources of funding for such investments. While these guidelines currently do not materially limit our planned investments in our Indian subsidiaries, to the extent they become more restrictive, they may restrict our ability to make further equity investments in India, including through Azure Power Global Limited.

Further, India’s Foreign Exchange Management Act, 1999, as amended, and the rules and regulations promulgated thereunder prohibit us from borrowing from our Indian subsidiaries. We are permitted to lend to our Indian subsidiaries subject to compliance with India’s policy on external commercial borrowings as notified by the Reserve Bank of India from time to time, which specifies certain conditions, including in relation to eligible lenders and borrowers, permitted end use and limits on the all-in-cost.

Changing laws, rules and regulations and legal uncertainties, including adverse application of corporate and tax laws, may adversely affect our business, financial condition, results of operations, cash flows and prospects.

The regulatory and policy environment in which we operate is evolving and subject to change. Such changes, including the instances mentioned below, may adversely affect our business, financial condition, results of operations, cash flows and prospects, to the extent that we are unable to suitably respond to and comply with any such changes in applicable law and policy.

 

   

The notified provisions of the Companies Act, 2013, together with the rules thereunder, or the Companies Act, contain significant changes to Indian company law, including in relation to the issue of capital by companies, related party transactions, corporate governance, audit matters, shareholder class actions and restrictions on the number of layers of subsidiaries. The Companies Act has also introduced certain additional requirements, including the introduction of a provision allowing the initiation of class action suits in India against companies by shareholders or depositors, a restriction on investment by an Indian company through more than two layers of subsidiary investment companies (subject to certain

 

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permitted exceptions), and prohibitions on advances to directors. Moreover, effective April 1, 2014, companies exceeding certain net worth, revenue or profit thresholds are required to spend at least 2% of average net profits from the immediately preceding three fiscal years on corporate social responsibility projects, failing which an explanation is required to be provided in such companies’ annual reports. Further, the Companies Act imposes greater monetary and other liability on Indian companies, their directors and officers for any non-compliance of its requirements. We may incur increased costs and other burdens to interpret and ensure our compliance with these new requirements, which may also require significant management time and other resources. Any failure to comply may also adversely affect our business and results of operations.

 

   

The Companies Act also requires auditors to report on the adequacy and operating effectiveness of the internal financial controls over financial reporting as of March 31, 2016. The implementation of an internal financial control framework and related controls may be time consuming and expensive, and if a deficiency in our controls is identified, we may report material weakness in our internal control over financial reporting which may reduce the reliability of our financial reporting, harm investor confidence in our company and affect the value of our equity shares.

 

   

The Indian government has proposed a comprehensive national goods and services tax that will combine taxes and levies by the central and state governments into a unified rate structure. In this regard, a bill has been introduced and is pending approval of the Indian Parliament. While the central and state governments have announced that all committed incentives will be protected following the implementation of the goods and services tax, given the limited availability of information in the public domain concerning the goods and services tax, we are unable to provide any assurance as to this or any other aspect of the tax regime following implementation of the goods and services tax. These amendments may affect the overall tax efficiency of companies operating in India and may result in significant additional taxes becoming payable.

We have not determined the impact of these recent and proposed legislations on our business. Uncertainty in the applicability, interpretation or implementation of any amendment to, or change in, governing law, regulation or policy in the jurisdictions in which we operate, including by reason of an absence, or a limited body, of administrative or judicial precedent may be time consuming as well as costly for us to resolve and may impact the viability of our current business or restrict our ability to grow our business in the future.

Natural calamities could have a negative impact on the Indian economy and adversely affect our business and project operations.

India has experienced natural calamities such as earthquakes, tsunamis, floods and drought in the past few years. In December 2004, Southeast Asia, including both the eastern and western coasts of India, experienced a massive tsunami, and in October 2005, the State of Jammu and Kashmir experienced an earthquake, both of which events caused significant loss of life and property damage. In June 2013, the state of Uttarakhand in northern India experienced widespread floods and landslides. Similarly, in December 2015, some regions in South India were severely impacted by floods. The extent and severity of these natural disasters determines their impact on the Indian economy. If climatic conditions or natural disasters occur in areas where our solar projects and project teams are located, project development, connectivity to the power grid and the provision of O&M services may be adversely affected. In particular, materials may not be delivered as scheduled and labor may not be available. Substantially all of our operations and employees are located in India and there can be no assurance that we will not be adversely affected by natural disasters in the future.

In recent years, certain regions of the world, including India, have experienced outbreaks of swine flu caused by the H1N1 virus. Any future outbreak of swine flu or other health epidemics, such as the outbreak of the Ebola virus, may restrict the level of business activity in affected areas which could adversely affect our business.

 

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Terrorist acts and other acts of violence involving India or other neighboring countries could significantly harm our operations directly, or may result in a more general loss of customer confidence and reduced investment in these countries that causes significant harm to our business, results of operations, cash flows and financial condition.

Terrorist attacks and other acts of violence or war involving India or other neighboring countries may significantly harm the Indian markets and the worldwide financial markets. The occurrence of any of these events may result in a loss of business confidence, which could potentially lead to economic recession and generally cause significant harm to our business, results of operations, cash flows and financial condition. In addition, any deterioration in international relations may result in investor concern regarding regional stability, which could decrease the price of our equity shares.

South Asia has also experienced instances of civil unrest and hostilities among neighboring countries from time to time. There have also been incidents in and near India such as terrorist attacks in Mumbai, Delhi and on the Indian Parliament, troop mobilizations along the India and Pakistan border and an aggravated geopolitical situation in the region. Such military activity or terrorist attacks in the future could significantly harm the Indian economy by disrupting communications and making travel more difficult. Resulting political tensions could create a greater perception that investments in Indian companies involve a high degree of risk. Furthermore, if India were to become engaged in armed hostilities, particularly hostilities that were protracted or involved the threat or use of nuclear weapons, we might not be able to continue our operations. Our insurance policies for a certain part of our business do not cover terrorist attacks or business interruptions from terrorist attacks or for other reasons.

Risks Related to Investments in Mauritian Companies

As our shareholder, you may have greater difficulties in protecting your interests than as a shareholder of a United States corporation.

We are incorporated under the laws of Mauritius. The laws generally applicable to United States corporations and their shareholders may provide shareholders of United States corporations with rights and protection for which there may be no corresponding or similar provisions under the Companies Act 2001 of Mauritius, as amended, or the Mauritius Companies Act. As such, if you invest in our equity shares, you may or may not be accorded the same level of shareholder rights and protection that a shareholder of a United States corporation may be accorded under the laws generally applicable to United States corporations and their shareholders. Taken together with the provisions of our constitution, which we expect to adopt with effect upon completion of this offering, or Constitution, some of these differences may result in your having greater difficulties in protecting your interests as our shareholder than you would have as a shareholder of a United States corporation. This affects, among other things, the circumstances under which transactions involving an interested director are voidable, whether an interested director can be held accountable for any benefit realized in a transaction with us, what rights you may have as a shareholder to enforce specified provisions of the Mauritius Companies Act or our Constitution, and the circumstances under which we may indemnify our directors and officers.

We may become subject to unanticipated tax liabilities that may have a material adverse effect on our results of operations.

We are a Mauritius Category 1 Global Business Company, or GBC1, and are tax resident in Mauritius. The Income Tax Act 1995 of Mauritius imposes a tax in Mauritius on the chargeable income of our company at the rate of 15%. However, under the Income Tax (Foreign Tax Credit) Regulations 1996 of Mauritius, subject to the Income Tax Act 1995 and the regulations under the Income Tax (Foreign Tax Credit) Regulations 1996, credit is allowed for foreign tax on the foreign source income of a resident of Mauritius against Mauritius tax computed by reference to the same income, and where credit is allowed against Mauritius tax chargeable in respect of any income, the amount of Mauritius tax so chargeable shall be reduced by the amount of the credit. Under the

 

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Income Tax (Foreign Tax Credit) Regulations 1996, “foreign source income” means income which is not derived from Mauritius and includes in the case of a corporation holding a GBC1 license, under the Financial Services Act 2007 of Mauritius, income derived in the course of a global business. Subject to the provisions of the Income Tax (Foreign Tax Credit) Regulations 1996, no credit is allowed in respect of foreign tax unless written evidence is presented to the Mauritius Revenue Authority showing the amount of foreign tax which has been charged and for this purpose, “written evidence” includes a receipt of the relevant authorities of the foreign country for the foreign tax or any other evidence that the foreign tax has been deducted or paid to the relevant authorities of that country. However, pursuant to regulation 8 of the Income Tax (Foreign Tax Credit) Regulations 1996, if written evidence is not presented to the Mauritius Revenue Authority showing the amount of foreign tax charged on our company’s foreign source income, the amount of foreign tax shall nevertheless be conclusively presumed to be equal to 80% of the Mauritius tax chargeable with respect to that income and in such circumstance, the effective tax rate in Mauritius on our company’s chargeable income would be 3%.

Following amendments to the Financial Services Act 2007 of Mauritius pursuant to the Finance (Miscellaneous Provisions) Act 2010 in December 2010, Mauritius companies holding a GBC1 issued by the Financial Services Commission in Mauritius are permitted to conduct business both in and outside Mauritius (instead of outside Mauritius only). The operations of a GBC1 company in Mauritius will be subject to tax on chargeable income at the rate of 15% in Mauritius.

We hold tax residence certificates issued by the Mauritius Revenue Authority. We believe that a significant portion of the income derived from our operations will not be subject to tax in countries in which we conduct activities or in which our customers are located, other than Mauritius and India. However, this belief is based on the anticipated nature and conduct of our business, which may change. It is also based on our understanding of our position under the tax laws of the countries in which we have assets or conduct activities. This position is subject to review and possible challenge by taxing authorities and to possible changes in law that may have retroactive effect. Our results of operations and cash flows could be materially and adversely affected if we become subject to a significant amount of unanticipated tax liabilities.

Anti-takeover provisions in our constitutional documents and under Mauritius law could make an acquisition of us, which may be beneficial to our shareholders, more difficult and may prevent attempts by our shareholders to replace or remove our current management and limit the market price of our equity shares.

Provisions in our Constitution may have the effect of delaying or preventing a change in control or changes in our management. Our Constitution includes the following provisions which may be regarded as defensive measures:

 

   

a staggered board of directors;

 

   

the ability to issue additional equity shares (including “blank check” preferred stock);

 

   

granting directors the absolute discretion to decline to register a transfer of any shares;

 

   

requiring that amendments to our Constitution be approved by a special resolution of the shareholders of our company; and

 

   

limiting the liability of, and providing indemnification to, our directors and officers.

These provisions may restrict or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management team. The provisions could also deprive our shareholders of the opportunity to sell their shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transactions.

 

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Risks Related to Our Equity Shares and This Offering

In connection with the preparation of our consolidated financial statements for the fiscal years ended March 31, 2014 and 2015, we and our independent registered public accounting firm have identified a material weakness in our internal control over financial reporting. Although we expect to make every effort to address this material weakness, we may find that we are unable to improve our internal control over financial reporting sufficient to remediate this material weakness and, consequently, to maintain an effective system of internal control over financial reporting, which may reduce the reliability of our financial reporting, harm investor confidence in our company and affect the value of our equity shares.

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting in the second annual report we file with the SEC. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. However, our auditors will not be required to attest to and report on the effectiveness of our internal control over financial reporting pursuant to Section 404 until we are no longer an ‘‘emerging growth company’’ as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, if we take advantage of the exemptions available to us through the JOBS Act. We are in the very early stages of the costly and challenging process of compiling the documentation necessary to perform the evaluation needed to comply with Section 404.

In connection with the preparation of our consolidated financial statements for the fiscal years ended March 31, 2014 and 2015, we and our independent registered public accounting firm have identified a material weakness in our internal control over financial reporting. The material weakness relates to our financial statement close process and the lack of sufficient financial accounting and reporting expertise commensurate with our financial reporting requirements. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We are currently in the process of remediating the material weakness and are taking numerous steps that we believe will address the underlying causes of the material weakness, primarily through the hiring of additional accounting and finance personnel with technical accounting and financial reporting experience, and strengthening controls around our financial statement close process. If we fail to effectively remediate deficiencies in our control environment or are unable to implement and maintain effective internal control over financial reporting and disclosure controls to meet the demands that will be placed upon us as a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or report them within the timeframes required by the U.S. Securities and Exchange Commission, or the SEC.

Even if we are able to report our financial statements accurately and in a timely manner, if we do not make all necessary improvements to address the material weakness, continued disclosure of a material weakness will be required in future filings with the SEC, which could cause our reputation to be harmed and our stock price to decline.

You may have difficulty enforcing judgments against us, our directors and management.

We are incorporated under the laws of Mauritius. Further, we conduct substantially all of our operations in India through our key operating subsidiary in India. The majority of our directors and officers, and some of the experts named in this prospectus, reside outside the United States, and a majority of our assets and some or all of the assets of such persons are located outside the United States. As a result, it may be difficult or impossible to effect service of process within the United States upon us or those persons, or to recover against us or them on judgments of United States courts, including judgments predicated upon the civil liability provisions of the United States federal securities laws. An award of punitive damages under a United States court judgment based upon United States federal securities laws is likely to be construed by Mauritian and Indian courts to be penal in

 

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nature and therefore unenforceable in both Mauritius and India. Further, no claim may be brought in Mauritius or India against us or our directors and officers in the first instance for violation of United States federal securities laws because these laws have no extraterritorial application under Mauritian or Indian law and do not have force of law in Mauritius or India. However, a Mauritian or Indian court may impose civil liability, including the possibility of monetary damages, on us or our directors and officers if the facts alleged in a complaint constitute or give rise to a cause of action under Mauritian or Indian law. Moreover, it is unlikely that a court in Mauritius or India would award damages on the same basis as a foreign court if an action were brought in Mauritius or India or that a Mauritian or Indian court would enforce foreign judgments if it viewed the amount of damages as excessive or inconsistent with Mauritius or Indian practice or public policy.

The courts of Mauritius or India would not automatically enforce judgments of United States courts obtained in actions against us or our directors and officers, or some of the experts named herein, predicated upon the civil liability provisions of the United States federal securities laws, or entertain actions brought in Mauritius or India against us or such persons predicated solely upon United States federal securities laws. Further, there is no treaty in effect between the United States and Mauritius providing for the enforcement of judgments of United States courts in civil and commercial matters and the United States has not been declared by the Indian government to be a reciprocating territory for the purposes of enforcement of foreign judgments, and there are grounds upon which Mauritian or Indian courts may decline to enforce the judgments of United States courts. Some remedies available under the laws of United States jurisdictions, including remedies available under the United States federal securities laws, may not be allowed in Mauritian or Indian courts if contrary to public policy in Mauritius or India. Because judgments of United States courts are not automatically enforceable in Mauritius or India, it may be difficult for you to recover against us or our directors and officers or some experts named in this prospectus based upon such judgments. In India, prior approval of the Reserve Bank of India is required in order to repatriate any amount recovered pursuant to such judgments. See “Enforceability of Civil Liabilities.”

We do not expect to pay any cash dividends on our equity shares.

We have not paid dividends on any of our equity shares to date and we currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our equity shares are likely to be your sole source of gain for the foreseeable future. Consequently, in the foreseeable future, you will likely only experience a gain from your investment in our equity shares if the price of our equity shares increases.

In addition, our ability and decisions whether to pay dividends in the future will depend on our earnings, financial condition and capital requirements. Dividends to U.S. holders may be negatively affected by foreign currency fluctuations. We may not generate sufficient income to cover our operating expenses and pay dividends to our shareholders, or at all. Our ability to pay dividends also could be restricted under financing arrangements that we may enter into in the future and we may be required to obtain the approval of lenders in the event we are in default of our repayment obligations. We may be unable to pay dividends in the near or medium term, and our future dividend policy will depend on our capital requirements, financing arrangements, results of operations and financial condition. Dividends distributed by us will attract dividend distribution tax at rates applicable from time to time. See “Dividends and Dividend Policy” for further information.

Our holding company will have to rely principally on dividends and other distributions on equity paid by our operating subsidiaries and limitations on their ability to pay dividends to us could adversely impact your ability to receive dividends on our equity shares.

Since we cannot borrow from our Indian subsidiaries, dividends and other distributions on equity paid by our operating subsidiaries will be our principal source for cash in order for us to fund our operations including corporate expenses. While we will retain $5.0 million from the proceeds of this offering for general corporate purposes, this may not be sufficient to fund our operations. Accordingly, we may need to issue additional equity or borrow funds, either of which may be unavailable on attractive terms, if at all.

 

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If our operating subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to our holding company. As our key operating subsidiary is established in India, it is also subject to certain limitations with respect to dividend payments. As of the date of this prospectus, AZI has not paid any cash dividends on its equity shares and does not intend to pay dividends to its equity shareholders, including Azure Power Global Limited, in the foreseeable future. Moreover, upon completion of this offering, we will not own 100% of AZI and therefore any dividend payment made by AZI to us will also involve a payment to the other shareholders of AZI, including the Founders.

As a foreign private issuer, we are permitted to, and we will, follow certain home country corporate governance practices in lieu of certain requirements applicable to U.S. issuers. This may afford less protection to holders of our equity shares.

As a foreign private issuer who has applied for listing of our equity shares on the New York Stock Exchange, or NYSE, we are permitted to follow certain home country corporate governance practices in lieu of certain NYSE requirements. A foreign private issuer must disclose in its annual reports filed with the SEC, each NYSE requirement with which it does not comply followed by a description of its applicable home country practice. As a company incorporated in Mauritius and which expects to be listed on the NYSE, we may follow our home country practice with respect to the composition of our board of directors and nominations committee and executive sessions. Unlike the requirements of the NYSE, the corporate governance practice and requirements in Mauritius do not require us as a GBC1 to have the majority of our board of directors be independent; do not require us as a GBC1 to establish a nominations committee; and do not require us to hold regular executive sessions where only independent directors shall be present. Such Mauritian home country practices may afford less protection to holders of our equity shares than would be available to the shareholders of a U.S. corporation.

If we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we would incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer.

We expect to qualify as a foreign private issuer upon the closing of this offering. As a foreign private issuer, we will be exempt from a number of rules and regulations under the Securities Exchange Act of 1934, or the Exchange Act, applicable to U.S. domestic issuers, including the furnishing and content of proxy statements, compliance with the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act applicable to executive officers, directors and principal shareholders. We will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. domestic issuers, and we will not be required to disclose in our periodic reports all of the information that U.S. domestic issuers are required to disclose. While we currently expect to qualify as a foreign private issuer immediately following the closing of this offering, we may cease to qualify as a foreign private issuer in the future. If we do not qualify as a foreign private issuer, we will be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we will incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer.

For as long as we are an “emerging growth company,” we will not be required to comply with certain reporting requirements that apply to other public companies.

We are an “emerging growth company,” as defined in the JOBS Act, enacted on April 5, 2012. For as long as we continue to be an emerging growth company, we may choose to take advantage of certain exemptions from reporting requirements applicable to other public companies that are not emerging growth companies. These include: (1) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (2) not being required to comply with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory audit firm rotation or a supplement

 

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to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (3) not being required to comply with any new audit rules adopted by the PCAOB after April 5, 2012 unless the SEC determines otherwise, and (4) not being required to provide certain disclosure regarding executive compensation required of larger public companies. We could be an emerging growth company for up to five years from the end of our current fiscal year, although, if the market value of our equity shares that is held by non-affiliates exceeds US$700 million as of any September 30 before the end of that five-year period, we would cease to be an emerging growth company as of the following April 1. We cannot predict if investors will find our equity shares less attractive if we choose to rely on these exemptions. If some investors find our equity shares less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our equity shares and our share price may be more volatile. Further, as a result of these scaled regulatory requirements, our disclosure may be more limited than that of other public companies and you may not have the same protections afforded to shareholders of such companies.

You may be subject to Indian taxes on income arising through the sale of our equity shares.

Pursuant to recent amendments to the Indian Income Tax Act, 1961, as amended, income arising directly or indirectly through the sale of a capital asset, including any share or interest in a company or entity registered or incorporated outside of India, will be liable to tax in India, if such share or interest derives, directly or indirectly, its value substantially from assets (whether tangible or intangible) located in India and whether or not the seller of such share or interest has a residence, place of business, business connection, or any other presence in India. The share or interest of the company or entity registered or incorporated outside of India is deemed to derive its value substantially from the assets located in India if the value of such Indian assets exceeds Rs. 100 million and represents at least 50% of the value of all the assets owned by the company or entity registered or incorporated outside of India. Substantially all of our assets are located in India.

However, if the transferor of share or interest in a company or entity registered or incorporated outside of India (along with its associated enterprises), neither holds the right of management or control in the company or entity registered or incorporated outside of India nor holds voting power or share capital or interest exceeding 5% of the total voting power or total share capital or interest in the company or entity registered or incorporated outside of India, at any time during the twelve months preceding the date of transfer, such small shareholders are exempt from the indirect transfer provisions mentioned above. The amendments also do not deal with the interplay between the amendments to the Indian Income Tax Act, 1961, as amended, and the existing Double Taxation Avoidance Agreements that India has entered into with countries such as the United States in case of an indirect transfer. Accordingly, the implications of the recent amendments are presently unclear. If it is determined that these amendments apply to a holder of our equity shares, such holder could be liable to pay taxes in India on such income.

An active trading market for our equity shares may not develop and the trading price of our equity shares may fluctuate significantly.

Before this initial public offering, there was no public market for our equity shares. If an active public market for our equity shares does not develop after this offering, the market price and liquidity of our equity shares may be adversely affected. We cannot guarantee that a liquid public market for our equity shares will develop or be sustained after this offering.

The initial public offering price of our equity shares will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the trading market following this offering. You may not be able to resell your equity shares at a price that is attractive to you. In addition, the market price of our equity shares could fluctuate significantly after this offering. In recent years, the stock market has experienced significant volatility. These and other factors may cause the market price and demand for our equity shares to fluctuate significantly, which may limit or prevent investors from readily selling their equity shares and may otherwise negatively affect the liquidity of our equity shares. In addition, in the past, when the market price

 

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of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from other business concerns.

Because the public offering price is substantially higher than our book value per equity share, you will incur immediate and substantial dilution.

The initial public offering price per equity share is substantially higher than the net tangible book value per equity share prior to this offering. Accordingly, if you purchase our equity shares in this offering, you will incur immediate dilution of approximately             in the net tangible book value per equity share from the price you pay for our equity shares, representing the difference between (1) the assumed initial public offering price of US$         per equity share (the midpoint of the estimated offering price range set forth in the front cover of this prospectus) and (2) the pro forma net tangible book value per equity share of US$         on December 31, 2015 after giving effect to this offering. For more information, see “Dilution.”

The sale or availability for sale of substantial amounts of our equity shares could adversely affect their market price.

Sales of substantial amounts of our equity shares in the public market after the completion of this offering, or the perception that such sales could occur, could adversely affect the market price of our equity shares and could materially impair our future ability to raise capital through offerings of our equity shares.

We will have             equity shares outstanding immediately after this offering or             equity shares if the underwriters exercise their option to purchase additional equity shares in full. Further, although certain of our share option holders are subject to restrictions on selling shares acquired upon the exercise of options, the majority of the options granted under our equity option plan will continue to be exercisable following the completion of this offering. All of the equity shares sold in this offering will be freely tradable without restriction or further registration under the U.S. Securities Act of 1933, or the Securities Act, unless held by our “affiliates” as that term is defined in Rule 144 under the Securities Act. Subject to the 180-day lock-up restrictions described below and other applicable restrictions and limitations under Rule 144 of the Securities Act, all of our shares outstanding prior to this offering will be eligible for sale in the public market. If these shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our equity shares could decline.

In connection with this offering, we have agreed, subject to some exceptions, not to sell any equity shares for 180 days after the date of this prospectus without the written consent of the underwriters. However, the underwriters may release these equity shares from these lock-up restrictions at any time. We cannot predict what effect, if any, market sales of equity shares held by our significant shareholders or any other shareholder or the availability of these equity shares for future sale will have on the market price of our equity shares.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our equity shares adversely, our stock price and trading volume could decline.

The trading market for our equity shares is influenced by the research and reports that industry or securities analysts publish about us, our business, our market or our competitors. If any of the analysts who cover us or may cover us in the future change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who covers us or may cover us in the future were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

 

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Future issuances of any equity securities may cause a dilution in your shareholding, decrease the trading price of our equity shares, and restrictions agreed to as part of debt financing arrangements may place restrictions on our operations.

Any issuance of equity securities after this offering could dilute the interests of our shareholders and could substantially decrease the trading price of our equity shares. We may issue equity or equity-linked securities in the future for a number of reasons, including to finance our operations and business strategy (including in connection with acquisitions and other transactions), to adjust our ratio of debt to equity, to satisfy our obligations upon the exercise of then-outstanding options or other equity-linked securities, if any, or for other reasons. Issuance of such additional securities may significantly dilute the equity interests of investors in this offering who will not have pre-emptive rights with respect to such an issuance, subordinate the rights of holders of equity shares if preferred shares are issued with rights senior to those afforded to our equity shares, or harm prevailing market prices for our equity shares.

Management will have considerable discretion as to the use of the net proceeds to be received by us from this offering.

Our allocation of the net proceeds to be received by AZI after the share subscription is based on current plans and business conditions. The amounts and timing of any expenditure will vary depending on the amount of cash generated by our operations and our success in future auctions. Accordingly, our management will have considerable discretion in the application of the net proceeds received by us. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our results of operations or increase our share price. The net proceeds from this offering, pending investment in operating assets or solar projects, may be placed in investments that do not produce income or that lose value, which will cause the price of our equity shares to decline.

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to certain U.S. investors of our equity shares.

A non-U.S. corporation will be a passive foreign investment company, or PFIC, for any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. We do not expect to be a PFIC for U.S. federal income tax purposes for our current taxable year or future taxable years. However, our PFIC status is a factual determination made after the close of each taxable year that will depend, in part, on the composition of our income and assets, and thus, there can be no assurance that we will not be treated as a PFIC in our current taxable year or future taxable years. See “Taxation — U.S. Federal Income Taxation — Passive Foreign Investment Company.”

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward looking statements about our current expectations and views of future events. All statements, other than statements of historical facts, contained in this prospectus, 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 “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 “Risk Factors” and the following:

 

   

the pace of government sponsored auctions;

 

   

changes in auction rules;

 

   

the 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 successfully implement any of our business strategies;

 

   

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;

 

   

our ability to establish and operate new solar projects;

 

   

our ability to compete against traditional and renewable energy companies;

 

   

political and economic conditions in India;

 

   

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

 

   

fluctuations in inflation, interest rates and exchange rates; and

 

   

other risks and uncertainties, including those listed under the caption “Risk Factors.”

The forward looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. 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

 

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or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits with the SEC, of which this prospectus is a part, completely and with the understanding that our actual future results or performance may be materially different from what we expect.

This prospectus also contains statistical data and estimates, including those relating to the solar 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.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately US$         million. These estimates are based upon an assumed initial offering price of US$         per equity share, the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts, commissions and aggregate offering expenses payable by us and assuming no exercise of the underwriters’ option to purchase additional equity shares and no other change to the number of equity shares offered by us as set forth on the cover page of this prospectus. A US$1.00 increase (decrease) in the assumed initial public offering price of US$         per equity share would increase (decrease) the net proceeds to us from this offering by US$         million. We will not receive any of the proceeds from the sale of equity shares by the selling shareholder.

We intend to use US$         million to fund the purchase by Azure Power Global Limited of equity shares to be issued by AZI, which will occur contemporaneously with the completion of this offering. Approximately US$5.0 million will be retained by Azure Power Global Limited to fund its future operating expenses. To the extent the underwriters exercise their option to purchase additional equity shares, the net proceeds from the sale of the additional equity shares will be used to purchase additional equity shares of AZI. See “Prospectus Summary — Corporate Structure.” Net proceeds of US$         to be received by AZI pursuant to such purchase are intended to be used for project development, working capital needs and other general corporate purposes.

The foregoing use of our net proceeds from this offering represents our current intentions based upon our present plans and business condition. The amounts and timing of any expenditure will vary depending on the amount of cash generated by our operations and our success at solar auctions. Accordingly, our management will have significant discretion in the allocation of the net proceeds we will receive from this offering. Depending on future events and other changes in the business climate, we may determine at a later time to use the net proceeds for different purposes.

Pending the use of the net proceeds, AZI intends to hold the proceeds from the purchase of its equity shares by Azure Power Global Limited in short-term, interest-bearing debt instruments or demand deposits.

 

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EXCHANGE RATE INFORMATION

The consolidated financial statements and other financial data included in this prospectus of Azure Power Global Limited are presented in Indian rupees. Azure Power Global Limited’s functional currency is the U.S. dollar and reporting currency is the Indian rupee. Further, AZI’s functional currency is Indian rupees. The functional currencies of AZI’s subsidiaries are their respective local country currencies. The translation from the applicable foreign currencies of AZI’s subsidiaries into Indian rupees is performed for balance sheet accounts using the exchange rate in effect as of the balance sheet date except for shareholders’ equity and preferred shares, which are translated at the historical rates in effect at the dates of the underlying transactions. Revenue, expense and cash flow items are translated using average exchange rates for the respective period.

U.S. dollar balances have been translated from Indian rupee amounts solely for the convenience of the readers. The following table sets forth, for each of the periods indicated, the low, average, high and period-end noon buying rates in The City of New York for cable transfers, in Indian rupees per U.S. dollar, as certified for customs purposes by the Federal Reserve Bank of New York. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in preparation of our consolidated financial statements or elsewhere in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you. We make no representation that any Indian rupee or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Indian rupees, as the case may be, at any particular rate or at all.

 

     Indian Rupees per
U.S. Dollar
Noon Buying Rate
 

Period

   Period End      Average(1)      Low      High  

2010

     44.80         45.58         43.90         47.49   

2011

     53.01         46.86         44.00         53.71   

2012

     54.86         53.41         48.65         57.13   

2013

     61.92         58.91         52.99         68.80   

2014

     63.04         61.21         58.30         63.67   

2015:

           

September

     65.50         66.17         65.50         66.70   

October

     65.40         65.03         64.70         65.57   

November

     66.43         66.10         65.46         66.86   

December

     66.19         66.50         66.00         67.10   

2016:

           

January

     67.87         67.33         66.49         68.68   

February

     68.21         68.24         67.57         68.84   

March (through March 25, 2016)

     66.82         66.99         66.34         67.75   

 

(1) Averages for a period other than one month are calculated by using the average of the noon buying rate at the end of each month during the period. Monthly averages are calculated by using the average of the daily noon buying rates during the relevant month.

Source: Federal Reserve Statistical Release.

 

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DIVIDENDS AND DIVIDEND POLICY

Since our incorporation, no dividends have been declared or paid on our equity shares. We currently intend to retain our earnings, if any, to finance the development and growth of our business and operations as well as expand our business and do not currently anticipate paying dividends on our equity shares in the near future.

Under Mauritius law, we may only pay dividends out of retained earnings, after having made good any accumulated losses at the beginning of the relevant accounting period and no distribution (which includes dividends) may be made unless our board of directors is satisfied that upon the distribution being made, our company is able to pay its debts as they become due in the normal course of business and the value of our company’s assets is greater than the sum of the value of its liabilities and our company’s stated capital (which refers to the total of all amounts received by our company or due and payable to our company in respect of the nominal paid-up value of our issued shares and share premiums paid to our company in relation to such shares). Subject to the Mauritius Companies Act and our constitution, which we expect to adopt with effect upon completion of this offering, the declaration and payment of any dividend has to be authorized by our board of directors and is subject to the approval of our shareholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, cash flows, capital requirements, general financial condition, contractual restrictions and other factors which our directors may deem relevant. We expect that cash dividends, if any, will be paid to U.S. holders in U.S. dollars. Other distributions, if any, will be made to our shareholders by any means which our directors deem fair, legal and practicable. Any dividend or distribution out of retained earnings unclaimed for a period of six years from the date of declaration of such dividend or distribution shall be forfeited and shall revert to us and the payment by our board of directors of any unclaimed dividend, distribution, interest or other sum payable on or in respect of the share into a separate account shall not constitute us a trustee in respect thereof.

As we are a holding company, we will have to rely on dividends paid to us by our subsidiaries (in particular, our key operating subsidiary in India, AZI) for our cash requirements, including funds to pay dividends and other cash distributions to our shareholders, service any debt we may incur and pay our operating expenses. Our ability to pay dividends to our shareholders will depend on, among other things, the availability of dividends from AZI.

As of the date of this prospectus, AZI has not paid any cash dividends on its equity shares and does not intend to pay dividends to its equity shareholders, including Azure Power Global Limited, in the foreseeable future. Even if we decide it should, since we will not own all of AZI following the consummation of this offering and the use of the proceeds therefrom, we will not receive all of the dividends paid by AZI. Rather, we will receive a dividend in proportion to our ownership interest in AZI, which will be approximately     % following consummation of this offering, assuming an offer price of the midpoint of the estimated price range listed on the cover page of this prospectus. The Founders will receive the balance of any dividend paid by AZI.

Dividends other than in cash are not permitted under Indian law. The declaration and payment of any dividends in the future will be recommended by the board of directors of AZI and approved by the shareholders of AZI at their discretion and would depend on a number of factors, including its financial condition, results of operations, capital requirements and surplus, profits, contractual obligations, applicable Indian legal restrictions, the provisions of its articles of association, restrictive covenants under the terms of its credit facilities and other financing arrangements at the time a dividend is considered, and other factors considered relevant by the board of directors. AZI would be required to pay dividend distribution tax in India at 17.30% on the total amount distributed as a dividend as grossed up by the amount of such dividend distribution tax.

 

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In accordance with the Companies Act, and the rules framed thereunder, an Indian company is permitted to declare or pay dividends in any year only in cash and out of profits for that year after providing for depreciation, in the manner prescribed. In the event of inadequacy or absence of profits in a particular year, dividends may be paid out of the accumulated profits of the company (after providing for depreciation) which remain undistributed and transferred to the company’s free reserves, subject to the following conditions:

 

   

the rate of dividend declared does not exceed the average of the rates at which declared by the company in the preceding three years (except where no dividends have been declared in each of the preceding three years);

 

   

the total amount drawn up from the accumulated profits does not exceed 1/10th of the sum of the company’s paid-up share capital and free reserves, as indicated in its latest audited financial statements;

 

   

the amount drawn up from the accumulated profits is first utilized to set-off the losses incurred in the fiscal year in which the dividend is proposed to be declared; and

 

   

the balance of reserves after such withdrawal does not fall below 15% of the company’s paid-up share capital, as indicated in its latest audited financial statements.

 

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CAPITALIZATION

The following table sets forth our capitalization on a consolidated basis as of December 31, 2015 on:

 

   

an actual basis, which excludes equity shares issuable upon exercise of outstanding stock options at a weighted average price of Rs.              (US$            ) per share under our 2015 Employee Stock Option Plan;

 

   

a pro forma basis to reflect the following:

 

   

the conversion of compulsorily convertible preferred shares and compulsorily convertible debentures into an aggregate of          equity shares based on an initial public offering price of US$         per equity share, which is the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus; and

 

   

the effectiveness of a     -for-     stock split of our equity shares.

 

   

a pro forma as adjusted basis to further reflect the following transactions that will occur substantially contemporaneously with the completion of this offering:

 

   

our sale of             equity shares by us in this offering and our receipt of the estimated net proceeds from such issuance and sale in this offering, each based on an assumed initial public offering price of US$         per equity share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, as if such transactions had occurred on December 31, 2015; and

 

   

the share subscription by Azure Power Global Limited of additional shares of AZI with substantially all of the net proceeds of US$         million of this offering (other than approximately US$5.0 million to be retained by Azure Power Global Limited to fund its future operating expenses).

 

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You should read this table in conjunction with the information under “Use of Proceeds,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.

 

    As of December 31, 2015  
    Actual     Actual     Pro Forma(1)     Pro Forma(1)     Pro
Forma
Adjusted(1)
    Pro
Forma
Adjusted(1)
 
    Rs.     U.S.$     Rs.     U.S.$     Rs.     U.S.$  
          (in thousands, except per share data)  

Cash and Cash equivalents

    3,744,450        56,571           
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Debt

    22,127,479        334,301           

Compulsory convertible preferred shares (805,462 shares issued and outstanding, actual; 0 shares issued and outstanding, pro forma; and 0 shares issued and outstanding, pro forma as adjusted)

    9,461,436        142,944        —          —          —          —     

Redeemable non-controlling interest

    335,765        5,073           

Stockholder’s Equity

           

Common Stock US$0.01 par value (109,880 shares issued and outstanding, actual; 0 shares issued and outstanding, pro forma; and 0 shares issued and outstanding, pro forma as adjusted) (2)

    68        1           

Additional paid in capital

    (2,688,640     (40,620        

Accumulated deficit

    (3,899,746     (58,917        

Accumulated other comprehensive income

    28,036        424           

Non-controlling interest

    (4,312     (65        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total shareholders’ (deficit) equity

    (6,564,594     (99,177        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Capitalization

    25,360,086        383,141           
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Each US$1.00 increase or decrease in the assumed initial public offering price of US$         per share, the mid-point of the price range on the cover page of this prospectus, would increase or decrease, respectively, the amount of cash, additional paid-in capital and total capitalization by approximately US$        , assuming the number of shares we offer, as stated on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discounts and commission and estimated offering expenses payable by us.
(2) As of December 31, 2015, Azure Power Global Limited had 109,880 shares issued and outstanding, actual;                  shares issued and outstanding, pro forma; and                  shares issued and outstanding, pro forma as adjusted).

 

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DILUTION

As of December 31, 2015, our pro forma net tangible book value was Rs.         (or US$        ) per equity share. “Pro forma net tangible book value per equity share” represents the amount of our total tangible assets less the amount of our total liabilities, divided by the number of equity shares outstanding, after giving retroactive effect to the corporate formation transactions described under “Prospectus Summary — Corporate Structure,” that will take place immediately prior to the closing of this offering and assuming a total of         equity shares will be issued to the non-founder investors upon the conversion of convertible securities, based on an initial public offering price of US$         per equity share, which is the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus.

Dilution is determined by subtracting pro forma net tangible book value per equity share from the assumed public offering price per equity share.

Without taking into account any other changes in pro forma net tangible book value after December 31, 2015, other than giving effect to our sale of             equity shares in the offering at an assumed initial public offering price of US$         per equity share (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting underwriting discounts and commissions and estimated expenses of the offering payable by us, the pro forma net tangible book value per equity share would increase to US$         per equity share, or US$        per equity share if the underwriters’ over-allotment option is exercised in full. This represents an immediate increase in pro forma net tangible book value of US$         per equity share to our existing shareholders (or US$         per equity share if the underwriters’ over-allotment option is exercised in full), and an immediate dilution of US$         per equity share to purchasers of shares in the offering (or US$         per equity share if the underwriters’ over-allotment option is exercised in full).

The following table illustrates this dilution on a per equity share basis:

 

Assumed initial public offering price per equity share

   $                

Pro forma net tangible book value per equity share as of December 31, 2015 before this offering

   $                

Increase in pro forma net tangible book value per equity share attributable to the price paid by new investors

   $                

Pro forma net tangible book value per equity share after this offering

   $                
  

 

 

 

Dilution per equity share to new investors in the offering

   $                
  

 

 

 

A US$1.00 increase (decrease) in the assumed public offering price of US$         per equity share would increase (decrease) our pro forma net tangible book value after giving effect to the offering by US$         per equity share and the dilution in pro forma net tangible book value per equity share to new investors in this offering by US$         per equity share, assuming no change to the number of equity shares offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions.

The following table summarizes, on a pro forma basis as of December 31, 2015, the differences between our existing shareholders as of such date and the new investors with respect to the number of equity shares purchased from us, the total consideration paid and the average price per equity share paid at an assumed initial public offering price of US$         per equity share (the midpoint of the price range set forth on the cover page of this prospectus) before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Equity Shares
Purchased
    Total Consideration     Average
Price Per
Equity Share
 
     Number    Percent     Amount      Percent    
     (in millions, except percent and per share data)  

Existing shareholders

                   US$                                 US$                

New investors

                   US$                                 US$                
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

Total

        100.0        100.0  

 

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A US$1.00 increase (decrease) in the assumed initial public offering price of US$         per equity share would increase (decrease) total consideration paid by new investors, total consideration paid by all shareholders and the average price per equity share paid by all shareholders by US$         million, US$         million and US$        , respectively, assuming no change in the number of equity shares sold by us as set forth on the cover page of this prospectus and without deducting underwriting discounts and commissions.

The discussion and tables above assume no exercise of any outstanding share options. As of the date of this prospectus, there are             equity shares issuable upon exercise of outstanding stock options at a weighted-average exercise price of Rs.              (US$        ) per share under our 2015 Employee Stock Option Plan, and there are equity shares available for future issuance upon the exercise of future grants under our 2015 Employee Stock Option Plan. To the extent that any of these options is exercised, there will be further dilution to new investors.

 

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SELECTED CONSOLIDATED AND PRO FORMA FINANCIAL DATA

The selected consolidated and pro forma financial data below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. The selected consolidated financial data in this section are not intended to replace the consolidated and pro forma financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.

Azure Power Global Limited is a company incorporated in Mauritius and is the holding company of AZI. All of our operations are conducted currently through AZI and its subsidiaries. The proceeds of this offering will be used towards a share subscription of AZI by Azure Power Global Limited, which will occur contemporaneously with the completion of the offering.

The financial information in this section has been derived from the audited consolidated financial statements as of and for the years ended March 31, 2014 and 2015 included elsewhere in this prospectus.

The unaudited information for the nine months ended December 31, 2014 and 2015 was prepared on a basis consistent with that used to prepare our audited consolidated financial statements and includes all adjustments, consisting of normal and recurring items, that we consider necessary for a fair presentation of our financial condition and results of operations with respect to the relevant periods.

The summary unaudited pro forma balance sheet data as of December 31, 2015 gives effect to (i) the conversion of compulsorily convertible preferred shares and compulsorily convertible debentures into equity shares and (ii) the effectiveness of a             -for-             stock split of our equity shares. The pro forma as adjusted balance sheet data as of December 31, 2015 reflect the abovementioned transactions, the issuance and sale of equity shares in this offering and the use of proceeds therefrom, based on an assumed offering price of US$         per equity share, which is the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

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Our historical results are not necessarily indicative of the results that may be expected in any future period, and our interim results are not necessarily indicative of the results to be expected for the full fiscal year.

 

     Fiscal Year Ended March 31,     Nine Months Ended December 31,  
     2014     2015     2014     2015  
     Rs.     Rs.     US$(1)     Rs.     Rs.     US$(1)  
     (In thousands)  

Consolidated Statement of Operations Data:

      

Operating revenue:

      

Sale of power

     881,345        1,124,138        16,984        767,362        1,858,911        28,084   

Operating costs and expenses:

      

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

     52,491        79,816        1,206        54,029        127,308        1,923   

General and administrative expenses

     235,300        425,952        6,435        241,884        481,528        7,275   

Depreciation and amortization

     252,352        322,430        4,871        218,016        495,647        7,488   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating cost and expenses

     540,143        828,198        12,512        513,929        1,104,483        16,686   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     341,202        295,940        4,472        253,433        754,428        11,398   

Other expense:

      

Interest expense, net(2)

     520,219        831,790        12,567        563,928        1,389,289        20,989   

Loss on foreign currency exchange(3)

     580,566        299,628        4,527        368,631        337,112        5,093   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses

     1,100,785        1,131,418        17,094        932,559        1,726,401        26,082   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (759,583     (835,478     (12,622     (679,126     (971,973     (14,684

Income tax expense

     (15,847     (253,112     (3,824     (205,804     (89,427     (1,351
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (775,430     (1,088,590     (16,446     (884,930     (1,061,400     (16,035

Net loss attributable to non-controlling interest(4)

     (26,935     (5,595     (85     (5,311     (8,633     (130
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to APGL

     (748,495     (1,082,995     (16,361     (879,619     (1,052,767     (15,905

Accretion on Mezzanine CCPS(5)

     (366,552     (755,207     (11,410     (494,927     (1,076,087     (16,258
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Accretion to redeemable non-controlling interest(6)

     —          —          —          —          (18,837     (285

Net loss attributable to APGL equity shareholders

     (1,115,047     (1,838,202     (27,771     (1,374,546     (2,147,691     (32,448

Net loss per share attributable to equity shareholders

      

Basic and diluted(7)

     (10,241     (16,737     (253 )     (12,510     (19,546     (295 )

Shares used in computing basic and diluted per share amounts

      

Equity shares

     108,882        109,830        —         109,880        109,880        —    

Proforma basic and diluted per share(8)

            

Proforma shares used in computing basic and diluted loss per share(8)

            

Supplemental information (unaudited):

      

Adjusted EBITDA(9)

     593,554        618,370        9,343        471,449        1,250,075        18,886   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
(1)

Azure Power Global Limited’s functional currency is the U.S. dollar and reporting currency is the Indian rupee. Further, AZI’s functional and reporting currency is the Indian rupee. Solely for the convenience of the reader, we have translated the financial information as of and for the fiscal year ended March 31, 2015 and the nine months ended December 31, 2015 into U.S. dollars. The rate used for this translation is Rs. 66.19 to US$1.00, which is the

 

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  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 as of December 31, 2015, which is the date of our last reported financial statements.

 

(2) Interest expense, net consists of:

 

     Fiscal Year Ended March 31,      Nine Months Ended December 31,  
     2014      2015      2014      2015  
     Rs.      Rs.      US$(a)      Rs.      Rs.      US$(a)  

Interest expense:

                 

Compulsorily convertible debentures

     217,751         248,831         3,759         202,051         238,113         3,597   

Series E compulsorily convertible preferred shares

     74,700         96,500         1,458         71,242         157,355         2,377   

Term loans

     316,519         598,845         9,048         374,806         1,108,360         16,745   

Bank charges and other

     36,151         55,454         838         33,661         78,682         1,189   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     645,121         999,630         15,103         681,760         1,582,510         23,908   

Interest income:

        

Term deposits

     111,842         151,860         2,294         107,778         159,137         2,404   

Interest income from related parties

     —           2,031         31         —           —           —     

Gain on sale of short term investments

     13,060         13,949         211         10,054         34,084         515   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense, net

     520,219         831,790         12,567         563,928         1,389,289         20,989   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a) Refer to note (1) above.

 

(3) Loss on foreign currency exchange consists of:

 

     Fiscal Year Ended March 31,     Nine Months Ended December 31,  
     2014     2015           2014           2015  
     Rs.     Rs.     US$(a)     Rs.     Rs.     US$(a)  

Unrealized loss on foreign currency loans

     578,571        240,656        3,636        319,778        345,474        5,219   

Realized loss on foreign currency loans

     39,989        (42,280     (639     (6,304     (46,429     (701

Unrealized loss on derivative instruments

     (16,384     7,342        111        (13,527     (2,364     (36

Realized loss on derivative instruments

     (21,610     93,910        1,419        68,684        40,431        611   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     580,566        299,628        4,527        368,631        337,112        5,093   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) Refer to note (1) above.

The unrealized and realized foreign exchange loss represents the foreign currency fluctuations on our non-Indian rupee denominated borrowings.

 

(4) Represents a non-controlling interest of 20% in a subsidiary.
(5) Our Series A, Series B, Series C, Series D, Series F and Series H compulsorily convertible preferred shares, or collectively the Mezzanine CCPS, are being accreted to their redemption value through February 25, 2016, the earliest redemption date, to earn the mandatory redemption amount on such date.
(6) Represents accretion to the redeemable non-controlling interest in a subsidiary which is accreted to its accretion value.
(7) Basic and diluted net loss per share attributable to Azure Power Global Limited equity shareholders is computed by dividing the net loss attributable to Azure Power Global Limited equity shareholders by the weighted average number of equity shares outstanding for the period. The potentially dilutive compulsorily convertible preferred shares, compulsorily convertible debentures and share options were excluded from the calculation of dilutive loss per share in those periods where inclusion would be anti-dilutive.
(8)

Pro forma net loss per share attributable to Azure Power Global Limited equity shareholders for the fiscal year ended March 31, 2015 and the nine months ended December 31, 2015 is calculated as if the

 

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  compulsorily convertible preferred shares and the compulsorily convertible debentures had been converted into equity shares at the beginning of the respective period presented or when compulsorily convertible preferred shares and compulsorily convertible debentures were issued, if later. Compulsorily convertible preferred shares and compulsorily convertible debentures upon the completion of this offering convert into (i)                     equity shares as of March 31, 2015 and (ii)                     equity shares as of December 31, 2015 based upon the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus.
(9) Adjusted EBITDA is a non-GAAP financial measure. We present Adjusted EBITDA as a supplemental measure of our performance. This measurement is not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. The presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

The following table presents a reconciliation of net loss to Adjusted EBITDA:

 

     Fiscal Year Ended March 31,     Nine Months Ended December 31,  
     2014     2015     2014     2015  
     Rs.     Rs.     US$(a)     Rs.     Rs.     US$(a)  
     (In thousands)  

Net loss

     (775,430     (1,088,590     (16,446     (884,930     (1,061,400     (16,035

Income tax expense

     15,847        253,112        3,824        205,804        89,427        1,351   

Interest expense, net

     520,219        831,790        12,567        563,928        1,389,289        20,989   

Depreciation and amortization

     252,352        322,430        4,871        218,016        495,647        7,488   

Loss on foreign currency exchange

     580,566        299,628        4,527        368,631        337,112        5,093   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     593,554        618,370        9,343        471,449        1,250,075        18,886   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) Refer to note (1) above.

 

    As of December 31,     As of December 31,
    2015     2015
(Pro forma)(5)
  2015
(Pro forma
as adjusted)(5)
    Rs.     US$(1)     Rs.   US$(1)   Rs.   US$(1)

Balance Sheet Data

           

Cash and cash equivalents

    3,744,450        56,571           

Property, plant and equipment, net

    21,058,666        318,155           

Total assets

    29,270,158        442,214           

Compulsorily convertible debentures and Series E & Series G preferred shares(2)

    3,340,619        50,470           

Project level and other debt(3)

    17,038,860        257,423           

Mezzanine CCPS shares(4)

    9,461,436        142,944           

Total APGL shareholders’ deficit

    (6,560,282     (99,112        

 

(1) Azure Power Global Limited’s functional currency is the U.S. dollar and reporting currency is the Indian rupee. Further, AZI’s functional and reporting currency is the Indian rupee. Solely for the convenience of the reader, we have translated the financial information as of and for the fiscal year ended March 31, 2015 and the nine months ended December 31, 2015 into U.S. dollars. The rate used for this translation is Rs. 66.19 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 as of December 31, 2015, which is the date of our last reported financial statements.
(2) The Series E and Series G compulsorily convertible preferred shares are classified as a current liability in the consolidated balance sheet because the preference shareholders have a right to convert their shares into a variable number of equity shares to give them their required returns.

 

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(3) This balance represents the short term and long-term portion of project level secured term loans and other secured bank loans.
(4) Compulsorily convertible preferred shares include the Mezzanine CCPS and are classified as temporary equity in the consolidated balance sheet.
(5) The pro forma and pro forma as adjusted columns in the balance sheet data reflects the transactions described in the last paragraph of page 13.

The pro forma as adjusted information set forth in the table above is for illustrative purposes only and will be adjusted based on the actual initial public offering price and other terms of this offering as determined at pricing.

A US$1.00 increase or decrease in the assumed public offering price of US$        would increase or decrease each of pro forma as adjusted cash and cash equivalents, total assets, and total deficit by Rs.          thousands (US$        ), assuming the number of shares offered by us, as set forth on the cover page of the prospectus, remains the same, after deducting estimated underwriting discounts and commissions that we expect to pay.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements, the related notes to those statements and selected consolidated financial data included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” and elsewhere in this prospectus. All forward looking statements in this document are based on information available to us as of the date hereof, and we assume no obligation to update any such forward looking statements. Unless otherwise indicated, the consolidated financial statements and related notes as of and for the fiscal years ended March 31, 2014 and 2015 and for the nine months ended December 31, 2014 and 2015, included elsewhere in this prospectus have been prepared in accordance with GAAP. References to a particular “fiscal” year are to our fiscal year ended March 31 of that year.

Overview

Our mission is to be the lowest-cost power producer in the world. We sell solar power in India on long term fixed price contracts to our customers, at prices which in many cases are at or below prevailing alternatives for our customers. We are also developing micro-grid applications for the highly fragmented and underserved electricity market in India.

We generate revenue from a mix of leading government utilities such as NTPC Vidyut Vyapar Nigam Limited, a subsidiary of the NTPC Limited, and the Solar Energy Corporation of India as well as commercial entities such as Torrent Power Limited and DLF Limited. We typically enter into 25-year power purchase agreements, or PPAs, with these customers who pay a fixed rate for electricity generated by our solar power plants. Our financial strategy is to build our solar assets with efficient cost of capital. Because we have our own engineering, procurement and construction, or EPC, as well as operations and maintenance, or O&M, capabilities, we retain the profit margins associated with those services that other project developers normally pay to third party providers. Through value engineering, operational performance monitoring and efficient financial strategy, we are able to deliver cost-effective energy to our customers.

We recognize revenue from solar energy sold to our customers on a per kilowatt hour basis based on the energy actually supplied by our solar power plant. The procurement of solar power by the utilities in the market is primarily driven by the renewable energy purchase obligation imposed on them by the Indian government. Most Indian state and central government electricity regulators establish the rate that utilities pay to buy power in their respective jurisdictions, which we call the benchmark tariff. As a result, the price a customer pays to buy solar energy from us varies depending on the jurisdiction in which the customer is located. The price at which we sell solar energy also depends on our bidding strategy, as most auctions award bids starting from the lowest bidder until the total capacity is awarded. For our commercial PPAs, we sell solar energy at mutually negotiated rates that are lower than the commercial electricity rates charged by the utilities in the markets we serve, which is consistent with our strategy to price our energy slightly lower than the commercial rates. As a result, the price that a commercial customer pays to buy solar energy from us depends on the state in which such customer is located and the prevailing local commercial tariff.

We recognize revenue on a monthly basis from the solar energy kilowatt hours sold to our customers post the installation of the system and approval of the energy grid interconnect connections. The energy output performance of our plants is dependent in part on the amount of sunlight. As a result, our revenue in the past has been impacted by shorter daylight hours in winters. Typically, our revenue from operational solar power plants is lowest in the third quarter and highest in the first quarter of any given fiscal year which ends on March 31.

 

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A significant portion of the cost of our solar power plants consists of solar photovoltaic panels, inverters and other equipment. Other less significant costs of our solar power plants include land or leasehold land costs, capitalizable financing costs and installation costs. Our cost of operations primarily consists of expenses pertaining to operations and maintenance of our solar power plants. These expenses include payroll and related costs for plant maintenance staff, plant maintenance, insurance and, if applicable, lease costs.

Under GAAP, we depreciate the capital cost of solar power plants over the estimated useful life of 25 years.

We typically fund our projects through a mix of project finance and sponsor equity. We generally raise long term debt financing of approximately 75% of project costs. The remaining 25% of project costs required is met through a mix of cash flow generated from our business and equity proceeds. Our project financing agreements typically restrict the ability of our project subsidiaries to distribute funds to us unless specific financial thresholds are met on specified dates. Some of our project finance borrowings are denominated in U.S. dollars and therefore foreign currency exchange rate fluctuations can adversely impact our profitability. Some of our borrowings have variable interest rates and changes in such rates may lead to an adverse effect on our overall cost of capital.

From time to time we have raised funds through issuance of compulsorily convertible debentures and Series A through H compulsorily convertible preferred shares. We classify our outstanding compulsorily convertible debentures and Series E and Series G compulsorily convertible preferred shares as a liability on our consolidated balance sheet. Series A to D and Series F and Series H compulsorily convertible preferred shares are classified as temporary equity on the consolidated balance sheet. Prior to the closing of this offering, the compulsorily convertible debentures and compulsorily convertible preferred shares will convert into equity shares. As a result of these conversions, we will record a material non-cash adjustment to equity shares and additional paid-in-capital on our consolidated balance sheet.

Convenience Translation

Azure Power Global Limited’s functional currency is the U.S. dollar and reporting currency is the Indian rupee. Further, AZI’s functional and reporting currency is the Indian rupee. Solely for the convenience of the reader, we have translated the financial information as of and for the fiscal year ended March 31, 2015 and the nine months ended December 31, 2015 into U.S. dollars. The exchange rate used for this translation is Rs. 66.19 to US$1.00, which is the noon buying rate in New York City for cable transfer in non-U.S. dollar currencies as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2015, which is the date of our last reported financial statements.

 

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Power Purchase Agreements

The following chart shows the commercial operation date, capacity, tariff, offtaker and duration of the PPA for our projects as of January 31, 2016.

 

Operational
    Project Names   Commercial
Operation
Date(1)
 

Capacity

(MW)

    Tariff
(Rs/kWh)
    Offtaker   Duration    
of PPA in    
Years    

Punjab 1

  Q4 2009     2        17.91      NTPC Vidyut Vyapar Nigam   25

Punjab 2.1

  Q3 2014     15        7.67      Punjab State Power Corporation Limited   25

Punjab 2.2

  Q4 2014     15        7.97      Punjab State Power Corporation Limited   25

Punjab 2.3

  Q4 2014     4        8.28      Punjab State Power Corporation Limited   25

Punjab 3.1

  Q1 2016     24        7.19      Punjab State Power Corporation Limited   25

Punjab 3.2

  Q1 2016     4        7.33      Punjab State Power Corporation Limited   25

Gujarat 1.1

  Q2 2011     5        15.00(3)      Gujarat Urja Vikas Nigam Limited   25

Gujarat 1.2

  Q4 2011     5        15.00(3)      Gujarat Urja Vikas Nigam Limited   25

Rajasthan 1

  Q4 2011     5        11.94      NTPC Vidyut Vyapar Nigam Limited   25

Rajasthan 2.1

  Q1 2013     20        8.21      NTPC Vidyut Vyapar Nigam Limited   25

Rajasthan 2.2

  Q1 2013     15        8.21      NTPC Vidyut Vyapar Nigam Limited   25

Rajasthan 3.1

  Q2 2015     20        5.45     

Solar Energy Corporation of India

  25

Rajasthan 3.2

  Q2 2015     40        5.45     

Solar Energy Corporation of India

  25

Rajasthan 3.3

  Q2 2015     40        5.45     

Solar Energy Corporation of India

  25

Rajasthan 4

  Q4 2015     5        5.45      Solar Energy Corporation of India   25

Karnataka 1

  Q1 2015     10        7.47     

Bangalore Electricity Supply

Company Limited

  25

Uttar Pradesh 1

  Q1 2015     10        8.99     

Uttar Pradesh Power

Corporation Limited

  12

Chhattisgarh 1.1

  Q2 2015     10        6.44     

Chhattisgarh State Power

Distribution Company Limited

  25

Chhattisgarh 1.2

  Q2 2015     10        6.45     

Chhattisgarh State Power

Distribution Company Limited

  25

Chhattisgarh 1.3

  Q3 2015     10        6.46     

Chhattisgarh State Power

Distribution Company Limited

  25

Delhi 1.1

  Q4 2015     1        5.43      Solar Energy Corporation of India   25
   

 

 

       

Total Capacity

      270         
Under Construction

Karnataka 2

  Q1 2015     10        6.66      Bangalore Electricity Supply Company Limited   25

Karnataka 3.1

  Q3 2016     50        6.89      Chamundeshwari Electricity Supply Corporation Limited   25

Karnataka 3.2

  Q3 2016     40        6.93      Hubli Electricity Supply Company Limited   25

 

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    Project Names   Commercial
Operation
Date(1)
 

Capacity

(MW)

    Tariff
(Rs/kWh)
    Offtaker   Duration    
of PPA in    
Years    

Karnataka 3.3

  Q3 2016     40        6.96      Gulbarga Electricity Supply Company Limited   25

Andhra Pradesh 1(2)

  Q1 2016     50        5.89(3)      Southern Power Distribution Company of Andhra Pradesh Limited   25

Bihar 1

  Q3 2016     10        8.39      North Bihar Power Distribution Company Limited and South Bihar Power Distribution Company Limited   25

Delhi 1.2

  Q1 2016     2        5.45      Solar Energy Corporation of India   25
   

 

 

       

Total Capacity

      202         
Committed

Punjab 4.1

 

Q1 2017

    50        5.62      Punjab State Power Corporation Limited   25

Punjab 4.2

 

Q1 2017

    50        5.63      Punjab State Power Corporation Limited   25

Punjab 4.3

 

Q1 2017

    50        5.64      Punjab State Power Corporation Limited   25

Andhra Pradesh 2

  Q1 2017     100        5.12      NTPC VidyutVyapar Nigam Limited   25

Uttar Pradesh 2

  Q1 2017     50        4.78      NTPC Vidyut Vyapar Nigam Limited   25
   

 

 

       

Total Capacity

      300         

Commercial Rooftop

Commissioned

Gujarat Rooftops

  2013     2.5                       Torrent Power Limited   25

DLF (total)

  2013-2015     1.46 (4)      DLF Limited   25

Uttar Pradesh Rooftop 1

  Q1 2015     0.555        Indosolar Limited   25

Delhi Rooftop 1

  Q2 2015     0.056        Delhi Gymkhana Club Limited   25

Delhi Rooftop 2

  Q2 2015     0.178        Taj Sats Air Catering Limited   20

Punjab Rooftop 1

  Q3 2015     1        JCBL Limited   25
   

 

 

       

Total Capacity

      5.749         
Under Construction

Oberoi (total)

  Q2 2016     1.03 (5)      Oberoi Resorts/EIH Limited   15

Punjab Rooftop 2

  Q1 2016     10        Punjab State Power Corporation Limited   25

Delhi Rooftop 3

  Q2 2016     1.00        Indraprastha Power Generation Co. Limited   25
   

 

 

       

Total Capacity

      12.03         
Committed

Delhi Rooftop 4

  Q3 2017     10        Delhi Metro Rail Corporation   25

Odisha Rooftop 1

  Q2 2017     4        Green Energy Development Corporation of Odisha   25
   

 

 

       

Total Capacity

      14         

Total Capacity (all projects)

    804         

 

Notes:

(1) Refers to the applicable quarter of the calendar year. There can be no assurance that our projects under construction and our committed projects will be completed on time or at all. See “Risk Factors – Our construction activities may be subject to cost overruns or delays.”

 

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(2) Hanwha Q Cells Korea holds a non-controlling interest against its investment of Rs. 316.9 million.
(3) Current tariff, subject to escalation, as disclosed under “Business—Portfolio of Solar Energy Projects—Operational Projects.”
(4) PPAs for 2.246MW signed, 1.46MW of the project has commenced operations.
(5) 0.0529MW of the project has commenced operations.

Our PPAs typically require certain conditions precedent, including, among others, that we have obtained all necessary consents and permits, financing arrangements have been made and an agreement has been entered into to provide for the transmission of power. Furthermore, the PPAs contain customary termination provisions and negative and affirmative covenants, including the provision of performance bank guarantees and minimum guarantees of power to be sold and restrictions on changing the controlling shareholder of the project subsidiaries.

Corporate Structure

Prior to the formation of Azure Power Global Limited and the reorganization described below, our operations were entirely conducted through AZI and its subsidiaries. AZI is a company organized under the laws of India. Azure Power Global Limited was formed to enable the consummation of the transactions described below and this offering. Prior to the reorganization, 100% ownership interest in us was held by the founders.

In relation to the shareholders agreement entered into on July 22, 2015 among us, the non-founder investors in AZI and the founders, referred to as the APGL Shareholders Agreement, we purchased from the non-founder investors in AZI the equity shares and convertible securities in the form of compulsorily convertible debentures and compulsorily convertible preferred shares held by them in AZI for an equivalent number of equity shares, compulsorily convertible debentures and compulsorily convertible preferred shares in Azure Power Global Limited on similar terms as those formerly held in AZI, except the term of the compulsorily convertible debentures and the compulsorily convertible preferred shares was increased from 10 years to 20 years. We refer to this transaction as the reorganization. Immediately prior to this offering, the compulsorily convertible debentures and the compulsorily convertible preferred shares will convert into our equity shares. Therefore, the increase in the term is not pertinent to the accounting for the reorganization. The reorganization did not result in any cash outflow from us and would be described in the United States as an exchange offer.

Prior to the reorganization, the non-founder investors had an 83% ownership interest, on an as converted basis (excluding the compulsorily convertible debentures and Series E compulsorily convertible preferred shares which convert into a variable and currently indeterminable number of equity shares), in AZI with the remaining 17% held by the AZI founders. Subsequent to the reorganization, we held an 83% interest in AZI, on an as converted basis, with the remaining 17% held by the AZI founders. Immediately after the reorganization, the non-founder investors held an 83% ownership interest in us, on an as converted basis, with the remaining 17% held by the founders. As of the date hereof, we hold approximately 94% of AZI on an as converted basis and after the consummation of this offering, we will hold     % of AZI, assuming an initial public offering price of US$         per equity share, which is the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus.

On July 22, 2015, we, AZI and the founders entered into another shareholders agreement, referred to as the AZI Shareholders Agreement, which provides that it is the intention of all parties to the AZI Shareholders Agreement to eventually make AZI a wholly owned subsidiary of ours. As such, pursuant to the AZI Shareholders Agreement, we have an option requiring the founders to sell their shareholding in AZI to us at the minimum applicable price as per Indian law, which shall be a price not less than the fair value determined as per any internationally accepted pricing methodology for valuation of shares on an arm’s length basis. This option does not expire. As the non-founder investors together are the majority shareholders of us, the exercise of the option is within their control. If the option is exercised as described above, AZI will become our wholly owned subsidiary and the founders and non-founder investors would continue to hold approximately 17% and 83% ownership interest, respectively, on an as converted basis of us (excluding any other issuances since July 23, 2015). In addition, the AZI Shareholders Agreement prohibits a transfer of AZI equity shares held by the founders without our consent.

 

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Furthermore, Mr. Inderpreet Singh Wadhwa and the non-founder investors entered into a Sponsor Lock-in Agreement, referred to as the Lock-in Agreement, whereby Mr. Wadhwa agreed to not dispose of the number of our shares he holds representing the ownership of us, which is equal to the founders’s ownership of AZI, until the occurrence of a termination event, as defined, including if our initial public offering is not completed by December 31, 2015. The non-founder investors and founders have agreed in principle to extend the lock in period, including the period for sharing the excess returns, past the completion of our initial public offering. The parties are currently in the process of formalizing the arrangement and the formal agreement is expected to be completed prior to commencement of our roadshow for this offering. Immediately after the reorganization, Mr. Wadhwa held 16% ownership interest in Azure Power Global Limited and the founders collectively held 16% ownership interest in AZI. Azure Power Global Limited has entered into a share subscription agreement to purchase the remaining 1% ownership interest held by the AZI founders in AZI. In addition, pursuant to the Lock-in Agreement, the amount for which the founders sell their shares in AZI (including any sale to us) above the face value of such shares (Rs. 10, or US$0.15, per equity share) plus taxes and expenses incurred by the founders on the transfer of such shares is to be distributed among the founders and non-founders pro rata based on their as converted shareholding in us, provided a termination event has not occurred.

Post the exercise of the option described above, AZI will become our wholly owned subsidiary and the ownership structure which was present at AZI pre-reorganization will be present at Azure Power Global Limited. As a result, the reorganization qualifies as a transfer of a business among entities under common ownership, which is accounted for at the carrying value with retrospective adjustment of prior period financial statements similar to the manner of a pooling-of-interest. Accordingly, to fairly reflect the economic substance of the agreements and the reorganization, we have prepared the consolidated and condensed consolidated financial statements as though we had been combined with AZI since the earliest period presented, with the assets and liabilities of the entities recorded at their historical carrying values. Similarly, no value has been attributed to the non-controlling interest still held by the founders in AZI as the amount for which the founders sell their shares in AZI (including any sale to us) above the face value of such shares (Rs. 10, or US$0.15, per equity share) plus taxes and expenses incurred by the founders on the transfer of such shares is to be distributed among the founders and non-founders pro rata based on their as converted shareholding in us.

Dividends

As we are a holding company, we will have to rely on dividends paid to us by our subsidiaries (in particular, our key operating subsidiary in India, AZI) for our cash requirements, including funds to pay dividends and other cash distributions to our shareholders, service any debt we may incur and pay our operating expenses. As of the date of this prospectus, AZI has not paid any cash dividends on its equity shares and does not intend to pay dividends to its equity shareholders, including Azure Power Global Limited, in the foreseeable future. See “Dividends and Dividend Policy” for more information.

Key Metrics

We regularly review a number of specific metrics, including the following key operating and financial metrics, to evaluate our business performance, identify trends affecting our business and make strategic decisions.

 

Key metrics

   Unit of measurement    FY 2014      FY 2015      Nine months ended
December 31, 2014
     Nine months ended
December 31, 2015
 

Electricity generation(1)

   kWh in millions      96.9         128.4         86.0         253.9   

Plant load factor

   %      20.6         18.7         19.2         17.4   

Revenue(2)

   Rs. in millions      881.3         1,124.1         767.3         1,858.9   

Cost per MW operating

   Rs. in millions      78.2         60.5         58.4         60.2   

MW operating

   MW      55.2         110.2         90.5         248.5   

MW committed

   MW      154.5         374.2         210.0         555.7   

MW operating and committed

   MW      209.7         484.4         300.5         804.2   

 

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(1) Electricity generation represents the actual amount of power generated by our solar power plants over the reporting period and is the product of plant load factor during the reporting period and the average megawatts operating.
(2) Revenue consists of revenue from the sale of power.

Factors that most significantly directly or indirectly affect our overall growth and results of operations, or that cause our historical financial information not to be indicative of future operating results or financial condition, include the Indian government’s targets for solar capacity addition and the more gradual decline in solar module prices. The Indian government recently increased its target for solar capacity from 20GW by 2022 to 100GW by 2022. While this trend may lead to us winning more megawatts per year than in prior years, it will also require us to raise additional funding sources if we are to grow in line with these trends.

As for the cost of our system components, we witnessed a steep decline of solar module prices of approximately 75% from 2010 to 2015. Although the pace of this decline has been slowing recently, we expect this general trend of slowly declining solar module prices to continue through fiscal year 2016.

Operating Metrics

Megawatts Operating and Megawatts Committed

We measure the rated capacity of our plants in megawatts. Rated capacity is the expected maximum output that a solar power plant can produce without exceeding its design limits. We believe that tracking the growth in aggregate megawatt rated capacity is a measure of the growth rate of our business.

Megawatts Operating represents the aggregate cumulative megawatt rated capacity of solar power plants that are commissioned and operational as of the reporting date.

Megawatts Committed represents the aggregate megawatt rated capacity of solar power plants pursuant to customer PPAs signed or allotted but not commissioned and operational as of the reporting date.

The following table represents the megawatts operating and megawatts committed as of the end of the respective periods presented:

 

     As of March 31,      As of December 31,  
         2014              2015              2014              2015      

Megawatts Operating

     55.2         110.2         90.5         248.5   

Megawatts Committed

     154.5         374.2         210.0         555.7   
  

 

 

    

 

 

    

 

 

    

 

 

 

Megawatts Operating and Committed

     209.7         484.4         300.5         804.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

We are targeting having 520MW operating by December 31, 2016. Our longer term goals are to achieve 1GW committed or operating by December 31, 2017 and 5GW by December 31, 2020. Our ability to achieve these goals will depend on, among other things, our ability to acquire the required land for the new capacity (on lease or direct purchase), raising adequate project financing and working capital, the growth of the Indian power market in line with current government targets, our ability to maintain our market share of India’s installed capacity as competition increases, the need to further strengthen our operations team to execute the increased capacity, and the need to further strengthen our systems and processes to manage the ensuing growth opportunities, as well as the other risks and challenges discussed under the caption “Risk Factors.”

Plant Load Factor

The plant load factor is the ratio of the actual output of all our solar power plants over the reporting period to their potential output if it were possible for them to operate indefinitely at full rated capacity. The plant load

 

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factor is not the same as the availability factor. Our solar power plants have high availability, that is, when the sun is shining our plants are almost always able to produce electricity. The variability in our plant load factor is a result of seasonality, cloud covers, the daily rotation of the earth, equipment efficiency losses, breakdown of our transmission system and grid availability.

We track plant load factor as a measure of the performance of our power plants. It indicates effective utilization of resources and also validates our value engineering and operation research. Higher plant load factor at a plant indicates increased electricity generation. Monitoring plant load factor on real time allows us to respond rapidly to potential generation anomalies. Generally, under the terms of our PPAs, we guarantee a plant load factor of 12%. Plant load factor was 18.7% for fiscal year 2015 compared with 20.6% for fiscal year 2014, primarily due to the commencement of operations of certain projects in the northern part of India, for which plant load factors tend to be seasonal, with relatively low plant load factors during the winter months. Plant load factor was 17.4% for nine months ended December 31, 2015 compared with 19.2% for nine months ended December 31, 2014, primarily due to the commencement of operations of certain projects in the northern part of India, for which plant load factors tend to be seasonal, with relatively low plant load factors during the winter months.

 

     Fiscal Year Ended
March 31,
     Nine Months Ended
December 31,
 
     2014      2015      2014      2015  

Plant Load Factor (in %)

     20.6         18.7         19.2         17.4   

Electricity Generation

Electricity generation represents the actual amount of power generated by our solar power plants over the reporting period and is the product of reporting period plant load factor and the average megawatts operating. This is a measure of the periodic performance of our solar power plants.

     Fiscal Year Ended
March 31,
     Nine Months Ended
December 31,
 
     2014       2015       2014       2015   

Electricity Generation (kilowatt hours in millions)

     97         128         86         254   

Financial Metrics

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure. We present Adjusted EBITDA as a supplemental measure of our performance. This measurement is not recognized in accordance with GAAP and should not be viewed as an alternative to GAAP measures of performance. The presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

We define Adjusted EBITDA as net loss (income) plus (a) income tax expense, (b) interest expense, net, (c) depreciation and amortization and (d) loss (income) on foreign currency exchange. We believe Adjusted EBITDA is useful to investors in evaluating our operating performance because:

 

   

securities analysts and other interested parties use such calculations as a measure of financial performance and debt service capabilities; and

 

   

it is used by our management for internal reporting and planning purposes, including aspects of our consolidated operating budget and capital expenditures.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include:

 

   

it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments or foreign exchange gain/loss;

 

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it does not reflect changes in, or cash requirements for, working capital;

 

   

it does not reflect significant interest expense or the cash requirements necessary to service interest or principal payments on our outstanding debt; it does not reflect payments made or future requirements for income taxes; and

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or paid in the future and Adjusted EBITDA does not reflect cash requirements for such replacements or payments.

Investors are encouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis.

The following table presents a reconciliation of net loss to Adjusted EBITDA:

 

     Fiscal Year Ended March 31,     Nine Months Ended December 31,  
     2014     2015     2014      2015  
     Rs.     Rs.     US$     Rs.      Rs.      US$  
     (in thousands)  

Net loss

     (775,430     (1,088,590     (16,446     (884,930      (1,061,400      (16,035

Income tax expense/(benefit)

     15,847        253,112        3,824        205,804         89,427         1,351   

Interest expense, net

     520,219        831,790        12,567        563,928         1,389,289         20,989   

Depreciation and amortization

     252,352        322,430        4,871        218,016         495,647         7,488   

Loss on foreign currency exchange

     580,566        299,628        4,527        368,631         337,112         5,093   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

     593,554        618,370        9,343        471,449         1,250,075         18,886   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Project Cost per Megawatt Operating

Project cost per megawatt operating consists of solar photovoltaic panels, inverters, balance of plant equipment, land or leasehold land, capitalizable financing, and installation costs incurred for operating one megawatt of new solar power plant capacity during the reporting period. It is an indicator of our strong engineering, procurement and construction capabilities, market cost of material and our ability to procure such material at competitive prices. A reduction in project cost per megawatt helps reduce the cost of power and thereby improves our ability to win new projects. The project cost per megawatt operating for the fiscal years ended March 31, 2014 and 2015 and the nine months ended December 31, 2014 and 2015 was Rs. 78.2 million and Rs. 60.5 million (US$0.91 million) and Rs. 58.4 (US$0.9)and Rs. 60.2 million (US$0.9 million) respectively. The decrease in cost was minimal primarily on account of domestic content projects (Rajasthan 3.1, 3.2 and 4), which are more costly to build, becoming commissioned during the year. Further, viability gap funding, or VGF, attributable to Rajasthan 3.1, 3.2, 3.3 and 4 projects (Rs. 1,924 million in total) is amortized as power sale revenue over the project life of 25 years. In addition, we have purchased more freehold land for projects during the nine months ended December 31, 2015 and have installed increased DC capacity in order to increase our yield as compared to projects in fiscal year ended March 31, 2015. While we expect project cost to decline during fiscal year 2017, we expect that the decline in project cost will be significantly less than in prior years.

Nominal Contracted Payments

Our PPAs create long-term recurring customer payments. Nominal contracted payments equal the sum of the estimated payments that the customer is likely to make, subject to discounts or rebates, over the remaining term of the PPAs. When calculating nominal contracted payments, we include those PPAs for projects that are operating or committed. To calculate the nominal contracted payments, we multiply the contract price per kilowatt hour as per the respective PPA by the estimated annual energy output for the remaining life of the PPA period. In estimating the nominal contracted payments, we multiply the PPA contract price per kilowatt hour by

 

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the estimated annual energy output for all solar projects committed and operating as of the reporting date. The estimated annual energy output of our solar projects is calculated using power generation simulation software and validated by independent engineering firms. The main assumption used in the calculation is the project location, which enables the software to derive the estimated annual energy output from certain metrological data, including the temperature, wind speed and solar radiation based on the project location.

The calculation of the estimated annual energy output also takes into account the total rated capacity of all the solar panels to be installed for the remaining life of the PPA, net of the annual estimated decrease in rated capacity based on technology installed. The decrease in rated capacity includes various losses caused by soiling, temperature changes, inverter and transformer inefficiency, incidence angle, wire, shading and mismatch losses. The technology used for each project is assessed based on geographical conditions of the project, cost economics and the availability of such technology for construction. We assume an annual decrease in rated capacity ranging from 0.5% to 0.7% depending on the technology used, which is based on the specifications given by the manufacturer of the solar panels.

If we were to receive government grants under any PPA, such grants would be included as nominal contracted payments in the period when received. We account for VGF as income-type government grant. The proceeds received from VGF grants upon fulfillment of certain conditions are initially recorded as deferred revenue. This deferred VGF revenue is recognized as sale of power in proportion to (x) the actual sale of solar energy kilowatts during the period to (y) the total estimated sale of solar energy kilowatts during the tenure of the

applicable PPA (as described in Note 2(r) to our consolidated financial statements) pursuant to our revenue recognition policy.

Nominal contracted payments is a forward-looking number, and we use judgment in developing the assumptions used to calculate it. Those assumptions may not prove to be accurate over time. Underperformance of the solar power plants, payment defaults by our customers or other factors described under the heading “Risk Factors” could cause our actual results to differ materially from our calculation of nominal contracted payments.

The following table sets forth, with respect to our PPAs, the aggregate nominal contracted payments as of the reporting dates. These nominal contracted payments have not been discounted to arrive at the present value.

 

     As of March 31,      As of December 31,  
     2014      2015      2014      2015  
     Rs.      Rs.      US$      Rs.      Rs.      US$  
     (In thousands)  

Nominal contracted payments

     61,883,812         124,714,183         1,884,185         71,431,271         206,588,831         3,121,149   

Nominal contracted payments increased from March 31, 2015 to December 31, 2015 as a result of entering into additional PPAs. Over time, we have seen a trend towards a decline in the Central Electricity Regulatory Commission benchmark tariff for solar power procurement. For fiscal year 2011, the Central Electricity Regulatory Commission benchmark tariff for solar power procurement was Rs. 17.91 per kilowatt hour. It was reduced to Rs. 10.39 per kilowatt hour for fiscal year 2013, which was further reduced to Rs. 7.72 per kilowatt hour for fiscal year 2015. The overall trend of solar power tariffs is that the tariffs are declining in line with the solar module prices.

Portfolio Run-Rate

Portfolio run-rate equals our annualized payments from customers extrapolated based on the operating and committed capacity as of the reporting date. In estimating the portfolio run-rate, we multiply the PPA contract price per kilowatt hour by the estimated annual energy output for all operating and committed solar projects as of the reporting date. The estimated annual energy output of our solar projects is calculated using power generation

 

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simulation software and validated by independent engineering firms. The main assumption used in the calculation is the project location, which enables the software to derive the estimated annual energy output from certain metrological data, including the temperature, wind speed and solar radiation based on the project location. The calculation of the estimated annual energy output also takes into account the total rated capacity of all the solar panels to be installed for the remaining life of the PPA, net of the annual estimated decrease in rated capacity based on technology installed. The decrease in rated capacity includes various losses caused by soiling, temperature changes, inverter and transformer inefficiency, incidence angle, wire, shading and mismatch losses.

Portfolio run-rate is a forward-looking number, and we use judgment in developing the assumptions used to calculate it. Those assumptions may not prove to be accurate over time. Underperformance of the solar power plants or other factors described under the heading “Risk Factors” could cause our actual results to differ materially from our calculation of portfolio run-rate.

The following table sets forth, with respect to our PPAs, the aggregate portfolio run-rate as of the reporting dates. The portfolio run-rate has not been discounted to arrive at the present value.

 

    As of March 31,     As of December 31,  
    2014     2015     2014     2015  
    Rs.     Rs.     US$     Rs.     Rs.     US$  
    (In thousands)  

Portfolio Run-Rate

    2,403,776        5,414,348        81,800        3,322,615        9,208,299        139,119   

Portfolio run-rate increased from March 31, 2015 to December 31, 2015 as a result of the increase in operational and committed capacity during the period.

Components of Results of Operations

Operating Revenue

Operating revenue consists of solar energy sold to customers under long term PPAs, which generally have a term of 25 years. We have one customer for each solar power plant. Our customers are power distribution companies and to a lesser extent commercial enterprises.

We recognize revenue on a monthly basis based on the solar energy kilowatts actually supplied to our customers multiplied by the rate per kilowatt hour agreed to in the respective PPA. The solar energy kilowatts hours supplied during a month are validated by the customer prior to our billing and recognition of revenue.

Where PPAs include scheduled price changes, revenue is recognized by applying the average rate to the energy output estimated over the term of the PPA. We estimate the total kilowatt hour units expected to be generated annually during the tenure of PPA using budgeted plant load factors, rated capacity of the project and annual estimated decrease in rated capability of solar panels. The contractual rates are applied to this annual estimate to determine the total estimated revenue over the term of the PPA. We then use the total estimated revenue and the total estimated kilowatt hours to compute the average rate used to record revenue on the actual energy output supplied. We compare the actual energy supplied to the estimate of the energy expected to be generated over the remaining term of the PPA on a periodic basis, but at least annually. Based on this evaluation, we reassess the energy output estimated over the remaining term of the PPA and adjust the revenue recognized and deferred to date. Through December 31, 2015, the adjustments have not been significant. The difference between the actual billing and revenue recognized is recorded as deferred revenue.

We recognize revenue when persuasive evidence of an arrangement exists, the fee is fixed or determinable, the electricity is delivered and collectability is reasonably assured. Revenue from sale of power is recorded net of discounts which to date have not been significant.

 

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Cost of Operations (Exclusive of Depreciation and Amortization)

Our cost of operations primarily consists of expenses pertaining to operations and maintenance of our solar power plants. These expenses include payroll and related costs for maintenance staff, plant maintenance, insurance, and, if applicable, lease costs.

General and Administrative Expenses

Our general and administrative expenses include payroll and related costs for corporate, finance and other support staff, including bonus and share based compensation expense, professional fees and other corporate expenses. We anticipate that we will incur additional general and administrative costs, including headcount and expansion related costs, to support the growth in our business as well as additional costs of being a public reporting company.

Depreciation and Amortization

Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of our solar power plants and other assets. Leasehold improvements related to solar power plants are amortized over the shorter of the lease term or the underlying period of the PPA for that particular solar power plant. Leasehold improvements related to office facilities are amortized over the shorter of the lease period or the estimated useful life. Freehold land is not depreciated. Construction in progress is not depreciated until such projects are commissioned.

Interest Expense, Net

Interest expense, net consists of interest incurred on term loans for projects under our fixed and variable rate financing arrangements and compulsorily convertible debentures. It also includes the deemed interest expense which is payable in the form of a guaranteed return on the compulsorily convertible debentures and the Series E and Series G compulsorily convertible preferred shares, which is classified as a liability. Interest expense also includes bank fees and other borrowing costs, which are typically amortized over the life of the loan using the effective interest rate method. Interest expense is presented net of capitalized financing costs and interest income earned from bank deposits. Interest incurred in connection with a project that has been commissioned is expensed while interest incurred prior to commissioning is capitalized.

Loss on Foreign Currency Exchange

We are exposed to movements in currency exchange rates, particularly to changes in exchange rates between U.S. dollars and Indian rupees. While our functional currency is the U.S. dollar, the functional currency of AZI is Indian rupees and a portion of AZI’s borrowings from financial institutions are denominated in U.S. dollars. Foreign exchange loss includes the unrealized and realized loss from foreign currency fluctuations on our non-functional currency denominated borrowings.

We also enter into foreign currency option contracts to mitigate and manage the risk of changes in foreign exchange rates on our borrowings denominated in currencies other than our functional currency. These hedges do not qualify as cash flow hedges under Accounting Standards Codification, or ASC, Topic 815, “Derivatives and Hedging.” Changes in the fair value of these option contracts are recognized in the consolidated statements of operations and are included in loss on foreign currency exchange.

Income Tax Expense

Our income tax expense consists of current and deferred income tax as per applicable jurisdictions in Mauritius, India and the United States. Income tax for our current and prior periods is measured at the amount expected to be recovered from or paid to taxation authorities based on our taxable income or loss for that period.

 

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Deferred income taxes and changes in related valuation allowance, if any, reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Internal Control over Financial Reporting

As a company with less than US$1.0 billion in revenue for our last fiscal year, we qualify as an emerging growth company pursuant to the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting. The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We may adopt new or revised accounting standards on the relevant dates on which adoption of such standard is required. However, we are choosing to “opt in” to such extended transition period election under Section 107(b) of the JOBS Act. As a result of such election, our financial statements may not be comparable to the financial statements of other public companies.

Prior to this offering, we have been a private company preparing our financial statements in accordance with Indian accounting standards and are reporting under GAAP for the first time. We have limited accounting personnel, other resources and tools with adequate GAAP and SEC reporting knowledge with which to address our internal controls and procedures over financial reporting. In the course of the preparation of our consolidated financial statements as of and for each of the two years ended March 31, 2015, we and our independent registered public accounting firm identified a material weakness in our internal control over financial reporting. As defined in the Commission Guidance Regarding Management’s Report on Internal Control Over Financial Reporting under Section 13(a) or 15(d) of the Securities Exchange Act of 1934, Release Nos. 33-8810; 34-55929; FR 77, 6/27/2007, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness identified is a deficiency in our financial statement closing process resulting from the lack of sufficient financial reporting and accounting personnel with appropriate knowledge of GAAP and SEC reporting requirements to properly address complex GAAP accounting issues and to prepare and review our consolidated financial statements and related disclosures to fulfill GAAP and SEC financial reporting requirements.

To address the material weakness identified, we have taken and are planning to take a number of measures, including (i) hiring additional accounting personnel with experience in GAAP and SEC reporting requirements; (ii) providing regular training on an ongoing basis to our accounting personnel that covers a broad range of accounting and financial reporting topics; (iii) developing and applying a comprehensive manual with detailed guidance on accounting policies and procedures as well as procedures for maintenance and retention of accounting and financial records; and (iv) forming an independent audit committee which consists of independent directors, one of them being a “financial expert” to review our GAAP financial statements and key accounting positions taken until we have sufficient knowledgeable personnel on staff. We have already appointed an independent director who is a financial expert with extensive experience in GAAP and SEC reporting matters. However, the implementation of these measures may not fully remediate the material weakness in our internal control over financial reporting. We are not able to estimate with reasonable certainty the costs that we will need to incur to implement these and other measures designed to improve our internal control over financial reporting. See “Risk Factors—Risks Related to Our Business and Industry—In the course of preparing our consolidated financial statements, we have identified a material weakness and other control deficiencies in our internal control over financial reporting, which, as of the date of this prospectus, have not been remediated. If we fail to achieve

 

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an effective system of internal control over financial reporting, we may be unable to accurately report our financial results and investor confidence in our company and the market price of the equity shares may be adversely affected.”

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. We have identified certain accounting policies that we believe are the most critical to the presentation of our consolidated financial information over a period of time. These accounting policies may require our management to take decisions on subjective and/or complex matters relating to reported amounts of assets, liabilities, revenue, costs, expenses and related disclosures. These would further lead us to estimate the effect of matters that may inherently be uncertain.

The judgment on such estimates and underlying assumptions is based on our experience, historical trends, understanding of the business, industry and various other factors that we believe are reasonable under the circumstances. These form the basis of our judgment on matters that may not be apparent from other available sources of information. In many instances changes in the accounting estimates are likely to occur from period-to-period. Actual results may differ from the estimates. The future financial statement presentation, financial condition, results of operations and cash flows may be affected to the extent that the actual results differ materially from our estimates.

Our significant accounting policies are summarized in Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements included elsewhere in this prospectus. Our various critical accounting policies and estimates are discussed in the following paragraphs.

Income Taxes

Income tax expense consists of (i) current income tax expense arising from income from operations (ii) deferred income tax expense/(benefit) arising from temporary differences and (iii) income tax expense/(benefits) as a result of certain intercompany transactions.

We use the asset and liability method in accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on the difference between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The tax rates on reversal of temporary differences might be different from the tax rates used for creation of the respective deferred tax assets/liabilities.

As of March 31, 2014 and 2015, we had gross deferred tax assets of Rs. 140.8 million and Rs. 77.8 million (US$1.2 million), respectively, and gross deferred tax liabilities of Rs. 110.3 million and Rs. 169.5 million (US$2.6 million), respectively. As of December 31, 2015, we had gross deferred tax assets of Rs. 683.1 million (US$10.3 million), and gross deferred tax liabilities of Rs. 811.9 million (US$12.3 million).

We apply a two-step approach to recognize and measure uncertainty in income taxes in accordance with the Financial Accounting Standards Board, or FASB, Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes — an interpretation of ASC Topic 740. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. We re-evaluate these uncertain tax positions on an annual basis. This evaluation is based on factors including changes in facts or circumstances, changes in tax law and effectively settled issues under tax-audit. Such a change in recognition or measurement could result in the recognition of a tax benefit or

 

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an additional charge to the tax provision in the relevant period. As of March 31, 2014 and 2015 and as of December 31, 2015, we did not have any material uncertain tax positions.

We establish valuation allowances against our deferred tax assets when it is more likely than not that all or a portion of a deferred tax asset will not be realized.

A portion of our Indian operations qualifies for tax holiday related to their operating income attributable to undertakings, as defined, in operating solar power plants under section 80-IA of the Indian Income Tax Act, 1961. This holiday is available for a period of ten consecutive years out of fifteen years beginning from the year in which the undertaking first generates power (referred to as the Tax Holiday period). We assess the election of the Tax Holiday period on an annual basis for each of our undertakings. We believe these undertakings will generate higher taxable profits due to lower interest cost as debt balances are paid down in the later years of operations and therefore we plan to defer the Tax Holiday election to later years in order to maximize the benefits. As of December 31, 2015, we have not started claiming any tax holiday benefits for any of our undertakings. Deferred tax assets are recognized to the extent probable of realization outside the anticipated Tax Holiday period. For example, if we choose years six through 15 as the tax holiday period, we recognize deferred tax assets only to the extent that they will be realized either in years one through five or from year 16 onwards. As a result, all temporary differences do not result in creation of a deferred tax asset or liability.

AZI and a subsidiary provide EPC services to other group subsidiaries and as a result incur income taxes on profits from the services provided. The services provided to the group subsidiaries are in the nature of capitalizable costs and are therefore capitalized as part of property, plant and equipment in the standalone financial statements of such subsidiaries. However, these capitalized costs are eliminated for the purposes of the consolidated financial statements. The costs capitalized in the standalone financial statements are however eligible for income tax deductions in the tax records of the respective group subsidiaries. We recognize a portion of income taxes incurred by AZI and the subsidiary providing such services as prepaid income taxes to the extent we will be able to realize the benefit derived from tax deductions availed by the other subsidiaries. We assess that the probability of realizing the benefit on an annual basis and its recognition is limited to the extent probable of realization outside of the anticipated Tax Holiday period. Our estimate is that such benefit is limited to approximately 30% to 55% of the tax expense incurred by AZI and the subsidiary. Prepaid income taxes are expensed in the statement of operations in the period the benefit is actually realized by the other group subsidiaries. As a result, while all the profits on inter-company transactions are eliminated during consolidation, it does not result in complete reversal of tax expense on such inter-company transactions. Accordingly, while we have never been profitable, we report income tax expenses that fluctuate over the period.

Share Based Compensation

In connection with this offering, the stock options granted to the employees have been cancelled at the AZI level and reissued at the Azure Power Global Limited level. For cancellation of the AZI plan, no additional considerations were paid or received from employees. There were no change in the Azure Power Global Limited plan of the employees in the plan, the number of options granted to the employees or the exercise price. The options under the Azure Power Global Limited plan were considered as immediate vesting, except for four of the employees.

We account for share options granted to our employees in accordance with ASC Topic 718 — Stock Compensation. Under the fair value recognition provision of such guidance, compensation for share options granted is measured at the grant date, based on the fair value of the options, and is recognized as expense over the vesting period of the option.

Share based compensation expense is recorded net of estimated forfeitures in our consolidated statement of operations under general and administrative expenses and is recorded for only those share options that we expect to vest. These share options have been granted to the employees who are in the corporate or finance department

 

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and to other support staffs. We estimate the forfeiture rate based on historical forfeitures of share options and adjust the rate to reflect changes in facts and circumstances. We revise our estimated forfeiture rate if actual forfeitures differ from our initial estimates.

Determining the fair value of share options requires significant judgment. We estimated the fair value of our share options using the Black-Scholes valuation model for awards with service vesting conditions and the Lattice valuation model for awards vesting based on achievement of market conditions. These models require inputs such as the fair value of our equity shares, risk-free interest rate, expected dividend yield, expected term and expected volatility and we have applied these inputs in determining the fair value of the share options as follows:

 

   

Fair value of our equity shares — as our equity shares are not publicly traded, we have valued our business on the date of each option grant.

 

   

Risk free interest rate — the risk free interest rate is based on the yield on a treasury bond issued by the Indian government on the grant date with the tenor matching the remaining term of the share options.

 

   

Expected dividend yield — we have never declared or paid any cash dividends on our equity shares and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.

 

   

Expected term — the expected term was estimated based on the average between the vesting period and the plan term. Our share option plan expires on July 20, 2025.

 

   

Expected volatility — as we do not have a trading history for our equity shares, the expected volatility for our equity shares was estimated by taking the average historical price volatility for companies with similar lines of business based on the price fluctuations of their shares over a period equivalent to the expected term of the share options granted. Companies with similar lines of business consist of several public companies similar in size, which are engaged in similar business sectors in India and worldwide. We have considered a three year average to be a reasonable estimate of volatility for the purpose of valuation. The volatility is unlevered and then re-levered to adjust for our capital structure. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own equity share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

The following table presents the assumptions used to estimate the fair value of options granted during the periods presented:

 

     Fiscal Year Ended
March 31,
   Nine Months Ended
December 31,
     2014    2015    2014    2015

Expected term (in years)

   2.61-4.70    2.09-3.84    2.09    5.0-6.8

Expected volatility

   43.9%-45.6%    31.2%-42.3%    42.30%    37.2%-41.6%

Risk-free interest rate

   7.51%-7.68%    7.69%-8.34%    8.34%    7.60%-8.08%

Share based compensation included in general and administrative expenses totaled Rs. 4.4 million and Rs. 7.4 million (US$0.1 million), Rs. 5.3 million and Rs. 49.4 million (US$0.7 million) for the fiscal years ended March 31, 2014 and 2015 and the nine months ended December 31, 2014 and 2015, respectively. As of December 31, 2015, we had Rs. 0.7 million (US$0.01 million) of unrecognized compensation expense which will be recognized over the remaining weighted average vesting period of one year.

 

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Results of Operations

Azure Power Global Limited’s functional currency is the U.S. dollar and reporting currency is the Indian rupee. Solely for the convenience of the reader, we have translated the financial information for the fiscal year ended March 31, 2015 and the nine months ended December 31, 2015 into U.S. dollars. The rate used for this translation is Rs. 66.19 to US$1.00, which is the noon buying rate in New York City for cable transfer in non-U.S. dollar currencies as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2015, which is the date of our last reported financial statements. No representation is made that the Indian rupee amounts could have been, or could be, converted, realized or settled into U.S. dollars at that rate.

 

     Fiscal Year Ended March 31,     Nine Months Ended December 31,  
     2014     2015     2014     2015  
     Rs.     Rs.     US$     Rs.     Rs.     US$  
     (In thousands)  

Consolidated Statement of Operations Data:

      

Operating revenue:

      

Sale of power

     881,345        1,124,138        16,984        767,362        1,858,911        28,084   

Operating costs and expenses:

      

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

     52,491        79,816        1,206        54,029        127,308