Azure Power Global Limited (AZRE) Q3 2021 Earnings Call Transcript

Azure Power Global Limited (AZRE 21.05%)
Q3 2021 Earnings Call
Feb 11, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to Azure Power Q3 2021 earnings conference call. [Operator instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nathan Judge from Azure Power.

Thank you, and over to you, sir.

Ranjit Gupta -- Chief Executive Officer

Thank you, Nathan, and a very good morning, everyone. It was around this time last year that COVID began spreading rapidly across the world. It has been truly unfortunate how this pandemic created so much pain and uncertainty. Fortunately, the end of the tunnel is getting brighter with the vaccine being globally distributed as we speak.

Here's to hoping that we can all claim victory over the virus on our next call. Sustainability and ESG are key to the success of our business. At Azure, we start every meeting with a discussion of health and safety, which is of paramount importance. We would like to start this call by highlighting our ESG accomplishments this quarter.

We are very proud to announce that we obtained the ISO-45001 certification, which demonstrates Azure's focus on occupational health and safety. Given the remote locations of our projects, the extreme heat, and difficult conditions for construction and operations, as well as the inherent safety risks that come with the large-scale construction project, we believe this validates the additional efforts we make to our -- workplace safe for our team members and contractors. In addition, in December, MSCI, a leading ESG rating agency, rated Azure Power as AA for ESG, which places us in the top quartile of all global utilities they cover. We believe that we will improve on this rating going forward as we work through some legacy issues that have improved this past year.

Despite the challenges faced during the pandemic, the company's operations have persevered. Today, we have 19% more megawatts operating than we did at the same time last year. Our operating assets have performed extremely well. And not only we have been able to continue collecting revenues, we even improved our collections with our DSO at 113 days at the end of the quarter compared to 119 days at the beginning of the pandemic.

We have slashed costs, and our cash G&A, excluding stock compensation expenses, fell by 15% from the same quarter last year. We have promised to reduce our cash G&A expenses by 10% in FY '21 versus FY '20, and I'm happy to report that we are on track to deliver on our promise. At the end of Q3 FY '21, we are operating with 25% fewer team members than a year ago. Growth and our actions to improve returns have resulted in a 26% year-on-year increase in EBITDA from operating assets and 142% increase in cash flow to equity from operating assets.

Over the last three quarters, since we started reporting CFE, we have seen a steady improvement in this metric due to our focus on setting our assets, capex infusion, and operating assets, reducing our costs, and collection of long outstanding bills. Also, our CFE generation of $67 million over the past 12 months would have been around $75 million if installation in third quarter and year to date had not been about 5% lower than the 20-year average NASA Insolation Data. On the flip side, despite significant progress toward signing PPAs on our 4 gigawatts, for which we have a letter of award but no PPAs, we have not much to report. We still remain optimistic that we will have positive news to deliver shortly as there is a definite movement toward the finish line.

The fact that India beat its peak power demand record twice in the last month indicates a strong recovery is under way, which will enable DISCOMs to invest in buying power for their future needs. As we announced before Christmas, we do expect a reduction in tariffs from what was discovered when we won the auction about 14 months ago. Frankly, costs have come down and productivity has risen significantly during this period. The government continues its tremendous support to the energy sector.

The honorable Prime Minister has reiterated the government in their vision of having 450 gigawatts of renewable energy operational by 2030. Many structural changes are being proposed to the regulatory and policy framework to enable this growth. In the recent budget, approximately USD 40 billion has been set aside for upgrading infrastructure and technology of distribution companies to make them more efficient and improve their fiscal positions. In a path-breaking change, the government has spoken of putting a framework in place whereby the consumer could be in position to choose their electricity supplier, which means there would be an opportunity for consumers to choose clean and lowest-cost renewable energy with further infusion of equity in SECI, Solar Energy Corporation of India, the budget signaled the government's intent to strengthen its support for the RE business.

In my remarks exactly a year ago, I had spoken about four broad themes that we had started work on strategy, transparency, efficiency, and prudence. In the last four quarters, we have worked hard on all four themes. Our transparency has manifested itself in our disclosures, streamlining of reporting structures, elimination of EPC margins, and our constant outreach to the investor and stakeholder community. Efficiency and prudence have been demonstrated through a reduction in our cost, pruning of our workforce, simplification of internal processes, focus on training and human resource.

We have executed our strategy, which primarily focused on discipline and capital allocation. As tariffs have plummeted to below USD 0.03 in an environment that model prices are holding firm, we have stayed away from bidding aggressively, patiently waiting for the right opportunities that will earn our shareholders a return higher than our cost of capital. We have time, and again, demonstrated our commitment to capital discipline by chasing returns over scale. With interest in green hydrogen growing exponentially, storage costs continuing to decline, and increasing efficiency of solar modules, the stage is set for the next quantum leap in acceptability of renewable energy across the world.

These are exciting times. We continue to look for suggestions from our investors and stakeholders on how we can further improve our disclosures and make it easier for you to understand our business. With that, I would like to turn it over to Murali.

Murali Subramanian -- Co-Founder and Chief Operating Officer

Thank you, Ranjit. Good morning, everybody. On Pages 5 and 6, we provide an update on our projects under construction. Whilst we have overcome many challenges and the level of construction activity has continued to increase, new supply constraints have arisen.

High local demand for solar modules in the past six months or so in China coupled with a rising yuan and rising raw material costs has resulted in the inability of several module suppliers to honor their price and delivery commitments despite signed supply contracts. Having said that, we believe we have been able to navigate the potential delay by leveraging our size and large backlogs to secure modules better than many of our peers, but getting modules still remains a real challenge. On top of this, we are still not at the level of construction activity we anticipated three months ago when we last provided an update. This is due to delays.

We had anticipated that by fiscal year-end, we would have 450-megawatt operational and the final 150-megawatt to be completed by May. As of today, we have finished 300-megawatt, but another 150-megawatt by fiscal end is an extremely difficult target. We do expect that an extension to the COD will be granted, and we will not owe any penalties for delays. Project work in Assam has picked up after poor weather and COVID-related delays.

We have sought the COD extension from the regulator and procurer and expect to hear from them shortly. While there have been delays, we have also not lost sight of ways to continually improve our business. In this fiscal year, we increased our block sizes, reduced the amount of cable needed by using junction boxes, and designed larger cable sizes with reduced spacing. We have seen our yields improve as we increase the adoption of string inverters and aluminum cables and implement dry cleaning robots to prevent dust buildup to improve our efficiency.

We were practically the first mover in India to adopt mono PERC modules in a big way. Continuing with our quest to drive efficiency, we are planning to test a pilot of bifacial modules combined with trackers. Worldwide industry is found as much as a 15% increase in yield compared to fixed-tilt mono PERC modules. We have already started deploying bifacial modules in our current Rajasthan 6 project, and about half of the modules in our Rajasthan 8 project is expected to be bifacial.

Over the last quarter, we have transitioned our operating projects to a new and powerful analytics platform. We continue to get all our data into a centralized monitoring station at head office, but the driver behind this new platform is the ability to monitor and analyze plant performance at the project site, which is a very powerful efficiency improvement, too. Now, the site teams have greater visibility of even minor plant failures, and various preset alarms allow them to spot, not only failures but even parts of the plant where performance is lower than expected. Installation of string inverters in 50% of Rajasthan 6 and 100% in Rajasthan 8 and 9 will further help this new analytics platform provide string-level data to spot localized failure.

String inverters will not only prevent mismatch losses but will also aid in faster failure rectification. This will help us in improving generation from each and every operating asset, and we hope to see the benefit accrue to us over the next fiscal year. We're also planning to test battery storage and its integration in our ground-mount projects to be future-ready to satisfy DISCOM concerns on reliability and incumbency and to reduce deviation penalties. In anticipation of upcoming wind-solar storage tenders, we are working on development opportunities for hybrid projects such as solar plus wind.

We would like to provide also some highlights of our ESG accomplishments on Page 7. As Ranjit mentioned earlier, we did get a strong AA rating from MSCI for ESG, and we obtained ISO-45001 certification, which verifies that Azure Power provides a safe and healthy workplace. Our carbon-free generation has avoided about 2.4 million tonnes of CO2 equivalent, bringing the total to 8.9 million tonnes equivalent since inception. We remain net carbon neutral.

We have reduced our water consumption per unit of electricity generated by about 20% this fiscal versus calendar 2019 and about two-thirds from calendar 2018 levels. Another environmental focus this year is safe disposal, even recycling where possible of damaged modules, and we have made very good progress this fiscal on this. On the social side, in addition to the ISO-45001 certification, we have provided about 175,000 people with assistance by delivering masks, food, facility support, purified water, power in the school, and job training. We also remain actively engaged with the communities in which we operate.

On the governance side, we have adopted many policies, including an enhanced health and safety policy, and have increased gender diversity on our board. We're not stopping here, and we'll continue to implement best practices to enhance our sustainability. Looking at industry and regulatory developments on Page 8. There is a logjam of about 19 gigawatts of allocated solar projects with LOAs but no power purchase agreement at the moment.

In the last couple of quarters, discounts have been -- sorry, DISCOMs have not been signing PSAs, which SECI, that's Solar Energy Corporation of India, needs in order to enter into PPAs with developers such as ourselves. Clearly, the uncertainty around COVID has taken a toll on DISCOMs. The reticence has been further exacerbated by the recent drop in tariffs discovered during the last couple of solar capacity auctions. To explain further, during March of 2020, many solar auctions cleared in the range of USD 0.033 to USD 0.037 per kilowatt-hour.

However, in this past November and December, the discovered tariffs for a couple of auctions fell to record lows of about USD 0.0275 per kilowatt-hour, a 20% drop. On the positive side, however, India has set new records for power demand twice in the last month, which indicates a strong recovery after months of subdued industrial and commercial activity. We have gotten numerous questions from investors about our view of future tariff pricing. While we do not have a crystal ball, what we do know is that, over the next several years, there are more projects than there is development capacity and capital to finance it in India at the moment.

History has shown that there are periods where competition increases, but eventually, competition moderates. We have a leading platform with some of the lowest costs in the industry and that has some of the best and lowest cost access to capital. There will be many opportunities to add projects that create significant value in the future. In addition, Azure is in a tremendously strong position with LOAs in place for a 4-gigawatt pipeline.

We have a strong pipeline and do not have to chase growth. We will be patient and disciplined, and we will not do projects that do not have returns above our cost of capital. With that, I will turn it to Pawan to discuss the quarterly results.

Pawan Agrawal -- Chief Financial Officer

Thank you, Murali. Turning to Page 10. As of December 31, 2020, we were operating 1.987 gigawatt on a PP or EC basis, which is 8% higher than what we were operating as of September 30, 2020. Our portfolio of 7.115 gigawatt remained stable from the previous quarter.

Our construction costs continued to fall and were about 10% lower year on year. On Page 11, when looking at the quarter, we faced reduced installation by around 4.6% compared to our expectations apart from weather. Had installation been as with the long-term average, our revenues would have been about $50 million or a 20% year-on-year increase. I will discuss the year in more detail in a few moments, but excluding stock compensation expenses, which lowered significantly due to the rising stock price, our revenue have been about 15% lower than G&A in the same quarter last year after adjustments.

After adjusting for stock compensation expenses, our EBITDA would have been $39.4 million, or a 21% increase from the same quarter in the prior year. And we have recorded a net loss of about $2.7 million versus about $7.9 million after additions last year. Turning back to G&A. On Page 12, cash costs were lower below our internal expectation, save for stock appreciation for SAR, which added about $18 million a unit.

We remain very focused on reducing our cost as we had outlined earlier this year. We are pleased to report that we're on track to deliver on our original target of about a 10% reduction in G&A, excluding stock compensation expenses during FY '21 when compared to FY '20. One example of cost-saving is the relocation of our head office, which is expected to save about $1 million every year. While looking out into FY 2022, we expect that terms will rise about 10% from FY '21 level, reflecting inflation and an increase in megawatts operating.

We also have embarked on a refinancing initiative, and so far, we have been able to refinance about $73 million of debt thereby saving us about 150 to 200 basis points on our interest cost. We are working on refinancing about USD 185 million loan. And I would highlight that our first green bond of USD 500 million that we issued in 2017 with a 5.5% coupon is now callable. Based on indicative rates in the market, we would expect to be able to realize savings once this is refinanced.

Turning to stock compensation expenses. As the sale prices, our stock compensation expenses will rise, inflating our G&A. To help with modeling, the impact of SAR expenses on our G&A is directly linked to the sale price. For fourth-quarter '21, we would incur about $2.5 million of additional expenses if the sale price remained at yesterday's close.

Every $1 change in the stock price above and below the last night's close of $37.76 will have about 800,000 impact of G&A in that period, both positive and negative. Given the uncertainty around collections when the pandemic first began, we are particularly proud of our ability to improve our DSO despite the challenges this year. Our third-quarter '21 DSO was 113 days, which is better than the 119 days when the pandemic had begun about a year ago. We continue to make progress in getting back payment and believe there will be further improvement in the future.

On Page 13, you can see that EBITDA from operating assets increased about 26% year on year and that cash flow to equity from operating assets rose about 142%. Net debt for operating assets was about $1.03 billion, and EBITDA for the last 12 months was about $172 million, resulting in a net debt-to-EBITDA ratio for our operating assets of about 6 times. This ratio is much more reflective of our balance sheet than the net debt-to-EBITDA ratio for the overall company, which includes debt for the project under construction as well or just recently commissioned projects which have yet to produce their corresponding EBITDA. We're pleased to a review of our balance sheet on Page 14.

We had about $122 million of cash and cash equivalent, and our net debt stood at approximately $1.15 billion. As a reminder, for those that are calculating our debt ratio, the hedging assets included in the other assets on our balance sheet should be netted against our total debt as this is directly linked to the foreign exchange hedges we put in place related to our green bonds. Before I pass it over to Ranjit to discuss guidance, I would like to mention that Azure continues to gain traction, stock trading liquidity, and visibility as a leader in the Indian solar industry. At December 31, 2020, Azure was a part of at least 25 stock indices compared to none at the middle of the year.

Now, over to Ranjit to provide some commentary on FY '21 and long-term guidance.

Ranjit Gupta -- Chief Executive Officer

Thank you, Pawan. In February 2020, when we had issued our guidance for fiscal-year '21, I had mentioned the caveats of timely commissioning, normal weather, and no curtailment. I'm happy to report that, despite the pandemic, we have hardly seen any curtailment across our projects. Pandemic did impact timely commissioning and continues to impact construction.

On Page 15, as Murali noted, because of supply constraints and delays related to COVID, we now expect to be at the lower end of our previously provided range of 2,000 to 2,500 megawatts operational by March 31, 2021. Performance of our operating projects has improved significantly but lower insolation in the SEC in this quarter and, in fact, the entire year to date, to the tune of about 5% compared to the 20-year average, has weighed on our performance, and we are now expecting to be at the lower end of our previously provided revenue guidance. For fourth-quarter '21, we expect revenue to be between INR 4.335 million and INR 4.435 million, and the PLF to be between 22% and 23%. We also provide initial guidance on our operating capacity and expected revenue generation for the next fiscal on Page 15.

Turning to Page 16, which is our long-term outlook at the moment. Due to uncertainty around the tariffs that will be realized for our 4-gigawatt pipeline, we are pulling our long-term outlook, which included our 4 gigawatts. With this, we will be happy to take questions. Thank you.

Questions & Answers:

Operator

Thank you very much. Ladies and gentlemen, I'll begin the question-and-answer session. [Operator instructions] The first question is from the line of Philip Shen from ROTH Capital Partners. Please go ahead.

Philip Shen -- ROTH Capital Partners -- Analyst

Hi, everyone. Thanks for taking my questions. I'd like to focus initially on the 4-gigawatt tender and the status there. So specifically, with that long-term outlook, Ranjit, that you were just highlighting, it looks like there's a one-year delay.

And so with this new timeline, when do you need to sign the PPAs by to stay on schedule? And what is the visibility that you have now in terms of being able to sign a PPA at the first tranche -- or for the first tranche? Thanks.

Ranjit Gupta -- Chief Executive Officer

Thank you, Phil. It is perhaps the most important question that is in front of us. So, Phil, the good thing is that a lot of progress has been made by SECI in trying to place the power, right? And like we had mentioned, the 4 gigawatts is going to be placed in tranches, most likely the first 1 gigawatt will be placed first, and then the 3 gigawatts will be placed later in this year. For the first gigawatt, there was very little traction as was mentioned by SECI in a letter to us, which we had mentioned in our 6-K filing toward the end of last year.

But like I mentioned in my remarks just now, over the last month or so, we have seen that power demand has come back very strongly. And as we are in touch with SECI almost on a day-to-day basis, they are reporting that there is a renewal in sort of inquiries that they are getting from the distribution companies for signing power purchase agreements, once again, which was very, very muted over the last couple of quarters. So that is heartening news and also the fact that SECI is still insisting on signing our megawatts first before signing the megawatts of projects that were auctioned post the manufacturing bid, right? So, therefore, they are not sort of bypassing us. They are saying that, yes, they will sign our power purchase agreements first, and only then they will sign the remaining power purchase agreements, which is good news for us because then we will be first in line.

So I am very positive. We had in the last earnings call mentioned that we expect the power purchase agreement for the first tranche to be signed in January, February. February is gone one-third, and we still have three weeks left. I don't know whether we'll have something signed in three weeks, but I would think that we are fairly close to signing some power purchase agreements over the next, I would think, six to eight weeks.

So it's no longer next quarter or next to next quarter or within the next-two-quarter kind of a thing. I feel the way things are going at the moment that we should see some progress this quarter. As far as the delay is concerned, Phil, under normal circumstances, these power purchase agreements would have been signed in the month of -- around the month of June, July of 2020. Of course, COVID has caused a delay between six to nine months anyway on project commissioning of almost all projects across India.

So if you look at it from that perspective, if you assume that COVID has caused a six- to nine-month delay, then if we sign our power purchase agreement by March of this year, then we will probably be almost on time compared to what we had originally scheduled as far as our earlier projects were to be commissioned, and then there were supposed to be a gap, and then we were supposed to commission the manufacturing gigawatts. So they won't be that big a gap really in our original plan versus this plan, assuming that the whole plan has been shifted by six to nine months owing to the pandemic.

Philip Shen -- ROTH Capital Partners -- Analyst

Great. Thanks, Ranjit. You highlighted just now that SECI is still insisting on prioritizing your award and PPA ahead of the others. Can you talk about why you think they're prioritizing you?

Ranjit Gupta -- Chief Executive Officer

So the reason why they are prioritizing us is twofold, Phil. One is, of course, that this is a very prestigious tender for the government, so they do want to make this tender successful. And secondly, because of the fact that realizing that the costs have reduced, right, and module efficiencies have improved. Overall, the cost of energy for us to set up a project has reduced, like we have mentioned, we have agreed to tariff markdown, right? So once you agree to a little bit of a tariff markdown, that sends a signal to the government also that, look, these guys are not out here to insist on a tariff that does not make sense at this point in time, right, for the consumer.

So that will suppose a little bit of a model obligation on SECI to try and place our power first because it's not as if they are at the moment trying to place our power at a price which is way out of the market, right? The tariffs in the market are $0.0275, and we are looking to place our power at $0.04, it's not like that, right? I mean, most of the power is obviously not at $0.0275. Most of the power available in the market is at about $0.033, $0.035. So we are not looking at a differential between 3.3 to 3.9 kind of or 3.5 to 3.9 kind of differential, right, because of these two reasons, because of the fact that we are open to a tariff markdown. So, therefore, the difficulty is lower for them to place this power.

And secondly, because of the fact that this tender is a prestigious tender because of these units, they are still trying to place our power first before they place the power which has been auctioned post our auction.

Philip Shen -- ROTH Capital Partners -- Analyst

OK. Thanks. As it relates to PLF, you guys gave a lot of good detail in your slide deck about the historical PLFs by quarter. I was wondering if you might be able to share how you expect that PLF to trend by quarter in fiscal 2022? And then one other question on the FQ3 PLF.

It looks like weather was an issue and may have driven the lower-than-expected PLF. Can you share a bit more about what happened in the quarter? And is it a seasonal issue that is likely to recur? Or do you think it persists?

Ranjit Gupta -- Chief Executive Officer

So two questions that you asked. The first one is about the '22 guidance. We will certainly work on that and provide you with some quarter-by-quarter numbers if that's what you would like. Like I have mentioned in my remarks earlier, too, that a part of the improvement in PLF is really nothing of our doing literally, right? I mean, in the sense that the -- across the sector, the AC/DC loading has improved, right? And one of the reasons why PLFs across the sector are rising is because now people are putting higher DC capacity behind the AC capacity.

So earlier, if you were doing a 100-megawatt project, we would put 100 megawatts of modules. So if you were going to get 19%, 20% PLF, that's the PLF you were going to get. But as time goes by and people start putting 110% or 120% modules -- 110-megawatt, 120-megawatt modules behind a 100-megawatt AC capacity, the PLFs tend to rise. Azure, of course, has legacy assets, right? So at that time, the tariffs were supportive of 100% AC to DC ratio and when the industry is still young.

So we have several projects which are in states where the installation is lower. We have several projects where the AC/DC ratio is not what it is currently for other projects, which we are building today. Therefore, we will continue to see an uplift in our PLF as we move forward. The projects that we are constructing today in Rajasthan are expected to be in high 20% PLF because of the fact that they have 1.4 times or 1.5 times loading, and they are in one of the best installation areas of India.

So because of that, our PLF numbers will continue to rise over the next few years. As far as the third quarter is concerned, right, we had extended monsoons and a storm that went through Southern India. So in the south, right, we had rainfall in the months of October and November. Typically, the monsoons in India ends in August and September, but this time, we had monsoon stretching into October and November, which hurt us quite badly in the months of October and November.

Because of that, our numbers are lower because the installation in those months was lower. So this is, of course, a one-off kind of an event. I was looking at the 20-year data, the NASA data over the last 20 years, and there have been years that have been worse than this, and there have been years that are much, much better than this, right? So that's why, from an average, over the year, we have been about 5% lower. From the long-term average across the country this year, if I look at different states -- of course, different states have different numbers, but overall, it's about 5% lower.

And some years, it will be 5% higher or 6% higher. So it averages out over the 25-year period that the PPA exists.

Philip Shen -- ROTH Capital Partners -- Analyst

Thanks. One last one. A quick one, hopefully. As it relates to trackers and bifacial, you talked about starting to use them.

Can you share what kind of trackers you're using? Are you possibly using, for example, U.S. trackers like Nextracker array? Or do you think you'll be using other brands? And if so, what are the names of those tractors that you plan on engaging?

Murali Subramanian -- Co-Founder and Chief Operating Officer

Can I take that? Phil, it's Murali. At the moment, as we mentioned, we are experimenting with trackers in the sense that we have our testbed, and we are piloting several suppliers. So we have a couple of the big industry names, and we have a couple of small names as well. An American company, an Indian company, a Chinese company, we're all there.

And so once we're comfortable with which tracker is good for us, we will work with them closely to see if they can be deployed for our next projects.

Philip Shen -- ROTH Capital Partners -- Analyst

Thanks for the color. One quick follow-up there. What kind of pricing makes sense for you guys, given the potential performance in gains? Do you think it's $0.05 a watt? Or do you think it's got to be sub-$0.05 a watt?

Murali Subramanian -- Co-Founder and Chief Operating Officer

So this is also dependent on the module pricing, right? As module prices drop, trackers don't make as much sense. As module prices go up, trackers certainly start to make sense. So this is a moving number. At the current module prices, which are early 20s, trackers actually start to make sense.

But if module prices drop just $0.17, $0.18, then it doesn't make sense, right? So approximately, I would assume six, seven, eight. At that price level, it would start to make sense.

Philip Shen -- ROTH Capital Partners -- Analyst

OK. Thanks for the color. I'll pass it on, guys.

Murali Subramanian -- Co-Founder and Chief Operating Officer

Thank you.

Operator

The next question is from the line of Maheep Mandloi from Credit Suisse. Please go ahead.

Maheep Mandloi -- Credit Suisse -- Analyst

Hey, thanks for taking the questions. Just following up on the different factors driving the PLF here, the stringing workers, bifacial and potentially, the trackers, how do we think about the long-term PLF target over here, and any potential impact to the CFE for the whole 2.1-gigawatt portfolio here.

Ranjit Gupta -- Chief Executive Officer

So thanks, Maheep. Thanks for the question. On the 3.1-gigawatt portfolio, most of the modules have been decided. And as far as the tracker is concerned, we are still taking the final decision for the last 600 megawatts of the 3.1 gigawatts.

And those decisions will be made over the next four to six weeks as to how we go ahead better, like Murali mentioned, depending upon the modules they have closed. Depending upon the cost of trackers, we will take a call on whether we're going to do trackers on those two projects. So once that is frozen, so let's say, by the end of March or middle of April, we would know what kind of PLFs we can expect from the entire 2.1-gigawatt portfolio because, for the 2.1, which is already operating, we know what the PLF is expected to be. For the remaining 450 -- for the nearly 300 megawatts of the Rajasthan 6 project, right, the modules are on the way, and so on.

So we know what the PLF are going to be. For the last 600 megawatts, the things will be clearer in six weeks' time.

Maheep Mandloi -- Credit Suisse -- Analyst

Got it. And then maybe just one follow-up on that one. So the PLF was roughly around 19.5%, 20% in FY 2021 for an average for the whole year. How should we think about that PLF for new projects for the 4 gigawatts, the SECI, or some of the new contracts here? How much uplift do you see in PLF-only projects from all these new technologies?

Ranjit Gupta -- Chief Executive Officer

So the projects that we built with trackers and bifacial. If we do trackers and bifacial, we could be looking at early to mid-30% -- in the 30s, right? That's the kind of PLF you will get because mono PERC with 1.5 loading in some of the sites that we have secured, which are some of the best sites, we can get as close to 30%, very close to 30% kind of numbers. And as you add bifacial and as you add trackers, the uplift of what the industry says, like we mentioned, we have yet to put up our testbed and to test it in India. But across the world, people are saying that there could be between 10% to 20% uplift due to these trackers and bifacial.

Of course, what happens, Maheep, is that as we start going into the tracker and bifacial because of the fact that your clipping starts to increase, right, as your PLF increases, right, what happens is that you start to reduce your overall AC/DC loading, right? So once your AC/DC loading -- because if you suppose have a 30% PLF with just mono PERC and you add 15% on top of that, if you go and try and do 34.5, you will probably not get 34.5, right? You'll probably drop because a lot of clipping will happen. So the way to do it would be to then reduce your AC/DC loading and bring your PLF down to maybe 31%, 32% so that the clipping losses are reduced. But I think getting upwards of 30% with manageable clipping is possible, but you will have to do the design and figure it out. Murali, perhaps, you can add something to that?

Murali Subramanian -- Co-Founder and Chief Operating Officer

No, I think you've explained it very well. That's fine.

Maheep Mandloi -- Credit Suisse -- Analyst

Got it. That makes sense. So, yeah, there's probably some savings on capex from reduced AC/DC loading but probably somewhat offset by higher cost for tracker runs [Inaudible] bifacial [Inaudible] what is here. Gotcha.

And just on the broader market here, right now in the budget, the only provision we saw was the tariffs on inverters and not on modules yet. So anything else you're expecting from the project or the basic customs duty, which was previously expected last year, but we haven't yet seen that 20% to 40% BCD yet. Any expectations on when that could come in? And how that could impact the full gigawatt?

Ranjit Gupta -- Chief Executive Officer

There was a very strong rumor that the BCD announcement will come in this budget, right? However, yes, we were all surprised that nothing was mentioned about it, right? But what the ministry had said a couple of months back was that they expect that the BCD will be applicable from April 1, 2022. So our 3,100 megawatts or the 900-odd megawatts that are under construction at the moment will not be affected by the BCD. But of course, the 4 gigawatts, if the government comes out, I would think that the BCD would come in before the ship modules for the 4 gigawatts unless the ALMM list that the government is coming out with is a success, which is like a non-tariff barrier. So it is possible, Maheep, that -- and the government is talking about coming out with the ALMM list as soon as by the end of this month.

If the approved list of modules and manufacturers, if that list comes out before the end of February or in March, then I think the government might wait to see the impact of this nontariff barrier before deciding to put a BCD on top of that.

Maheep Mandloi -- Credit Suisse -- Analyst

Thanks. I'll jump back in the queue here.

Ranjit Gupta -- Chief Executive Officer

Thank you.

Operator

The next question is from the line of Puneet Gulati from HSBC Securities. Please go ahead.

Puneet Gulati -- HSBC Securities -- Analyst

Yeah. Thank you so much for the color. Pawan talked about debt-to-EBITDA at 6 times on operational effects. Would it be possible to get what that number would be on a tax-to-equity basis as well?

Pawan Agrawal -- Chief Financial Officer

So typically, a project, if you look at the project level, Puneet, the projects have funded typically 75-25 debt-equity, right? So again, so the problem comes when you look at the overall balance sheet, right? So at the balance sheet level, the leverage would reflect very, very different from what we look at the project level. And as a part of our overall capital structure, we do have pure equity. We do have project debt. We do have some part of -- some proportion of our pure equity.

We also carry a [Inaudible] date to optimize on our return on equity while ensuring the prudence. And prudentially, there's the parameters.

Puneet Gulati -- HSBC Securities -- Analyst

So similar to the operational debt-to-EBITDA, which you said is six, is there a number that we can -- will it be fair to assume that operational debt-to-equity will be at 75-25?

Pawan Agrawal -- Chief Financial Officer

Operational projects' debt-equity will be around 75-25. That's a fair assumption, but we have not provided any guidance, but yes, you can take the numbers and calculate and get back to you because those numbers are anyways part of our numbers. So we will not have any problem in getting those calculated and share with you.

Puneet Gulati -- HSBC Securities -- Analyst

OK. Great. And secondly, can you talk a bit more about what is the new cost of debt that you're able to target for now? What is that ballpark number, including the hedging cost?

Pawan Agrawal -- Chief Financial Officer

So recently, Puneet, we have seen domestic market giving us cheaper rate than what is available possibly in the green bond market, if you look at the coupon plus hedge plus withholding tax that is cost. The domestic market -- of course, domestic market is not available for all borrowers. So that's a separate problem. But for players for whom domestic market is accessible, we are getting much, much finer rates.

So for example, the recent transactions that we've closed is around 8.5%, and we've already closed and then the next terms that we've got is around 8.25%. So these are the levels that you see between 8% to 8.5% is something that we are getting for the recent projects that will be financed.

Puneet Gulati -- HSBC Securities -- Analyst

OK. And what is the tenure of this debt? Is it fixed cost or floating?

Pawan Agrawal -- Chief Financial Officer

So the tenure of the date is around 80% of the remaining life of PPA. So it raises around 12, 13 years to 16, 17 years, depends on at what stage of PPA are we refinancing these projects. And -- so the loan that we take from bank, Puneet, that is floating. That is linked to their MCLR, which is typically linked to one-year MCLR.

But we have also taken debt from [Inaudible] project funds, ideas. And then I talked about 8%, 8.5%, 8.25%. These are the rates which are fixed for five years.

Puneet Gulati -- HSBC Securities -- Analyst

OK. OK. This is very useful. Secondly, Ranjit, you talked about everything, but you didn't talk about the plan of asset sale, which we talked about a couple of quarters.

Any update that you'd like to share there?

Ranjit Gupta -- Chief Executive Officer

So, Puneet, there was two sets of assets that we have mentioned in the past that we were looking to divest, right? And one set of assets, we have made significant progress, and hopefully, we'll move forward on that. And on the second set of assets, which were the assets that we were looking to divest, we have received some very good interest. As you know, the M&A market is extremely, extremely hot in India, lots of transactions taking place. So there is a keen interest in those assets, but at this point in time, as we go out and try and figure out how much equity do you need to fund our future growth, we are figuring out whether selling those assets will be the best cost of capital that we can get.

So the decision on the sale of the second set of assets has been deferred, right, for the time being. We are considering when it comes time because you see the original -- before the pandemic came, we had expected that we would have started spending money on the 4-gigawatt projects already. Because of the dynamic, the infusion of capital for the 4 gigawatts is delayed by six to nine months. So our capital raise has been delayed by six to nine months.

So, therefore, we have to -- at the time when the capital raise comes around and that's when we will take a call on whether we want to divest those assets or we want to raise the money that we need in a different way. And the good thing is that, like I mentioned, there is a huge demand for operating assets. And so, therefore, when we can do the discussion with the people who have shown interest, we believe that a lot of the work that has to be done to evaluate those assets has been done. And if required, we can close the deal fairly quickly.

Puneet Gulati -- HSBC Securities -- Analyst

And when you said the first block of assets, I presume you're referring to the rooftop assets?

Ranjit Gupta -- Chief Executive Officer

That's right.

Puneet Gulati -- HSBC Securities -- Analyst

OK. Thank you for that.

Ranjit Gupta -- Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Joseph Osha from JMP Securities. Please go ahead.

Joseph Osha -- JMP Securities -- Analyst

Thank you, and good morning, good afternoon. I wanted to return a little bit to some of the pricing comments you made early on in that sort of 20% dislocation. Obviously, things are evolving. But as we think about, especially this first gigawatt, would it be fair to just take a 20% haircut from that INR 2.92? Is that how we should be thinking about it?

Ranjit Gupta -- Chief Executive Officer

A 20% dislocation, like I said, right, I mean, when we looked at that pricing and look at the cost of setting up projects, right, that tariff, for us, we could not -- the numbers do not add up. And over the last month or month and a half since the tariffs have been discovered, more and more people that we talk to, including SECI, feel that that is perhaps not a reflective tariff, right? So as we know, there were a couple of public sector undertakings that have taken part in those auctions like NTPC and GUVNL and NLC, Neyveli Lignite Corporation. So the cost of capital, the cost of debt for these companies is much, much lower. So we feel that this tariff is not reflective really of the market, and therefore, I don't think there is any question of us expecting a 20% reduction in the numbers.

And residential over the next few weeks, we see a huge -- again, a dislocation in the module market, which makes us comfortable that, yes, we can still make the kind of returns that you're hoping earlier with that kind of a decrease in pricing. At this point in time, given how the module pricing is holding firm and the guidance that we're getting from the large manufacturers on the prices of modules over the next two, three, four quarters, I don't think it is -- 20% will be difficult to accept.

Joseph Osha -- JMP Securities -- Analyst

OK. Thank you. And you alluded to the second question I was going to ask since if we're short of everything from semiconductors to building materials to solar panels these days, it sounds as if the signals you're getting is that this tight environment is going to continue for another couple of quarters. Is that correct?

Ranjit Gupta -- Chief Executive Officer

That's on the [Inaudible] side, Joe, but these things change very rapidly, right? I mean, today, China will announce a 90-gigawatt capacity addition. You will see the prices form up because the supply and demand is fairly well balanced. It's like the oil market, right? I mean, Saudi will reduce -- although at 90 million barrels a day, they'll reduce 1 barrel -- 1 million barrels, and suddenly, you'll see the price shots up. So it's a little bit like that.

I suppose China reduces its requirement by 10 gigawatt or 15 gigawatts, it's possible that the prices will moderate very, very quickly. But at this point in time, as we talk to the larger suppliers, all of them are saying that they expect the pricing to remain firm until the end of this year.

Joseph Osha -- JMP Securities -- Analyst

And you're kind of in the low 20s at the moment?

Ranjit Gupta -- Chief Executive Officer

In India, you're getting early 20 delivered in India.

Joseph Osha -- JMP Securities -- Analyst

OK. Third and final question, and I'll jump off. We talked before and then you alluded just recently to this effective debt pricing at kind 8.25%, 8.5%. Can you perhaps, I know I asked about this before, reeducate me as to what it would take for your company to be able to access related debt markets in India, and what, if you could, the pricing would look like?

Ranjit Gupta -- Chief Executive Officer

Pawan, can you take that?

Operator

Sir, is the question answered? Can we move to the next question?

Ranjit Gupta -- Chief Executive Officer

No, no, no. I was asking if Pawan can --

Joseph Osha -- JMP Securities -- Analyst

Yes. The question was, what would it take in terms of price of your enterprise or what else for you to be able to access rated debt markets in India?

Pawan Agrawal -- Chief Financial Officer

See, I don't know if you're asking about the domestic bond market because, as I explained, in the domestic ideas market, we are getting rates closer to 8.5%, and domestic banks -- and this typically get a five-year fixed kind of rate. But if we look at domestic banks, the rates are, again, closer to the single level, but these are floating. So these are typically linked to one-year ancillary. Now, referring to rated bond, in India, we do have market for rated bonds, which is typically for AA and above category rated bonds, right? But those bonds are also -- it's difficult to get an amortizing long-termer bond in the domestic market because the mutual funds and other investors, who look at corporate bonds, typically look for bullet maturity bonds, which is something we, as a company, are not very comfortable because we prefer our debts to be amortized as and when we keep on receiving our cash flows.

Joseph Osha -- JMP Securities -- Analyst

OK. Thanks. That's it for me. I appreciate it.

Operator

The next question is from the line of Moses Sutton from Barclays. Please go ahead.

Moses Sutton -- Barclays -- Analyst

Hi, everyone. Following up on some of the comments on tracker and bifacial cases. As you mentioned bringing down the inverter loading due to clipping, how about adding DC-coupled storage to capture that clipping so you could still have a higher DC loading and not get so negatively affected by clipping while optimizing the overall generation of projects. Any thoughts there?

Murali Subramanian -- Co-Founder and Chief Operating Officer

No, no, absolutely. You know, when we said we are doing a testbed, and we are testing all of this, this is very much part of the testing that's going on. We want to get ready, both from a perspective of what the future distribution companies might want in future and for ourselves, if the pricing makes sense to capture the excess clicking and rack it back into the grid.

Moses Sutton -- Barclays -- Analyst

Great. Great. And if panel prices drop back to, let's say, went to mid-teens even, is there a scenario you'd increase inverter loading beyond 1.5? Or is that really the most feasible, safe equilibrium, and you're not comfortable going beyond that?

Murali Subramanian -- Co-Founder and Chief Operating Officer

No. At the moment, it's basically where the curve flattens and then starts to pick up again, right? As you flip more, you draw a line in the U-shaped curve, right? So as you increase the loading, you start to clip more, and a point comes where incremental loading of modules results in disproportionate clipping. So at the moment, it varies between 1.4 and 1.5, depending on the level of insolation and the specific location. It's also a function, obviously, of the module price.

So as the module price drops, you can load more and more. So all of these factors are there, and it's really not a technology bottleneck anymore. The inverters can take much more power. It's just a matter of determining how much you want to click.

And as you rightly pointed out, if storage becomes really low, then -- sorry, the cost of storage becomes really low, then we may just add more DC capacity and store it in a rack and pack. So that is something we will continuously evaluate.

Moses Sutton -- Barclays -- Analyst

Great. No, that makes a lot of sense. A complete shift here, really high-level thought. Any thoughts toward starting to explore options and expanding maybe even on a longer-term basis beyond solar, perhaps, wind or even thinking about the hybrid plants over time, wind-solar storage, maybe through a partnership.

I totally understand it's a very different process and execution and all of that, but any thoughts on longer-term technology focus of the business?

Murali Subramanian -- Co-Founder and Chief Operating Officer

Yes. So the business is -- again, it's all driven by what the customer wants. Our customer is the distribution company. And if the customer wants more power, which is less intermittent, then they will ask for storage, and we will give it to them.

If the customer wants a larger sort of a hybrid supply source so that the PLF is beyond 30%, it's actually in the range of 55%, 60% because, when you combine wind and solar, you can get higher PLF. If that's what the customer wants, we'll do that. While Azure may not have done wind projects before, Ranjit and me, and there's a lot of wind experience in the country. There's a lot of very good players.

The industry in India is fairly mature. So we're very comfortable moving into wind if required.

Moses Sutton -- Barclays -- Analyst

Great. No, that's very helpful. And last one from me. I may have missed this, but any update on timing of the next time you'd need to raise equity to execute on the portfolio? I expect it's aligned with final timing on starting on the 4 gigawatts somewhere, but just -- sorry if you said this already, but any thoughts on timing there?

Ranjit Gupta -- Chief Executive Officer

Sorry, I missed that. Is that for Murali or me?

Murali Subramanian -- Co-Founder and Chief Operating Officer

Ranjit, that's for you. That's the question on the timing for equity raise. What's your thought on that?

Ranjit Gupta -- Chief Executive Officer

Yeah. So, Moses, as far as the equity raise is concerned, right, there are two things that are playing on our mind. One, of course, is when is the need, right, when do we actually need this money, and that is going to get decided as we secure more capacity, either the 4 gigawatts or any other auction that we win or any other project that we secure. At the moment, like we have mentioned in the past, for the 3.1 gigawatts, we are fully funded.

So, therefore, we don't need to go out and raise equity for that. The second factor, of course, is that, because the 4-gigawatt is coming and whether it comes in two months' time, it comes in three months' time or comes in four months' time, at the end of the day, we will need equity for it. And the market is fairly strong at this point in time. So should we go out and raise money right away in preparation for their 4-gigawatt and other capacity that we will eventually build.

So this is a discussion that we are currently having within the company. And we have said in the past that we will not raise money till FY '22, which means post April. So I guess, we are not going to raise money in this fiscal, but for sure, sometime during the next fiscal, we will raise equity.

Moses Sutton -- Barclays -- Analyst

Thank you.

Puneet Gulati -- HSBC Securities -- Analyst

Yes. Thank you so much, and thanks for the color. Although I'm surprised that you want to play [Inaudible], where do you think is the room to improve on the ESG front for you guys?

Ranjit Gupta -- Chief Executive Officer

So as far as the ESG is concerned, Puneet, ESG is an always-evolving field. You can never be fully compliant with everything at site. It's a continuous process. And also because I'm listening to you build that culture of awareness and training, right? You cannot rest on your laurels.

It's not, "Oh, I have done my governance bid. Now, I don't need to do anything. I've done my safety stuff, I don't need to do anything anymore." Or "I've done the social stuff that has to be done, so I don't need to do this anymore," right? So it doesn't work like that, right? I mean, it's a continuous process. For example, we got ISO-45001 done this year.

We are continually working with consultants and with advisors to improve our safety performance. Just this year, for example, we started driver training, right? So we appoint to the third-party company to do training for all our drivers, whether they are on our roles or they are contract drivers or they are large-vehicle drivers which deliver stuff to our projects because we figured that when we looked at the risk characterization reports, we found that driving was coming out to be one of the major risks. So I will never say that we are the best at ESG or we don't need to work more on ESG. ESG is a continually evolving process.

We have to continually keep our eyes. Otherwise, we'll drop the ball. And we have to keep raising awareness, keep training to make sure that we are near at the top of our game.

Puneet Gulati -- HSBC Securities -- Analyst

And then what kind of costs should one think would be associated with this kind of [Inaudible] to improve ESG score.

Ranjit Gupta -- Chief Executive Officer

On the ESG front, you're saying about the cost of ESG?

Puneet Gulati -- HSBC Securities -- Analyst

Yeah. I mean, all these things will have some costs as far as sustainability. Drivers learning is a small cost, but there could be others as well. Should we worry about any material costs that will come with improvement in ESG or not really?

Ranjit Gupta -- Chief Executive Officer

No, not really because the basics are in place, right? I mean, our governance standards, the stuff that you do on safety, the stuff that we do for environment, it's all in place. It's a question of is there are any new methodologies or methods which we can incorporate in our business to make our workplace even safer, we will do that. But overall, if you look at the capex of our business, right, these costs are very, very, very small. They are insignificant.

And anyway, I mean, ESG is a high gene. I mean, we have to do it. It's not something that is an option that we can take an optional call that we'll do it if it is less than this amount of money. We'll not do it if it is more than this amount of money, right? So I have never seen ESG as being considered a cost.

It is always an investment, and you make up -- for whatever you spend on ESG, you make up in terms of the way the investors look at you, the way your employees look at you, the way your contractors look at you. If you run a ship which is clean, which is safe, you will have more people on that ship and not inside the ship, right? So I think it's very, very important. It's not something that we can compromise on.

Puneet Gulati -- HSBC Securities -- Analyst

OK, very useful. The second part I wanted to say was, is the labor availability all on track? And is there a risk that we could see on the execution of balance as we go up?

Ranjit Gupta -- Chief Executive Officer

So as far as labor is concerned, Puneet, I don't see any issue with the labor. Over the last three or four months, we have not seen any labor issues. We are seeing supply constraints on material, right? Some supply of steel, supply of modules, that kind of thing, but whenever we have wanted to increase the labor at site, we have not seen anything, any issues. And on the supply side, also, the non-module supplies are starting to get back to almost normal now.

So whatever delays or whatever challenges were there, which happened over the last two or three quarters as COVID ran its course, most of them are now behind us. The module situation continues to remain tight, but other than that, most other things are coming online fairly smoothly. And I'm sure they will, by the end of this quarter, if things continue to remain the way they are on the COVID side, we will be 100% normal apart from the module situation.

Puneet Gulati -- HSBC Securities -- Analyst

Do you run a risk of delays, or is it mostly a cost issue?

Ranjit Gupta -- Chief Executive Officer

Sorry?

Puneet Gulati -- HSBC Securities -- Analyst

On the module side, do you run a risk of delays because of nonavailability? Or is it more of a cost issue?

Ranjit Gupta -- Chief Executive Officer

So on the Rajasthan 6 project, our 600-megawatt project, right, where we already have 300 megawatts operating and 300 megawatts under construction, I don't see any delays there because the modules have been ordered. A lot of the remaining modules -- so 450 megawatts is already installed. 450 megawatts is under either manufacturing or on the way. So I don't see any delays there.

For the Rajasthan 8 and Rajasthan 9 projects, right, Rajasthan 8 has almost closed the modules, and they have a good supplier. At this point in time, they are saying that they're going to start manufacturing those modules in the month of April and May. So we'll have to see the Chinese book last year over the last two quarters have come back and asked for changes on the supply schedule. So far, we are seeing for the first 600 megawatts, things are going smoothly.

We'll have to see how it pans out over the next couple of months. At the moment, there is a Chinese New Year going on, and people will come back to work close around the 15th of February. We will get more updates as the factories ramp up back.

Puneet Gulati -- HSBC Securities -- Analyst

OK. Thank you.

Operator

The next question is from the line of Apoorva Bahadur from Jefferies. Please go ahead.

Apoorva Bahadur -- Jefferies -- Analyst

Hi. Thank you so much for the opportunity. Just one quick question. Sir, in your notes to accounts, there is a mention of certain past few years' [Inaudible] expenses.

So could you please throw some light on the amount?

Pawan Agrawal -- Chief Financial Officer

Yeah. So you're talking about the breakup of the $18 million SAR?

Apoorva Bahadur -- Jefferies -- Analyst

Right.

Pawan Agrawal -- Chief Financial Officer

Yeah. So close to $9 million pertains to the previous quarter and close to $9 million is for this quarter.

Apoorva Bahadur -- Jefferies -- Analyst

OK. Got it. And if I may just squeeze in one last question, and that is on the reduction -- likely reduction for the manufacturing-linked tariff. So we heard there were some news items that Kerala probably agreed to sign 200 megawatts at 2.66.

Should we look at that as a representative status?

Ranjit Gupta -- Chief Executive Officer

It's early days and a little bit difficult because, yes, Kerala has expressed an intent to sign at 266, and which was the weighted tariff between the three auctions in the INR 2.92 auctions, the INR 2.50 auction, and the INR 2.36 auction. When you weigh these three auctions, it comes to [Inaudible]. But Kerala is just 200 megawatts out of the large quantity that SECI is trying to place. So they will not drive the final tariff.

We have to wait for a few more weeks to figure out what exactly will be the tariff land.

Apoorva Bahadur -- Jefferies -- Analyst

Thank you.

Operator

[Operator signoff]

Duration: 75 minutes

Call participants:

Ranjit Gupta -- Chief Executive Officer

Murali Subramanian -- Co-Founder and Chief Operating Officer

Pawan Agrawal -- Chief Financial Officer

Philip Shen -- ROTH Capital Partners -- Analyst

Maheep Mandloi -- Credit Suisse -- Analyst

Puneet Gulati -- HSBC Securities -- Analyst

Joseph Osha -- JMP Securities -- Analyst

Moses Sutton -- Barclays -- Analyst

Apoorva Bahadur -- Jefferies -- Analyst

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