IREDA, India’s leading green financing NBFC, saw its share price rise by nearly 7% in today's intraday trade, reaching ₹275 per share and breaking a three-day losing streak. Despite this rebound, the stock remains 13.22% below its all-time high of ₹310.
In recent sessions, the shares came under sell-off pressure, mainly attributed to profit-taking and a downgrade in estimates by global brokerage firm, Phillip Capital, following IREDA’s Q1 FY25 earnings report.
Phillip Capital expects IREDA to experience strong loan growth at a CAGR of 25% from FY24 to FY26, driven by increasing demand for renewable energy. However, it pointed out that earnings growth may not keep pace with loan growth due to margin pressures.
Concerns were also raised about the high exposure to the private sector and a significant portion of vulnerable assets, which could affect credit costs in the near term.
The brokerage anticipates IREDA’s earnings to grow by 18% in FY25 and 20% in FY26, translating to a return on equity of 16%. Currently, the stock trades at 7.6x and 6.5x FY25 and FY26 adjusted book value per share (ABVPS) of ₹35 and ₹42, respectively.
While loan growth remains strong, the return ratios are moderate, and the higher exposure to the private sector raises doubts about maintaining low credit costs.
Phillip Capital projects a decline in return on assets (ROA) to 2.2% and 2.1% in FY25 and FY26, respectively, down from 2.3% in FY24. It said the recent rally in the stock was driven by passive flows rather than any major fundamental reason.
Therefore, it believes the best is already priced into the stock and has continued with its 'sell'' rating with a revised target of ₹130 ( ₹110 earlier), valuing the company at 3x FY26 ABVPS of ₹42.
For the June quarter, IREDA reported a 30% increase in net profit to ₹383 crore. Total revenue from operations rose 32% to ₹1,501 crore, compared to ₹1,143.50 crore in the same period last year. Additionally, loan sanctions surged by over 380% during the quarter.
The newly listed stock has also attracted retail investors, with the number of small shareholders increasing from 21.23 lakh in the March quarter to 22.15 lakh by the end of June, as per the decent available data.
The company is a non-banking financial company (NBFC) established in 1987 to offer innovative financing solutions for renewable energy (RE) projects, energy efficiency, conservation, and environmental technologies. As a wholly owned enterprise of the Government of India (GoI), it operates under the Ministry of New and Renewable Energy (MNRE).
In the realm of power financing NBFCs, IREDA commands the largest share of credit directed towards the RE sector, trailing only behind Power Finance Corporation. Unlike the Power Finance Corporation, which also funds infrastructure, roads, and mining, IREDA focuses exclusively on the renewable energy sector.
The company's shares began trading on Indian stock exchanges on November 29, 2023, at ₹60 per share, significantly above the issue price of ₹32. At current levels, the stock is trading 760% higher than its IPO price and 360% higher from listing value.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
