IPO NOTE : Indian Renewable Energy Development Agency By Motilal Oswal Financial Services
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India’s largest pure-play green financing NBFC: IREDA is a wholly owned GoI enterprise with over 36 years of experience in extending green financial assistance. It offers comprehensive suite of financial products for Renewable Energy projects (RE; sectors like Solar, Hydro, Wind, Ethanol, etc), & emerging technologies (EV, Green Hydrogen, Fuel Cells, etc). As of 2QFY24, its O/s loan portfolio stands at ? 475bn.
High Asset Quality: IREDA’s portfolio reflects high asset quality as 78% of loansin RE projects have already been commissioned, and have therefore started generating operating income. Further ~93% of the loans are secured, while 77% of loans are provided to private sector.
Access to cost-effective long-term sources: IREDA enjoys highest credit rating of AAA/Stable from various rating agency, enabling access to low cost of borrowing. As of 2QFY24, company’s cost of fund stood at 3.8% (vs 7.2%/7.4% for REC/PFC).
Maintain leadership in RE sectors: India has set an aggressive target of 500 GW non-fossil fuel based capacity installation by 2030 and net-zero emissions by 2070. Over ? 46,000bn investment is expected across RE sectors till 2030 and IREDA is well positioned to tap this opportunity with 31% market share. It has signed various MoUs with BoI, BoB, UBI and India Infrastructure Finance for co-lending/co-origination of RE projects.
Financials: IREDA has seen fastest growth in gross loan portfolio with 30% CAGR over FY21-23 vs peers. Its PAT grew by 58% CAGR during same period. Its capital profile (CRAR at 20.9% as on 2QFY24) is well within RBI’s guideline. Its return ratios are healthy with RoE/RoA at 15%/2% for FY23.
Issue Size: ?21.5bn IPO consists of fresh issue of 403.1mn shares and OFS of 268.8mn shares by Government. The proceeds from the fresh issue will be used to augment capital base for future requirement. The market cap post listing would stand at ?86bn.
View: IREDA operates in niche segment of RE which is poised to grow at rapid pace with government's increased focus. Further, elevation of IREDA to the ‘Schedule A’ category opens the door for “Navratna” status, which would strengthen the balance sheet further. This along with lowest cost of funding and stringent corporate governance provides IREDA a competitive edge. The stock is attractively priced at 1.0x 1HFY24 P/BV (on an annualized & diluted basis). Hence, we recommend Subscribe.
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