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The front runner in renewable energy financing KEY CHANGES: TARGET …..

Indian Renewable Energy Development Agency Ltd. (IREDA), a government owned NBFC with 36 years of experience, promotes and finances new and renewable energy projects, along with energy efficiency and conservation initiatives. As a Systemically Important NBFC, IREDA offers a range of financial products and services, spanning project conception to post-commissioning, covering various value chain activities including equipment manufacturing and transmission. IREDA has a diverse term loan portfolio, financing projects in various renewable energy (RE) sectors like solar, wind, hydro, transmission, biomass, waste-to-energy, ethanol, compressed biogas, hybrid RE, EEC, and green mobility.

• India's renewable energy capacity has reached 179 GW (2023), growing at a 10% CAGR between FY15 & FY23. Projections foresee a significant rise to 595 GW by FY32, necessitating an investment of ?24.43 trillion for capacity additions. Financing requirements for sectors like solar and wind are poised to expand substantially.

• As of September 30, 2023, the company maintains a geographically diversified term loan portfolio of ?47,514cr across 23 states and five Union Territories.

• Net Interest Income (NII) grew to ?1,285cr in FY23 at a CAGR of 14% between FY21-23, while net interest margin (NIM) is 3.3% in FY23, which was in-line with the peers.

• The company has a healthy RoA which improved from 1.1% in FY21 to 2.0% in FY23, while the RoE improved from 12.6% to 15.4% over the same period, which is impressive within the industry.

• IREDA recorded a net profit of ?579cr on a total income of ?2,320cr in H1FY24, with net interest income rising by 20% YoY to ?729cr in H1FY24. IREDA has the best asset quality among compared peers, with gross NPAs decreasing to 3.1% in H1FY24 from 5.1% in H1FY23 and net NPAs declining to 1.7% from 2.7%.

• IREDA benefits from access to diverse and cost-effective long-term borrowing sources, facilitated by its classification as a public finance institution and its favorable credit ratings.

• At the upper price band of ?32, IREDA is available at an P/B of 1.4x (FY23), which is at a discount to its peers. Power-financing NBFCs are expected to continue this growth momentum, and this growth is likely to be driven by an increase in power demand, a rise in population, renewable integration, and the sustainability goals of the country. With consistent growth in loan books, healthy return ratios, and varied financial products, IREDA is well placed to capitalize on the growth in the RE sector. We assign a “Subscribe” rating on a medium- to long-term basis.

Purpose of IPO

The IPO consists of a fresh issue of shares up to ?1,290cr, and the offer for sale is worth ?860cr. The proceeds from the fresh issuance augment the capital base to meet future capital requirements and the onward lending and benefits of listing the equity shares on the stock exchanges.

Key Risks

• 61% of the total term loans are concentrated in five states.

• Highly dependent on the Indian RE sector.

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