IREDA IPO opens on November 21: Should you subscribe to the Rs 2,150-crore issue?

Stock Call: Should you subscribe to IREDA IPO?

Choice: Subscribe

IREDA is the largest pure-play green financing NBFC in India. To meet the net-zero emission target, the government has set a humongous target for RE installations by 2030. Considering its nodal agency status and varied financial products, analysts at Choice believe, IREDA is well-placed to capitalize on the growth in the renewable energy sector.

“At a higher price band, IREDA is demanding a TTM P/B multiple of 1.2x, which is at a discount to the peer average. Thus, we assign a ‘Subscribe’ rating for the issue,” said analysts at Choice Broking Equity.

Nirmal Bang: Subscribe

Over FY21-23, the company’s loan book has grown at a CAGR of 30 percent to Rs 47,076 crore, much faster than traditional power financing companies like PFC & REC. According to Nirmal Bang, diversification and expansion in emerging green technologies like green hydrogen, pumped hydro storage power plants, battery storage value chain and green energy corridor provide scope for longer-term sustainability of high growth of its loan book.

“On the back of a low base, demonstrated track record of high growth, improvement in asset quality and cheap valuations at 1.1x trailing P/B (post issue), we rate the issue as ‘Subscribe’,” analysts at Nirmal Bang said.

Reliance Securities: Subscribe

“IREDA has posted healthy profitability over the past couple of years, a strong growth outlook and an experienced management team, we recommend a ‘Subscribe’ to the issue,” said analysts at Reliance Securities.

Mehta Equities: Subscribe

On valuation parse, at the upper price band of Rs 32, the issue is asking for a market cap of Rs 8,601 crore. “Based on annualized FY24 earnings and fully diluted post-IPO paid-up capital, the company is asking for a P/B multiple of 1.02x which seems to be fully priced compared to its peers. We recommend investors to ‘Subscribe for listing gain’ as well as long-term considering GOI initiatives to promote the Renewable Energy sector,” said Rajan Shinde, Research Analyst at Mehta Equities.

Also Read: IREDA IPO: 10 things to know before subscribing to Rs 2,150 crore issue

Key Concerns

(i) IREDA’s non-performing assets (NPA) may increase due to the inability of borrowers to repay its loans due to factors such as delay in payment from state DISCOMs, tariff and regulatory-related issues, delay in project implementation and commissioning, generation-related issues, rise in raw material prices (biomass/municipal solid waste/gas) and financial stress due to other factors including macroeconomic conditions.

(ii) The company’s credit ratings have been downgraded in the past. Any future downgrade could adversely affect the business.

(iii) The company had negative cash flows from operations in the past and there is no assurance that such negative cash flows from operations shall not recur in the future. Negative cash flows over extended periods, or significant negative cash flows in the short term, could materially impact the company’s ability to operate business and implement growth plans.

Financials 

IREDA recorded a 58 percent CAGR growth in net profit during FY21-FY23. The capital-to-risk weighted asset ratio (CRAR)  was 21.22 percent as of March 31, 2022, 18.82 percent as of March 31, 2023, and 20.92 percent as of September 30, 2023. Total revenue rose 21.7 percent to Rs 3,481.9 crore in FY23 from Rs 2,859.9 crore in FY22. Profit after tax grew 36.4 percent to Rs 864.62 crore from Rs 633.52 crore in the same period. Profit came in at Rs 294.6 crore in Q1FY24.

Shareholding Pattern

Post-issue, the government’s stake will decline to 75 percent, compared to the current 100 percent, while the public stake will increase to 25 percent.

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