Indian Renewable Energy Development Agency Limited (IREDA) – Subscribe

Highlights

Indian Renewable Energy Development Agency Limited (IREDA) was incorporated in 1987, is a wholly owned Government of India enterprise under the administrative control of the Ministry of New and Renewable Energy (MNRE). The company was notified as a “Public Financial Institution” as a Systemically Important Non-Deposit-taking Non-Banking Finance Company (NBFCND-SI), with Infrastructure Finance Company (IFC) status.

Indian Renewable Energy Development Agency Limited (IREDA) was incorporated in 1987, is a wholly owned Government of India enterprise under the administrative control of the Ministry of New and Renewable Energy (MNRE). The company was notified as a “Public Financial Institution” as a Systemically Important Non-Deposit-taking Non-Banking Finance Company (NBFCND-SI), with Infrastructure Finance Company (IFC) status.

The company is a financial institution with over 36 years of experience in the business of promoting, developing, and extending financial assistance for new and renewable energy (RE) projects, and energy efficiency and conservation (EEC) projects. It provides a comprehensive range of financial products and related services, from project conceptualisation to post-commissioning, for RE projects and other value chain activities, such as equipment manufacturing and transmission.

It has financed projects across multiple RE sectors such as solar power, wind power, hydro power, transmission, biomass including bagasse and industrial co-generation, waste-to-energy, ethanol, compressed biogas, hybrid RE, EEC and green-mobility. It also offers financial products and schemes for new and emerging RE technologies such as, biofuel, green hydrogen and its derivatives, battery energy storage systems, fuel cells, and hybrid RE projects.

Out of the total proceeds of Rs. 21,502 mn, the company would utilize Rs. 12,901 mn towards additional capital to continue to meet the applicable CRAR requirements with respect to the growth in the Company’s business and assets and Rs. 8,600 mn would go towards selling shareholders, in proportion to the offered shares sold by the respective selling shareholders.

Key Highlights

• The outstanding credit of significant power financing NBFCs reached roughly Rs. 9,399 bn in FY23, representing a 10 pct CAGR since FY19. Power finance NBFCs are likely to maintain their growing momentum in FY24, driven by increased power demand, population growth, renewable integration, and India’s sustainability ambitions. Financing requirements for renewable energy sectors such as solar and wind are expected to increase significantly to meet the government’s aim of 500 GW installed non-fossil fuel-based power capacity by 2030.
• The company a secured asset base, and 93.41 pct of its Term Loans Outstanding as of September 30, 2023, has security cover. They have been rated highly by credit rating agencies, India Ratings had rated its debt instruments AAA (Stable), ICRA has rated its Bonds ICRA AAA (Stable) and Acuite has rated its bank loans Acuite AAA Stable.
• Among power financing NBFCs, the company has the largest share in credit towards the RE sector other than PFC, which is also present in sectors such as infrastructure, roads, mining and others, while IREDA are completely focused on the RE sector.
• In addition to the company financial products and services, it also has its own 50 MW Solar Photovoltaic Project at Kasaragod Solar Park in the State of Kerala. The project was fully commissioned in September 2017. In FY21, FY22, FY23, H1FY23 and H1FY24, its 50 MW Solar Photovoltaic Project generated revenue of Rs 274.17 mn, Rs. 284.90 mn, Rs 269.04 mn, Rs 118.34 mn and Rs 139.80 mn, respectively.
• IREDA provide consulting services on techno-commercial issues relating to the RE sector. In FY21, they have entered into an MoU with SJVN Limited to provide techno-commercial consultancy services in the field of RE. In FY22, it entered an MoU with Brahmaputra Valley Fertilizer Corporation for such consultancy services as well. In addition, they have entered an MoU with NHPC to provide NHPC with consultancy services for RE projects.
• IREDA average cost of borrowings in FY21, FY22, FY23, H1FY23 and H1FY24 was 7.15%, 6.33%, 6.23%, 3.22% and 3.82%, respectively, which the company believes is competitive. Its debt-to-equity ratio was 6.77 as of March 31, 2023 and 6.06 as of September 30, 2023. The company believe that its classification as a Public Finance Institution and its credit ratings enable them to access diversified funding options.
• Over FY21-23, the company gross loan portfolio grew by 30 pct CAGR to Rs. 470,755 mn. During this period company also sanctioned Rs 325,866 mn amount showing 72.11 pct CAGR. Profit of the company has also grown by 58 pct CAGR over FY21-23. The NNPA of the company declined from 5.6 pct in FY21 to 1.66 pct in FY23 and as of H1FY24 company has able to reduce its NNPA to 1.65 pct.

Key Risk

• IREDA business is subject to periodic inspections by the RBI, and non-compliance with observations made by the RBI during these inspections, or significant lapses identified by the RBI in course of inspections, could expose them to penalties and restrictions.
• The company business is entirely concentrated in, and dependent on, the Indian RE sector, which in general has many challenges. If risk in the RE sector not managed effectively then company’s business and operations will affect.

Valuation

The government has set a target of 500 GW of RE installed capacity by 2030 to meet the net-zero emission target. Considering its nodal agency status and varied financial products, IREDA is well placed to capitalize the growth in the RE sector. At the upper end of the price band, the issue is quoting at trailing 12 months P/BV of 1.2x. One may Subscribe from a longer-term perspective.

Disclaimer: The views expressed in the blog are purely based on our research and personal opinion. Although we do not condone misinformation, we do not intend to be regarded as a source of advice or guarantee. Kindly consult an expert before making any decision based on the insights we have provided.

Disclaimer: The views shared in blogs are based on personal opinion and does not endorse the company’s views. Investment is a subject matter of solicitation and one should consult a Financial Adviser before making any investment using the app. Making an investment using the app is the sole decision of the investor and the company or any of its communication cannot be held responsible for it.