IREDA, the largest pure-play green energy financier in India, focuses on lending Renewable energyWith a loan book size of Rs 47,515 crore, the company has been able to improve its asset quality over the last three years, according to Sector.ET analysis.IREDA Works in high growth sector which is a priority for the government. As per the analysis, keeping these factors in mind and with proper valuation, IREDA IPO should be subscribed by long-term investors.
Business of IREDA: IREDA, established in 1987, is a non-banking financial company (NBFC) that provides financing for renewable energy projects, energy efficiency initiatives, equipment manufacturing and transmission. The company’s loan book has been growing steadily, reaching Rs 47,514.5 crore by September 2023. The private sector accounts for 77% of the loan book, of which secured loans constitute 93%.
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IREDA peer comparison
IREDA has played a significant role in financing renewable energy projects, accounting for 31% of the total loans given to such projects till March 2023. It is second only to state-owned Power Finance Corporation (PFC), which holds 32%. share. REC, an arm of PFC, has a 19% stake in renewable energy financing.
IREDA provides financing for various renewable energy initiatives including solar, wind, hydropower, biomass, ethanol and green mobility. The company also supports emerging technologies such as green hydrogen, battery storage systems and hybrid renewable energy.
IREDA plans to gradually increase financing of new renewable energy technology projects, which offer better net interest margin (NIM) of 4-5% compared to conventional renewable energy projects, whose NIM is 2.0-2.5%. .
IREDA Financial, In terms of financial performance, IREDA has shown positive growth. Its total income grew 14.5% year-on-year to Rs 3,483 crore between FY21 and FY23. Net profit also saw a significant growth of 58% to Rs 864.6 crore. Return on assets (ROA) increased from 1.2% to 2%, while gross non-performing assets (GNPA) declined from 8.8% to 3.2% during the same period.
IREDA’s cost of funds in FY2013 is 6.2%, which is lower than 7.3% for REC and 7.5% for PFC.
opportunity: The government’s target to achieve 500 gigawatts (GW) of non-fossil-based energy by 2030 presents an important opportunity for IREDA. With 22 GW already financed by the company, the total investment required for this target is estimated to be Rs 24 lakh crore. Assuming a 50% share for non-banking financial companies (NBFCs), the opportunity for lenders, including IREDA, is worth Rs 12 lakh crore.
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risk: However, intense competition from larger competitors such as PFC and REC may limit the extent of net interest margin expansion for IREDA.
IREDA assessment, In terms of valuation, IREDA demands a price-book (P/B) multiple of up to 1.1, which is lower than the P/B of around 1.4 for large power sector financiers like PFC and REC. It is important to note that while PFC and REC distribute dividends, IREDA has not declared dividends in the last three years. IREDA is likely to reinvest its profits in the business to support the rapid growth of the renewable energy sector in the medium term.
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