IPO Size: Rs. 2,150 cr  

• Rs. 1,290 cr is fresh issue to augment capital and grow
• 40% or Rs. 860 cr is offer for sale (OFS) by the promoter Government of India (100% stake to drop to 75%)

Price band: Rs. 30-32 per share

M cap: Rs. 8,061 cr, implying 25% dilution

IPO Date: Tue 21^st Nov to Thu 23^rd Nov 2023, Listing Fri 1^st Dec 2023

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

India’s Largest Pure-play Green Financing NBFC

Indian Renewable Energy Development Agency Limited (IREDA), is an Infrastructure Finance Company and a Category 1 Mini Ratna company, with a gross loan portfolio of Rs. 47,514 cr, as of 30.9.23, lending 30% for solar projects, 21% wind, 19% to state utilities and 11% hydro power. Loan book has grown at an attractive 24% CAGR in the last 2.5 years and this growth can continue even on the expanded base, given the need and potential of renewable energy sector.

Improving Asset Quality

As of 30.9.23, IREDA’s gross NPA stood at Rs. 1,486 cr, with nearly Rs. 640 cr from biomass and Rs. 400 cr from hydro energy projects. These 2 sectors together, account for 14% of IRDEA’s gross loan book, with biomass loan book shrinking 14% since 31.3.21 to Rs. 1,156 cr currently. Thus, going forward, company’s asset quality may not deteriorate. Infact, net NPA have already halved in the past 2.5 years to Rs. 771 cr, leading to net NPA of 1.65%.

Strengthening Financials

Net interest income (NII) of Rs. 1,394 cr in FY23, rose 17% YoY in H1FY24 to Rs. 763 cr. With reversal of provisions in H1, PAT stood at Rs. 579 cr in H1FY24, leading to an EPS of Rs. 2.54, up 41% YoY. FY23 EPS was at Rs. 3.78. RoE rose to 9.3% in H1FY23, from 7.5% YoY (FY23 RoE at 15.4%).

With an average yield of 10% and cost of borrowing of 7.6% for H1FY24 annualised, company earns spread of 2.2% and a net interest margin (NIM) of 3.4%, comparable to other public financial institutions such as REC and PFC.  

Valued at Book

Annualising H1FY24 performance leads to a PE multiple of about 6x on the current year basis. Current net worth stands at Rs. 6,581 cr, translating into a post money book value per share (BVPS) of Rs. 29. Expected BVPS as of 31.3.24 is over Rs. 31, translating into a PBV multiple of 1x, on current year expected earnings, which is again undemanding. While PFC is ruling at similar multiples, peer REC is ruling higher at a PBV of 1.3x and a PE multiple of 7x.

Bright Future

Renewal energy is the sector of the future and IPO’s Rs. 1,290 cr fresh issue component will fuel healthy double-digit growth, at least for the next couple of years, as company operates on 6 times leverage ratio. Moreover, post-listing, promoter holding will be 75% eliminating any overhang of promoter stake sale, seen in many PSU stocks. Post listing, if IREDA declares dividend, expected yield may be ~5%, which is an added advantage, although this is not the sole reason for investment.