IREDA Share Analysis: An Opportunity in the Renewable Market?

IREDA, a company that has gained widespread recognition since it became publicly traded through an Initial Public Offering (IPO) on November 29, 2023. But why did this happen? Its stock prices went from a low of ₹ 50 on November 29, 2023, to a high of ₹ 215 on February 6, 2024. A return of approximately 330%. Huge, right? But within a month, stock prices crashed to as low as ₹ 125 wiping the wealth of many investors, including myself. And once again, the stock has been on a bull ride. These big price swings show that we need to closely examine IREDA share analysis to understand what might happen next.

The government-owned company IREDA operates in the renewable energy field. And we know that the sector is experiencing significant growth globally due to increasing awareness of environmental sustainability. As a financial institution, IREDA helps pay for projects that use renewable energy sources like wind or solar power. The company may benefit from this growth trend and the government initiatives to promote clean energy. Hence, it becomes necessary to discuss the IREDA share analysis, company’s strategies, Government initiatives and policies, opportunities and risk factors and a lot more. Let’s get started.

About the Company- IREDA Share Analysis

IREDA, a ‘Navratna’ Government of India Enterprise, falls under the Ministry of New and Renewable Energy (MNRE). It was established in 1987 as a Public Limited Government Company. Functioning as a Non-Banking Financial Institution, IREDA’s main goal is to promote, develop, and offer financial assistance for projects related to new and renewable energy sources. It also supports energy efficiency and conservation efforts. The guiding motto of IREDA is “ENERGY FOR EVER.”

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Business Model And Industry

-IREDA is the nation’s largest pure-play green financing Non-Banking Financial Company (NBFC).

-It offers a wide range of financial products and services for Renewable Energy (RE) projects.

-Services provided by IREDA cover the entire project lifecycle, from conceptualisation to post-commissioning.

-The company extends its support to various value chain activities, including equipment manufacturing and transmission.

-IREDA has financed projects in diverse RE sectors such as solar power, wind power, hydropower, transmission, biomass, including bagasse and industrial co-generation, waste-to-energy, ethanol, compressed biogas, hybrid RE, EEC, and green-mobility.

-Geographical diversification is evident in IREDA’s portfolio, which spans across 23 states and 4 union territories in FY24.

IREDA Strategic Expansion Plans: Upcoming Projects

While analysing a company, it is essential to learn about its strategic plans to understand its future direction and assessing growth potential. Let’s begin.

1. IREDA has established a new office in GIFT City, Gandhinagar. The office specialises in offering Foreign Currency-denominated debt options tailored for Green Hydrogen and Renewable Energy Manufacturing projects. This move aims to cut down financing costs and expedite India’s shift towards sustainability. Read more here: IREDA’s Strategic Move- “World Future Energy Summit 2024”

2. IREDA has outlined strategic initiatives to bolster the bankability of Rooftop Solar projects. The agency plans to establish a Retail Division dedicated to retail projects, covering Rooftop Solar, PM-KUSUM, Electric Vehicles, and other Business-to-Consumer (B2C) segments. These strategic moves were presented during a panel discussion on “Green Financing: Architecture for Accessible Finance” as part of the recently launched “PM Surya Ghar Muft Bijli Yojana.” Read more here- IREDA Unveils Vision for Retail Division, Elevating Rooftop Solar.

Overall, understanding a company’s strategic plans is crucial for assessing its future prospects, identifying potential risks and opportunities, and making informed investment decisions.

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Essentials & Financials- IREDA Share Analysis

Market Capitalisation: The nation’s largest pure-play green financing Non-Banking Financial Company (NBFC) holds a market capitalisation of ₹46,351 Crores. The company’s valuation reflects its position as a major player in the green financing sector.

Profitability Ratios:

–ROCE (Return on Capital Employed): A ROCE of 9.35% indicates the company’s ability to generate profits from its capital investments, showcasing its efficiency in utilising capital for profitable ventures.

–ROE (Return on Equity): An ROE of 17.3% demonstrates the company’s profitability relative to shareholder equity, portraying its effectiveness in generating returns for shareholders.

P/E Ratio: With a P/E ratio of 36.68, higher than the sector P/E ratio of 21.21, the company’s stock may be perceived as relatively expensive. This suggests that investors are willing to pay a premium for the company’s earnings potential.

Earnings Per Share (EPS):

TTM EPS (Trailing Twelve Months EPS): A positive and growing EPS of ₹4.66 per share indicates consistent profitability and earnings growth. Thus enhancing shareholder value and investor confidence.
Debt-to-Equity Ratio:

Debt-to-Equity Ratio: A ratio of 6.77, higher than 1, implies that the company relies heavily on debt financing to fund its operations and growth initiatives. While high debt levels can magnify returns, they also increase financial risk.

Interest Coverage Ratio: With a ratio of 1.56, higher than 1.5, the company comfortably meets its interest obligations with its earnings (EBIT), indicating a healthy ability to service debt and reducing the risk of default.

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Evaluating Income Statements

Revenue from Sales:
-In the last 5 years (March 2020- March 2024): Revenue from the sales increased from 2,368 crores to 4,964 crores (a rise of approximately 109.5% over the last 5 years).

Profit Before Tax:
-In the last 5 years (March 2020- March 2024): PBT increased from 241 crores to 1,685 crores (a rise of approximately 598.5% over the last 5 years).

The increase in revenue from sales and Profit Before Tax (PBT) over the last 5 years indicates significant growth and improved profitability for the company during this period.

Net Profit:
-In the last 5 years (March 2020- March 2024): Net profit increased from 215 crores to 1,252 crores (a rise of approximately 482.5% over the last 5 years).

This signifies substantial growth and improved financial performance for the company during this period. Further, it indicates that the company’s operations have become more efficient and profitable, resulting in a significant rise in its bottom line.

EPS:
-In the last 5 years (March 2020- March 2024): EPS increased from ₹ 2.73 per share to ₹ 4.66 per share (a rise of approximately 70.55% over the last 5 years).

This indicates that the company’s earnings have grown at a healthy rate, potentially attracting investors and positively impacting its stock price.

The income statement of IREDA Ltd is consistently growing. As such there is no serious issue in the company’s profitability metrics. It is increasing healthily. But these metrics should be compared with the company’s Key performance indicators. Analysing both profitability metrics and KPIs helps in identifying areas of strength and weakness within the organization. Here we go.

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Key Performance Indicators (KPIs)- IREDA Share Analysis

1. Loan Book Growth

A loan book refers to the aggregate amount of loans held by a financial institution such as a bank or a lending company at a given point in time. It represents the total value of all loans that the institution has extended to its borrowers.

-A consistently increasing loan book indicates healthy growth in the institution’s lending portfolio.

-Loan book growth contributes to the institution’s revenue and profitability by increasing interest income generated from lending activities.

IREDA achieved its highest annual loan sanctions and disbursements in the fiscal year 2023-24. Loan sanctions totaled Rs. 37,354 crore. Disbursements amounted to Rs. 25,089 crore during the same period. This led to a notable 26.71% growth in the loan book from the previous year. Currently, the loan book stands at Rs. 59,650 crore. Source: Ireda.in

2. Net Interest Margin (NIM)

Net Interest Margin is a measure of the profitability of a financial institution’s lending activities. It represents the difference between the interest income generated by a financial institution’s assets (such as loans and investments) and the interest expenses incurred on its liabilities (such as deposits and borrowings).

-A higher NIM indicates that the institution is earning more from its interest-earning assets relative to its interest expenses, which is generally favorable for profitability.

-Conversely, a declining NIM may indicate challenges such as narrowing interest rate spreads, increased competition for deposits, rising funding costs, deteriorating asset quality, or economic downturns.

IREDA reported an improvement in its Net Interest Margin (NIM) during March quarter, FY 2023-24. The NIM increased by one percentage point to 2.85%. This improvement was compared to 1.84% in the same quarter of the previous year.

3. Non-Performing Assets (NPAs)

NPAs are loans or advances that have stopped generating income for the lender due to default by the borrower. A loan is classified as an NPA if the borrower fails to pay interest or repay the principal amount for a specified period, typically 90 days or more.

-NPAs negatively impact the financial health and profitability of a lender by reducing interest income and potentially leading to loan write-offs or provisioning for expected losses.

-High levels of NPAs indicate weaknesses in the lender’s loan portfolio quality, risk management practices, and underwriting standards.

IREDA share analysis shows that the company achieved a reduction in its Net Non-Performing Assets (NPAs) to 0.99% during FY 2023-24. This is down from 1.66% in FY 2022-23 marking a significant year-on-year decrease of 40.52%. Decreasing NPAs over time indicates improvements in asset quality, risk management, and financial performance.

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IREDA ANNUAL PERFORMANCE- A closer Analysis

Expert Insights and Market Outlook

1. Sumeet Bagadia, Executive Director at Choice Broking, sees further potential in IREDA’s share price. According to Bagadia, the current chart pattern suggests a positive outlook for IREDA’s shares. Notably, the stock has established a robust support level at ₹160 per share, indicating a stable foundation for potential growth. Resistance is evident at ₹200 per share, highlighting a key price barrier.

He recommends implementing a trailing stop-loss mechanism at ₹160 per share. This strategy aims to protect positions while allowing participation in potential upside. For investors targeting short-term gains, Bagadia suggests aiming for a price target of ₹200 per share. Source: Livemint.

2. Sandeep Pandey, Founder of Basav Capital, discusses the impact of ‘Navratna’ status on PSU firms. He predicts a rise in the company’s order book due to their vigorous expansion into solar and alternative energy sectors. Moreover, he interprets the ‘Navratna’ status as a sign of the company’s crucial role in government-led green energy initiatives, emphasizing its importance in promoting sustainable energy solutions. Source: Livemint.

Summing Up

Summarizing the IREDA Share analysis, the company’s debut in the Indian Markets on November 29, 2023, on both BSE and NSE, saw a strong 56% increase over the offering price, surpassing Street forecasts. The company’s strategic plans are future oriented and play a crucial role in Indian’s ambitious targets of achieving 500 GW of non-fossil fuel energy capacity by 2030 and to achieving net-zero emissions by 2070.

However, challenges include a high debt-to-equity ratio, a high price-to-earnings ratio, and declining confidence among foreign and institutional investors. Despite this, the company has achieved its all-time high performance in the past year. It has achieved its highest annual loan sanctions and disbursements in FY24. Further, it managed to reduce its Non-performing Assets to significant levels. All in all, the largest pure-play green financing NBFC seems to hold a good position in the energy transition of India. With backing from government initiatives and policies, as well as effective management and leadership, the company has the potential to thrive in the long run.

That’s all for today’s post. Hope you get some valuable insights from here.

Happy reading!

Disclaimer

The blog is meant for informational purposes and serves the general analysis of the stocks. The contents provided here are based on careful research and analysis utilizing the fundamental and technical indicators over a period of time. The post does not consist of any direct recommendations about investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfil their personal responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.