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IREDA: CMP: 147 Long term Gr: 20% | Cyear Gr: 35% 9M_FY_25 Result Update
### *About the Company*
- IREDA has over 37 years of experience in the renewable energy financing sector. It is India’s largest pure-play green financing NBFC.
- It offers project term loans, refinancing, guarantee assistance, and more. Systemically Important Non-Deposit Taking NBFC status by RBI.
- The company plays a strategic role in the Government of India's initiatives for the promotion and development of the renewable energy sector.
- IREDA has recently become "Navratna" from the Mini Ratna organisation owned by the Government of India and administratively controlled by the Ministry of New and Renewable Energy (MNRE).
#### *Important Highlights*
- IREDA, a Government of India-owned non-banking financial company (NBFC), focuses on financing renewable energy projects.
- It received Navratna status from the Department of Public Enterprises in April 2024.
- IREDA has a comprehensive suite of financial products and services for the renewable energy sector.
- Highest Credit Rating of ‘AAA/Stable’. Equity Infusion of ₹ 1500 Cr by GOI during Year 2022. Launches Retail Division:Targets PM-KUSUM, Rooftop Solar and other B2C Segments just this year.
### *Industry Outlook:*
- Global RE capacity today is 4140 GW and is expected to grow 11000 GW till year 2030.
- 100+ Countries have pledged to triple RE capacity by 2030.
- This will require 35 Tr USD investment which is around the combined GDP of the US and China.
- The renewable energy sector is expected to grow significantly, driven by government policies and global commitments to reduce carbon emissions.
- Re_Capacity for India is around 181 GW and is expected to reach 500 GW by 2030.
- IREDA's role as a nodal agency for several MNRE schemes positions it well to capitalize on this growth.
### *Peer Group Comparison:*
- Key competitors include other NBFCs and banks involved in renewable energy financing. REC, PFC, PFS are some to name.
- IREDA’s scale and government backing provide a competitive edge.
### *Historical Performance:*
- FY_17: Just 7 Years back Income and Profits were 1300 Cr & 200 Cr respectively.
- FY_20: Income and Profits were 2369 Cr & 215 Cr respectively.
- FY_21: AUM reached 28k Cr taking Income and Profits at 2655 Cr & 347 Cr respectively.
- FY_23: Pre IP0 AUM was at 47k Cr taking Income and Profits at 3482 Cr & 865 Cr respectively.
- In November 2023, IREDA went public with an initial public offering (IPO) at the price of Rs. 32.
- FY_24: Last year AUM crossed the benchmark of 50k Cr reaching 60k Cr taking Income and Profits at 4963 Cr & 1252 Cr respectively. Profits crossed the benchmark of 1000 Cr for the 1st time.
- Overall we saw around 25% CAGR growth in the past due to the focused segment of renewable energy.
### *Current Trend:*
- Last year even during the IPO we recommended this company as a future wealth creator specifically due to their focus on RE which is an emerging industry.
- Since the beginning of last year we saw strong growth in Loan book Reaching 60k Cr with a growth of 27%.
- This helped last year's revenue growth of 43% for the full year.
- Margins stayed flat despite increased Cost of Borrowing for the full year.
- Profits grew by 30% last year. Overall AUM growth along with sales and Profit growth helped stock rally 6X just in a year.
IREDA's Q3 FY25:
Highlights and Insights
Revenue Growth: Total revenue from operations increased by 36% compared to Q3 FY24, showing growth in line and as assumed.
Profit Margin Expansion: Profit after tax for Q3 grew by 27% year-over-year. The net profit margin for the nine months ended December 2024 is 24.73%, slightly below the previous year's 25.60%, indicating a slight contraction in margin due to increased cost of Fund.
Operational Efficiency: Operating profit increased by 51% compared to the previous quarter, signaling improved operational efficiency.
Key Financial Metrics
Gross NPA (Non-Performing Assets): There's an increase in GNPA from 2.20% in the previous Quarter to 2.68% in Q3 FY25, increasing GNPA can reduce profitability.
Earnings Per Share (EPS): Increased from ₹5.16 during the year end in FY_25 to current trail EPS at 5.7 & Forwards EPS is assumed at 6.8.
Advances and Loan Book Growth
The outstanding loan book showed significant growth of 36% year-over-year, indicating aggressive lending and potentially higher interest income in future quarters.
Solvency and Liquidity Ratios
Debt-Equity Ratio: Increased from 5.13 to 5.89, suggesting higher leverage but still within a manageable range.
Capital Adequacy Ratio (CRAR): Stands at 19.63%, down from 23.88% last year, yet remains healthy above regulatory requirements, ensuring solvency.
Valuation at Current Price (₹166)
Considering the earnings growth and operational metrics, Forward EPS is 6.8 and F_PE should be 25. The stock appears to be trading at a reasonable valuation, especially when the future growth prospects of the renewable energy sector are considered. Concern should be NPA which should be watchful in near term.
Short-Term and Long-Term Outlook
Short-Term: The company is expected to maintain robust growth in revenue and profitability due to increased demand for renewable energy financing and government support.
Long-Term: Long-term prospects appear promising with continued government focus on renewable energy, although increasing leverage and any potential rise in NPAs should be monitored.
#### **5. Future Outlook:**
- **Near-Term Outlook:**
- IREDA is expected to continue its growth trajectory, leveraging its strong position in the renewable energy sector, with consistent disbursement growth and improving asset quality. We may see this year revenue growth of 32% while Profit may grow by 27%.
### *Conclusion:*
Those bought during IPO or Post IPO or added during any fall near 61 we have suggested profit booking near 307 as a near term target. Considering strong growth in AUM along with rally in share current Trail_PE is 29. Hence, New buying again can be done during any fall near 122 while target next Year should be set at 351 where again some 5-10% Profits can be booked.
- **Long-Term Outlook:**
- The company is poised to benefit from increasing renewable energy investments in India, with significant opportunities in solar, wind, and emerging technologies like green hydrogen and electric vehicles. Its strategic positioning and diversified lending profile across various renewable energy sectors indicate long-term sustainability and growth.
In the long run Renewable Energy targets can help IREDA reach the benchmark of 2 Lakh Cr AUM around fy_30 with sales reaching near to 20000 Cr and Profits 4000 Cr. This can help IREDA give a multiyear rally along with high and consistent Profitability.
### *Shareholders:*
- **Major Shareholder**: President of India (Government of India) holds 75%.
- **Others**: Resident Individuals (20.39%), FIIs & FPIs (2.70%), Mutual Funds (0.24%).
*Disclosure:* Do Not Buy or sell before Watching & Understanding the data on your own.
