Indian Renewable Energy Development Agency (IREDA) 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.

IREDA is a wholly owned Government of India (GoI) enterprise under the administrative control of the Ministry of New and Renewable Energy (the MNRE). It was notified as a Public Financial Institution (PFI) and is registered with the Reserve Bank of India (the RBI) as a Systemically Important Non-Deposit-taking Non-Banking Finance Company (a NBFC-ND-SI), with Infrastructure Finance Company (IFC) status.

In September 2023, the company was upgraded from Schedule B to Schedule A in the list of CPSEs by the Department of Public Enterprises (DPE). IREDA is also conferred with the Mini Ratna (Category I) status in June 2015 by the DPE. Since FY2021, it has consistently been rated ‘Excellent‘ by the MNRE in the course of evaluation of performance in achieving key targets.

IREDA has a diversified loan book of Rs 47514 crore end September 2023. It has consistently demonstrated strong growth reflecting a CAGR of 30% between FY2021 and FY2023, while maintaining healthy asset quality. Loans sanctioned have increased from Rs 11001 crore in FY2021 to Rs 32587 crore in FY2023. Loans disbursed also moved up from Rs 8828 crore in FY2021 to Rs 21639 crore in FY2023.

Gross non-performing assets (NPAs) reduced from 8.77% end March 2021 to 5.21% end March 2022, 3.21% end March 2023, and further to 3.13% end September 2023. Net NPAs also reduced from 5.61% end March 2021 to 3.12% end March 2022, 1.66% end March 2023, and further to 1.65% end September 2023.

IREDA has a geographically diversified portfolio across 23 states and five union territories end September 2023. The share of secured asset base stands at 93.41% with security cover. IREDA has been rated highly by credit rating agencies as AAA (Stable) by India Ratings, ICRA and Acuite.

IREDA 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. IREDA 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.

IREDA offers a comprehensive suite of financial products and services including various fund-based and non fund-based products. Some of the key fund-based products for RE developers are long-term, medium-term and short-term loans (for projects, manufacturing and equipment financing), top-up loans, bridge loans, takeover financing, and loans against securitization of future cashflows. IREDA also provides a line of credit to other NBFCs for on-lending to RE and EEC projects. In addition, IREDA provides loans to government entities and also provides financing schemes for RE suppliers, manufacturers and contractors.

The non fund-based products include letter of comfort, letter of undertaking, payment on order instruments and guarantee assistance schemes. Further, IREDA provides consulting services on techno-commercial issues relating to the RE sector.

IREDA has been an integral part of and has played a strategic role in the GoI‘s initiatives for the promotion and development of the RE sector in India. IREDA is directly involved in implementing several significant schemes launched by the MNRE. IREDA was the fund handling agency for the Credit Linked Capital Subsidy Scheme. Further, IREDA has been designated as the Central Nodal Agency for the National Bioenergy Programme (Phase I). IREDA is also the implementing agency for the Central Public Sector Undertaking (Government Producer Scheme) (Phase 2 Tranche III), Generation-Based Incentive Scheme as well as the Rooftop, PV and Small Solar Generation Programme and the National Programme on High Efficiency Solar PV Modules under the Production Linked Incentive Scheme (Tranche I).

The total borrowings amounted to Rs 39850 crore, of which domestic borrowings were Rs 30164.43 crore end September 2023.

The CRAR ratio stood at 20.92% with Tier I ratio at 18.08% and Tier II at 2.84% end September 2023. The debt to equity ratio was comfortable at 6.1 times end September 2023.

Pradip Kumar Das is Chairman & Managing Director of the company with over 30 years of experience in various sectors such as power, renewable energy, banking and finance at various public and private organizations.

The Offer and the Objects

The initial public offer (IPO) consists of fresh issue of 40.32 crore equity shares to raise Rs 1209.49 crore at the lower band of Rs 30 per share (face value Rs 10 per share) and Rs 1290.13 crore at the upper band of Rs 32 per share. The issue also consists of offer for sale of 26.88 crore equity shares to raise Rs 806.33-860.08 crore.

The promoter and promoter group shareholding would decline to 75% post- IPO from 100% pre-IPO.

The issue is to be made through the book-building process and will open on 21 November 2023 and will close on 23 November 2023.

The company proposes to utilize the Net Proceeds from the Fresh Issue towards augmenting the capital base to meet future capital requirements and onward lending. The company expects to receive the benefits of listing the Equity Shares on the Stock Exchanges, including to enhance brand image among existing and potential customers and creation of a public market for the Equity Shares in India.

Strengths

IREDA is the largest pure-play green financing NBFC in India with loan assets of Rs 47514 crore end September 2023 and an established track record of consistent growth in loan book and stable profitability.

Along with a strong 30% CAGR growth from FY2021 to FY2023, IREDA has maintained a diversified asset book in terms of sectoral split and geography. The loan book is spread across 23 states and five union territories in India end September 2023.

IREDA has been able to achieve strong growth while maintaining asset quality. The share of secured loan book stands at 93.41%, which provides substantial hedge in the event of default.

IREDA has maintained strong control over NPAs, enabled by a robust credit appraisal process and efficient monitoring and recovery.

IREDA has been closely involved in the development and implementation of various policies and schemes for structural and procedural reform in the RE sector.

IREDA was conferred with the Mini Ratna (Category I) status in June 2015. Further, the company has been recommended by the MNRE for Navratna status.

IREDA had 357 RE borrowers across more than 10 RE sectors such as solar, wind, hydro, biomass, co-generation, EV, waste-to-energy, EEC, manufacturing, and ethanol, among others.

IREDA has access to diversified and cost-effective long-term sources of borrowing with a judicious approach towards asset-liability management. The classification as a PFI and top credit ratings enables access to diversified funding options including domestic and foreign currency borrowings.

IREDA is an established and trusted brand name operating in a rapidly expanding sector. With the announcement of 500 GW non-fossil fuel based capacity installation by 2030 and net-zero emissions by 2070, India has set itself on one of the most accelerated energy transition trajectories in the world. IREDA is well placed to capitalize on the rapid growth in the RE sector.

Weaknesses

The business is entirely concentrated in, and dependent on, the Indian RE sector, which in general has many challenges and effective addressing of these risks are key to the growth of the sector.

Even within the Indian RE sector, 29.98% of loan book is toward solar energy, 19.18% to loan facility to state utilities, 20.87% to wind power and 11.46% to hydro power. Cumulatively, these four sectors contributed to 81.49% of loan book end September 2023. The risks in the RE sector generally and these four sectors need to be managed effectively.

The company has a concentration of loans to certain customers. The largest borrower accounts for 3.9% of the loan book, top 5 for 16.2%, top 10 for 25.9% and top 20 for 39.7% end September 2023.

As a Government Company, the GoI can influence key decisions, including with respect to the appointment and removal of members of Board.

The company has a concentration of loans in certain states, with 60.72% of loan book in the top five states (Rajasthan 15.5%, Karnataka 13.8%, Andhra Pradesh 13.7%, Gujarat 9.9% and Maharashtra 7.9%) end September 2023 which exposes to the risks in these states such as economic downturn, natural disasters, regulatory changes etc affecting RE borrowers.

The foreign currency borrowings account for 24.31% of the borrowings end September 2023, which exposes the company to fluctuations in foreign exchange rates.

RE projects are seasonal and prone to vagaries of nature exposing the business to seasonal fluctuations in operating results and cash flows.

Valuation

EPS on post-issue equity for TTM ended September 2023 works out to Rs 3.8. At the price band of Rs 30 to Rs 32, P/E works out to 7.8 to 8.3 times of EPS for TTM ended September 2023.

Post-issue, the book value (BV) will be Rs 29.8, while adjusted BV (ABV) net of net NPAs works out to Rs 26.9 per share at the upper price band.

The scrip is being offered at price to Adj BV multiple of 1.2 times at the upper price band.

Among peers power financing PSU NBFCs, Power Finance Corporation (PFC) is trading at P/ Adj BV multiple of 1.2 times on consolidated basis and 1.5 times on standalone basis, while REC is trading at P/ Adj BV multiple of 1.5 times on standalone basis.

In terms of PE, PFC is trading at 5.7 times its consolidated EPS for TTM ended September 2023 and at 7.7 times its standalone EPS for TTM ended September 2023, while REC is trading at 6.8 times its standalone EPS for TTM ended September 2023.

IREDA has recorded a healthy ROA at 2.0% on post-issue equity basis for TTM ended September 2023, while RoA of PFC stood at 1.9% on consolidated basis and 2.8% on standalone basis, while RoA of REC was at 2.6%.

ROE for IREDA was low at 12.9% in the TTM ended September 2023, compared with 19.2% (consolidated) and 17.9% (standalone) for PFC and 20.0% for REC.

AUM of IREDA has surged 41% yoy to Rs 47514 crore end September 2023. The AUM of PFC has also expanded at strong pace of 19% yoy and stands at substantially higher level of Rs 449458 crore. Further, AUM of REC has galloped 20% to Rs 474275 crore end September 2023, which is the largest power financing NBFC.

IREADA had the best asset quality among compared peers with its GNPA ratio low at 3.13% end September 2023 as compared to 3.14% for REC and 3.67% for PFC. However, the NNPA ratio for IREDA was elevated at 1.65% as compared to 1.00% for PFC and 0.96% for REC.

Net interest margin of IREDA was at 3.36% for H1FY2024 similar to that of PFC at 3.37% and PFC at 3.45%.