IREDA: Potential investment option

State-run renewable energy funding company completed its allocation of 20,10,19,726 equity shares to 58 entities. Of the above, domestic MFs were allocated 8.51 cr shares or 42.36% of the anchor book to 13 mutual funds through 32 schemes

At A Glance

• Issue for 40.31-cr shares
• And an offer for sale of 26.87-cr shares
• Price band is Rs30-32
• IREDA offers very attractive interest rates and keeps a decent margin

Indian Renewable Energy Development Agency Ltd (IREDA), a PSU major, is tapping the capital markets with its fresh issue of 40.31 crore shares and an offer for sale of 26.87 crore shares in a price band of Rs30-32. The issue opened on Tuesday (November 21) and would close on Thursday (November 23). On Monday, the company completed its allocation of 20,10,19,726 equity shares to 58 entities. Of the above, domestic mutual funds were allocated 8.51 crore shares or 42.36 per cent of the anchor book to 13 mutual funds (MFs) through 32 schemes. Besides the above there are insurance companies and FPIs making the allocation widespread and well balanced. This mix of investors leads to comfort for investors looking to subscribe to the above issue.

The company as the name suggests is the nodal agency for Renewable energy funding and financing and has financed multiple projects across the full value chain. Its AUM is Rs47,500 crore as on September 30, 2023. The AUM has over the last two years grown rapidly from Rs27,854 crore as of March 31, 2021 to the present Rs47,057 crore as of March 23. In the six-month period ended September 23, the AUM has grown further to Rs47,514 crore.

The financial performance has seen a marked improvement with its GNPA falling from 8.77 per cent at the end of March 21 to 3.21 per cent as at the end of March 23. In the six-month period, the same has fallen further to 3.13 per cent. Its Net NPA ratio has fallen from 5.61 per cent at the end of March 21 to 1.66 per cent as at the end of March 23. In the six-month period, the same has fallen further to 1.65 per cent.

In terms of revenue for the year ended March 23, IREDA reported interest income of Rs3,436.23 crores and a net interest margin of 3.32 per cent. This was at Rs2,312.27 crore for the six months ended September 23. The company has a gearing of 6.06 times as at September 23 which is lower than 6.77 times at the end of FY March23. It has a fairly low cost of borrowing at 6.23 per cent for the year ended March 23. It has a fair mix of borrowings which includes overseas and a mix of private and public sector banks and also through bonds.

IREDA being a development agency offers very attractive interest rates and keeps a decent margin. Its loan book therefore has a large mix of private and government borrowers across the value chain. The company reported a net profit of Rs864.62 crore for the year ended March 23 and Rs579.31 crore for the six months ended September 23. The EPS for the year ended March 2023 was Rs3.78 on a standalone basis, while for the six months ended September it is Rs2.54 on a standalone basis. The PE for the company is 7.94-8.47. The NAV of the company is Rs25.98 as on March 31, 2023, and has moved up to Rs28.80 as on September 30, 2023.

The company compares favourably with PFC and REC. Looking at the thrust that the government is giving to the renewable sector and the demand for energy being critical for the growth of the country, it makes imminent sense to invest in this company. There is a healthy grey market also present, which ensures decent listing gains at the time of listing. This company offers scope for appreciation in the short term, medium term and longer term as well. Readers are advised to subscribe to the issue.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)