IREDA: Up over 500% from IPO price, ICICI Direct chooses it has ‘high conviction pick’ – 3 key reasons why

Giving affirmative returns for 3 consecutive months till June, the Indian Renewable Energy Development Agency (IREDA) has been chosen arsenic a ‘high condemnation pick’ by ICICI Direct. It said that IREDA is astatine the inflection constituent of the renewable gyration successful India.

The brokerage assigned a ‘buy’ telephone to the banal with a people terms of ₹250, implying a 28 percent upside successful 12 months.

"Given the government’s absorption connected the renewable sector, we stay affirmative connected semipermanent maturation prospects which volition assistance semipermanent sustained maturation successful AUM. Thus, we delegate a Buy standing connected the banal with a people terms of ₹250, valuing the concern connected a DCF ground assuming a discounting complaint astatine 12 percent and terminal maturation astatine 6.5 percent," said the brokerage.

The banal has seen exceptional show this year, surging astir 90 percent year-to-date successful 2024. In the past 3 months (April-June), it jumped implicit 43 percent. However, earlier, it had dropped 17.5 percent successful February and 9.4 percent successful March, but successful January 2024, it soared astir 77 percent.

Following its IPO successful November 2023, IREDA became the 2nd PSU to participate the superior marketplace successful caller years aft Life Insurance Corporation (LIC). Priced astatine ₹32, IREDA's shares person surged implicit 509 percent since then. The ₹2,150.21 crore IPO included a caller contented of up to 40.32 crore shares and an connection for merchantability (OFS) of up to 26.88 crore equity shares.

Incorporated successful March 1987, IREDA is India’s largest pure-play greenish financing NBFC engaged successful promoting, processing and financing renewable vigor and vigor conservation projects. IREDA is simply a nationalist fiscal instauration (GoI involvement astatine 75%) nether the administrative power of the Ministry of New & Renewable Energy and categorised arsenic a Systemically Important Non-Deposit taking Non-Banking Financial Company by RBI.

Given the lengthy gestation play of renewable projects limiting accepted slope financing, specialised powerfulness financiers similar IREDA are poised to play a important role, it said. Given IREDA's absorption connected financing the RE sector, concern maturation is expected to stay steadfast astatine 25-30 percent CAGR with marketplace stock expected astatine 29 percent successful incremental financing successful FY24-30E, frankincense touching an AUM of ₹3.5 lakh crore successful FY30E (as fixed successful the program to execute Maharatna status), it forecasted.

Competitive Borrowing Advantage: As a non-deposit-taking NBFC, IREDA predominantly sources its borrowings domestically, constituting astir 81 percent of its borrowings arsenic of March 2024. Backed by a 75 percent Government of India involvement and holding the highest “AAA” rating, IREDA secures semipermanent borrowings astatine competitory costs, bolstering margins. Despite a predominantly floating complaint indebtedness operation (94.3 percent floating vs. 62 percent fixed), which could exert unit successful declining complaint cycles, accordant maturation successful AUM and apical recognition ratings are anticipated to enactment Net Interest Income (NII) maturation astatine a CAGR of 26 percent from FY24 to FY26, said the brokerage.

Operational Leverage and Profitability: ICICI further pointed retired that continued robust maturation successful AUM, projected astatine astir 30 percent CAGR from FY25 to FY26, is expected to heighten profitability done operational leverage. While margins whitethorn look near-term pressures, operational efficiencies, and unchangeable recognition costs are forecasted to prolong profitability maturation astatine astir 20 percent CAGR. Return connected assets whitethorn acquisition flimsy near-term compression but is anticipated to retrieve to 1.9-2 percent implicit the mean term, it predicted.

ICICI has valued IREDA astatine a premium compared to peers, owing to IREDA’s comparatively smaller size which could effect successful sustained steadfast concern maturation amid the company’s salient absorption connected greenish exertion and the government’s absorption connected gathering incremental capableness of renewable sources and improving vigor efficiency.

ICICI notes respective cardinal risks for IREDA, including the imaginable interaction connected margins owed to a precocious proportionality of floating-rate lending. Regulatory changes could besides airs risks, and the unseasoned indebtedness publication warrants vigilance for imaginable plus prime concerns. Additionally, attraction risks related to geographical and borrower vulnerability are highlighted arsenic important risks for the organisation.

Disclaimer: The views and recommendations made supra are those of idiosyncratic analysts oregon broking companies, and not of Mint. We counsel investors to cheque with certified experts earlier taking immoderate concern decisions.