Company Overview
Incorporated in 1987, IREDA is an NBFC established with the objective of providing innovative financing in RE and energy efficiency/conservation and environmental technologies. IREDA is the largest pure-play green financing NBFC in India and is a wholly owned Government of India (GoI) enterprise under the administrative control of the Ministry of New and Renewable Energy (MNRE). The company is registered with the Reserve Bank of India (RBI) as a Systemically Important Non-Deposit-taking Non-Banking Finance Company (a NBFC-ND-SI) with Infrastructure Finance Company (IFC) status. IREDA provides a comprehensive range of financial products and related services from project conceptualisation to the post-commissioning stage in RE projects and equipment manufacturing. It provides financial assistance through fund-based and non-fund-based facilities, including project finance, short-term loans, debt refinancing, performance guarantees and letters of comfort. The company mainly finances projects in the wind, hydro, solar, and bio-energy sectors and emerging areas, such as battery-powered vehicles. They also provide line of credit to other NBFCs for on-lending to RE and EEC projects. In addition, they provide loans to government entities and financing schemes for RE suppliers, manufacturers, and contractors.
Objects of the issue:
The net proceeds from the fresh issue will be used towards the following purposes:
- Towards augmenting the company’s capital base to meet future capital requirements and onward lending.
- The selling shareholders will receive the offer proceeds.
Investment Rationale:
Consistent track record geared towards high-quality assets, diversified asset book and stable profitability
The company has an established track record of consistent growth in the loan book and stable profitability in the RE financing space in India. As on March 31, 2023, its term loans outstanding stood at Rs. 470.8 billion, compared to Rs. 278.5 billion as on March 31, 2021, increasing at a CAGR of 30% during the period. As of September 30, 2022 and September 30, 2023, the term loans outstanding were Rs. 337.8 billion and Rs. 475.1 billion, respectively. It has maintained a diversified asset book spread across sectors and geographies along with this growth. Regarding geographical diversification of the company’s asset base, they have term loans outstanding across 23 states and five Union Territories in India as of September 30, 2023. The quality and stability of the loan book are demonstrated through the fact that its loans to RE power-generating projects in some sectors have already been commissioned and started generating operating income. Of the term loans outstanding as of September 30, 2023, 37.9% had a residual maturity profile of less than three years, 26.3% had a maturity profile between three and seven years, and 35.8% had a maturity profile of more than seven years.
Strategic role in the government’s initiatives in the renewable energy sector
Since its inception, it has been closely involved in developing and implementing various policies and schemes for structural and procedural reform in the RE sector. IREDA has served as the implementing agency for the following key MNRE policies and schemes: (i) National Programme on High Efficiency Solar PV Modules under the Production Linked Incentive Scheme (Tranche I), for which the financial outlay over a five-year period is Rs. 45 billion; (ii) Central Public Sector Undertaking (CPSU) Scheme Phase-II for setting up 12,000 MW grid-connected solar PV power projects with Viability Gap Funding (VGF) support of Rs. 858 million for self-use or use by Government or Government entities, of both Central and State Governments; (iii) Solar and wind GBI Schemes, with the wind GBI scheme having a total commissioned capacity of 13,624.88 MW and a budget of Rs. 12.14 billion being allocated for FY24, and the solar GBI scheme, under which 72 solar projects with total capacity of 91.8 MW were set up across 13 states, as of March 31, 2023; and (iv) National Clean Energy Fund Refinancing Scheme. The company has expanded its financing services in line with the RE priorities of the GoI, such as solar, wind, hydropower, biomass, and co-generation.
Valuation and Outlook:
Power sector financing NBFCs primarily focus on financing power generation, transmission, distribution, and other activities. These NBFCs provide funds for various types of power projects, including thermal power plants, transmission lines and renewable energy projects such as solar power plants, wind farms, hydroelectric projects, bioenergy energy projects and clean energy generation. As of FY23, the outstanding credit of key power financing NBFCs reached around Rs. 9,399 billion, indicating a CAGR of nearly 10% over FY19. In FY24, power-financing NBFCs are expected to continue this growth momentum and is likely to be driven by an increase in power demand, rising population, renewable integration, and the country’s sustainability goals. IREDA plans to continue launching financing products to meet the evolving needs of RE developers. Its lower average cost of borrowing enables competitive pricing of the financial products, enabling it to grow business, attract quality borrowers and optimise profitability. The company is India’s largest pure-play green financing NBFC and intends to leverage this position to raise green or sustainable bonds in international and domestic markets. As a result of its concerted approach to recovery, they have closed or upgraded net 18 non-performing project loan accounts in FY23, with recovery of Rs. 2,024.3 million. The NBFC has the best asset quality amongst peers, with its GNPA ratio at 3.13% at the end of September 2023 as compared to 3.14% for REC and 3.67% for PFC. As the lender will utilise the net proceeds of the fresh equity shares issue to augment its Tier-I capital base, its capital adequacy will enhance and lead to a stable leverage position. At the current P/BV multiple of 1.2x, we believe the company is attractively valued and advise investors to “Subscribe” from a medium to long-term perspective.
