IREDA stock price snaps 3-day losing streak, gains nearly 7%; up 760% from IPO price

IREDA stock price climbs nearly 7% to ₹275, recovering from a recent dip but still below its peak. Phillip Capital forecasts strong loan growth despite margin pressures and high private sector exposure.

IREDA, India’s leading green financing NBFC, saw its share price rise nearly 7% in today’s intraday trade, reaching ₹275 per share and breaking a three-day losing streak. Despite this rebound, the stock remains 13.22% below its all-time high of ₹310.

The recent sell-off was mainly due to profit-taking and a downgrade in estimates by global brokerage firm Phillip Capital following IREDA’s Q1 FY25 earnings report.

Phillip Capital anticipates strong loan growth for IREDA at a CAGR of 25% from FY24 to FY26, driven by increasing demand for renewable energy. However, it noted that earnings growth might not keep pace with loan growth due to margin pressures.

Concerns were also raised about IREDA’s high exposure to the private sector and a significant portion of vulnerable assets, which could impact credit costs in the near term.

The brokerage forecasts IREDA’s earnings to grow by 18% in FY25 and 20% in FY26, resulting in a return on equity of 16%. The stock currently trades at 7.6x and 6.5x FY25 and FY26 adjusted book value per share (ABVPS) of ₹35 and ₹42, respectively.

Despite robust loan growth, return ratios are moderate, and high exposure to the private sector raises concerns about maintaining low credit costs.

Phillip Capital expects a decline in return on assets (ROA) to 2.2% in FY25 and 2.1% in FY26, down from 2.3% in FY24. It noted that the recent stock rally was driven by passive flows rather than significant fundamental improvements.

Therefore, it believes the stock has already priced in the best-case scenario and maintains its ‘sell’ rating with a revised target of ₹130 (up from ₹110 earlier), valuing the company at 3x FY26 ABVPS of ₹42.

For the June quarter, IREDA reported a 30% increase in net profit to ₹383 crore. Total revenue from operations rose 32% to ₹1,501 crore, compared to ₹1,143.50 crore in the same period last year. Additionally, loan sanctions surged by over 380% during the quarter.

The newly listed stock has also attracted retail investors, with the number of small shareholders rising from 21.23 lakh in the March quarter to 22.15 lakh by the end of June, according to recent data.

The company, established in 1987, is a non-banking financial company (NBFC) dedicated to providing innovative financing solutions for renewable energy projects, energy efficiency, conservation, and environmental technologies. As a wholly-owned enterprise of the Government of India (GoI), it operates under the Ministry of New and Renewable Energy (MNRE).

In the realm of power financing NBFCs, IREDA commands the largest share of credit directed towards the renewable energy sector, second only to Power Finance Corporation. Unlike Power Finance Corporation, which also funds infrastructure, roads, and mining, IREDA focuses exclusively on renewable energy projects.

The company’s shares began trading on Indian stock exchanges on November 29, 2023, at ₹60 per share, significantly above the issue price of ₹32. Currently, the stock is trading 760% higher than its IPO price and 360% higher than its listing value.