- 17 Nov 2023
- ICICIdirect
Indian Renewable Energy Development Agency Limited IPO: All you need to know
The Indian investors will be having a busy World Cup in the third week of November, with 4 IPOs already confirmed to open. The total issue size of all the IPOs will be over Rs 6,200 crore. The first IPO that opens for subscription this week is Indian Renewable Energy Development Agency Limited (IREDA). IREDA opens for subscription on the 21st and closes on the 23rd of November.
In this article, we will look at the various aspects related to the company. It will help you decide whether to subscribe or invest in the IPO for the long term.
IREDA IPO: Key Details
Below are the key details related to the IREDA IPO:
- Issue Size: Rs 2,150.21 crore
- Price Band: Rs 30 - Rs 32
- Issue Details: Fresh Issue of Rs 1,290.13 crore + Rs 860.08 crore Offer For Sale (OFS)
- Market Cap: At the upper price band, Rs 8,600.85 crore
- Minimum Investment: Rs 14,720
IREDA Limited IPO: About the business
IREDA is a wholly owned Government of India (GoI) enterprise under the administrative control of the Ministry of New and Renewable Energy. The company was notified as a Public Financial Institution (PFI) on October 17, 1995, and is registered with the Reserve Bank of India (RBI) as a Systemically Important Non-Deposit-taking Non-Banking Finance Company (NBFCND-SI), with Infrastructure Finance Company (IFC) status.
They are 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. They provide a comprehensive range of financial products and related services, from project conceptualization to post-commissioning, for RE projects and other value chain activities, such as equipment manufacturing and transmission.
IREDA has financed projects across multiple RE sectors such as solar power, wind power, hydropower, transmission, biomass, including bagasse and industrial co-generation, waste-to-energy, ethanol, compressed biogas, hybrid RE, EEC, and green-mobility. They also offer 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.
The company offers a comprehensive suite of financial products and services including various fund-based and non fundbased products. Some of their 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 cash flows. 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 also provide financing schemes for RE suppliers, manufacturers, and contractors.
IREDA Limited IPO: Industry Overview
In this section, we will look at the renewable energy market. There has been a significant shift globally in the generation capacity mix due to growing concerns about the environment and climate change.
India is an active participant and has taken initiatives towards sustainable development and a cleaner environment, including significant additions of renewable energy generation capacity. As per REN21 Renewables 2022 Global Status Report, India currently ranks 4th globally in total renewable energy installed capacity, wind power capacity, and solar power capacity with generation from non-fossil fuel sources being 41% of the total installed generation capacity in 2022.
The total potential of renewable power in India is estimated to be 1,639 GW, as compared to an installed capacity of 179 GW as of September 2023. The installed capacity of renewable energy has grown by 92 GW over FY15 - FY23, implying a CAGR of around 10%.
India is the world's third-largest producer of energy and is also the second-largest consumer of electricity. While conventional sources (thermal power comprising of coal, lignite, gas, and diesel-based power plants) currently account for 58% of installed capacity, the installed capacity of RES, which currently accounts for 42%, is expected to contribute equally as the conventional sources in the long term supported by GoI's ambitious projects and targets.
IREDA Limited IPO: Listed Peers
IREDA has only two listed peers, and they are REC Limited and Power Finance Corporation. Let us look at the financials of IREDA and listed peers to get an idea of where the company stands against its peers. We will compare the crucial parameters of FY23 to give you an understanding of the financials of IREDA Limited. Here is the comparison:
- The average EPS of the two listed peers is 51, while that of IREDA is in low single digits (3.78).
- The Return on Net Worth (RoNW) is the highest REC. Power Finance has a marginally lower RoNW. IREDA has the lowest RoNW.
- In terms of Asset Quality, IREDA has the best asset quality (3.21%). Next is REC at a Gross NPA of 3.42%, while Power Finance has 3.66%.
IREDA Limited IPO: Financials
Let us now look at the most crucial part that one needs to consider while evaluating a new company (or old one). Below are the financial numbers of IREDA over the last three financial years:
- The company has reported a revenue of Rs 2,657.74 crore, Rs 2,874.16 crore, and Rs 3,483.04 crore for FY21, FY22, and FY23, respectively. Revenue has grown at a solid 14.50% CAGR in this period. The revenue for H1FY24 was Rs 2,320.46 crore.
- IREDA has reported an EBITDA margin of 76.42%, 81.46%, and 90.49% for FY21, FY22 and FY23, respectively. The margins have increased in this period.
- Net Interest Margin (NIM) for the same period was 3.93%, 3.75%, and 3.32%, respectively. The NIM has decreased in this period.
- They have reported a net profit of Rs 346.38 crore, Rs 633.53, and Rs 864.63 crore for FY21, FY22, and FY23. The bottomline has more than doubled in this period. Profit for H1FY24 is Rs 579.32 crore.
- For the last three financial years, IREDA has reported an average EPS of Rs 5.41 and an average RoNW of 14.44%.
- If we annualize FY24 earnings and attribute it to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 7.42.
- The Gross NPA has fallen from 8.77% in FY21 to 3.21% in FY23. Net NPA has fallen even more significantly from 5.61% in FY21 to 1.65% in FY23.
- The Return on Equity (ROE) for the last three financial years was 12.56%, 15.33%, and 15.44%, respectively.
- The debt-to-equity ratio is on the higher side even though it has fallen. The ratio has fallen from 8.01 in FY21 to 6.77 in FY23.
What are the competitive strengths of IREDA Limited?
As per the company, their competitive strength is as below:
- They have a track record of growth, geared towards high-quality assets diversified asset book, and stable profitability.
- Since its inception, they have been closely involved in the development and implementation of various policies and schemes for structural and procedural reform in the RE sector.
- IREDA is an established and trusted brand name operating in a rapidly expanding sector.
- The company has a robust IT infrastructure with an Enterprise Resource Planning System (ERP System) tailored to its business requirements.
Risks associated with IREDA Limited
Below are the risks associated with the IREDA:
- The business and financial performance could suffer if they are unable to effectively manage the quality of their growing asset portfolio and control the level of their non-performing asset.
- Volatility in interest rates could adversely affect their business, hedging instruments, net interest income, and net interest margin, which in turn would adversely affect the business, results of operations, and financial condition.
- If they are unable to secure borrowings on commercially acceptable terms and at competitive rates, it could adversely affect their business.
- Projects and schemes for generating electricity and energy through renewable sources like solar, wind, hydro, biomass, waste-to-energy, and new and emerging technologies have inherent risks and, to the extent they materialize, could adversely affect their business.