Shares of a public sector renewable energy provider witnessed a decline of nearly 6 percent on BSE to hit an intraday low at Rs. 272.70 on Tuesday, followed by a report from the domestic brokerage firm Phillip Capital representing a 53 percent downside potential for the stock.
As of 10:29 a.m., the shares of Indian Renewable Energy Development Agency (IREDA) Limited were trading in the red at Rs. 277.3, down by 4.3 percent, as against its previous closing price of Rs. 289.8, with a market capitalisation of Rs. 74,343.6 crore.
Brokerage Target
Phillip Capital, a domestic brokerage firm, has revised its ‘sell’ rating on IREDA while adjusting its target price upwards from Rs. 110 to Rs. 130, implying a potential downside of around 53 percent from the current trading price of Rs. 277.3, considering the June quarter results.
The brokerage highlighted that the recent surge in the stock price was majorly due to passive flows rather than substantial fundamental factors, suggesting that the current valuation already reflects its best value.
Brokerage Outlook
Phillip Capital believes in the continuing growth of IREDA, anticipating robust loan growth at a compound annual growth rate (CAGR) of 25 percent from FY24 to FY26, driven by increasing demand for renewable energy in India.
However, the brokerage cautioned that earnings growth might not align with the loan growth trajectory due to pressure on net interest margins.
Moreover, Phillip Capital highlighted concerns regarding IREDA’s higher exposure to the private sector and a significant portion of its vulnerable portfolio, which could potentially lead to elevated credit costs in the medium term.
The analysts of Phillips Capital anticipate IREDA achieving earnings growth of 18 percent in FY25 and 20 percent in FY26, resulting in a projected return on equity (ROE) of 16 percent. The stock is currently valued at 7.6 times and 6.5 times the FY25 and FY26 adjusted book value per share (ABVPS) of Rs. 35 and Rs. 42, respectively.
Despite high loan growth, the analysts highlight moderate return ratios and heightened exposure to the private sector, which casts doubt on continued reductions in credit costs. They anticipate a decline in return on assets (ROA) to 2.2 percent in FY24-25 and 2.1 percent in FY26 from 2.3 percent in FY23-24.
Financials:
Financially, the company experienced significant growth in its total revenue from operations, showing a year-on-year rise of 32 percent from Rs. 1,143.2 crore in Q1 FY23-24 to Rs. 1,510.3 crore in Q1 FY24-25.
Similarly, its net profit increased during the same period from Rs. 295 crore to Rs. 384 crore, indicating a growth of 30.2 percent YoY.
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As of Q1 FY24-25, the company’s outstanding loan book stood at Rs. 63,207 crore as compared to Rs. 47,207 crore in Q1 FY23-24, growing by nearly 34 percent YoY.
Stock Performance:
Looking at the stock’s movement, it has climbed by over 15 percent in the past five trading sessions, returned 56 percent in one month, and 165.8 percent year-to-date.
About the Company:
Incorporated in 1987, Indian Renewable Energy Development Agency Limited (IREDA) is registered with the Reserve Bank of India (RBI) as a non-deposit taking non-banking financing company (NBFC).
IREDA is engaged in providing financial assistance to renewable energy projects, companies and manufacturers in India for power generation, equipment supply and fuel source projects including wind power, solar power, hydropower, biomass, co-generation and waste-to-energy as well as energy efficiency and conservation.
Written by Shivani Singh
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