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Review By Dilip Davda on November 16, 2023

•    IREDA is a PSU in all sort of financial/consultancy services for Renewable Energy segment.
•    It enjoys "Mini Ratna" status and has been reporting profits. 
•    It has posted constant growth in its top and bottom lines for the reported periods. 
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    The long-term investment may be considered by investors in this PSU.

ABOUT COMPANY:
Indian Renewable Energy Development Agency Ltd. (IREDA) is a wholly owned Government of India ("GoI") enterprise under the administrative control of the Ministry of New and Renewable Energy (the "MNRE"). The Company was notified as a "Public Financial Institution" ("PFI") under Section 4A of the Companies Act, 1956 by the Department of Company Affairs, Ministry of Law, Justice and Company Affairs, Government of India on October 17, 1995 and is registered with the Reserve Bank of India (the "RBI") as a Systemically Important Non-Deposit-taking Non-Banking Finance Company (a "NBFC-ND-SI"), with Infrastructure Finance Company ("IFC") status. In September 2023, it has been upgraded from Schedule B to Schedule A in the list of CPSEs by the Department of Public Enterprises ("DPE"). IREDA also conferred with the Mini Ratna (Category I) status in June 2015 by the DPE.

It is 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. The company provides 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. As of September 30, 2023, it had a diversified portfolio of Term Loans Outstanding, amounting to Rs. 47514.48 cr. 

IREDA has financed projects across multiple RE sectors such as solar power, wind power, hydro power, transmission, biomass including bagasse and industrial co-generation, waste-to-energy, ethanol, compressed biogas, hybrid RE, EEC and green-mobility. it also offers 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-fund-based products. Some of its 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. It also provides line of credit to other NBFCs for on-lending to RE and EEC projects. In addition, IREDA provides loans to government entities and also provide financing schemes for RE suppliers, manufacturers and contractors.

Its non-fund-based products include letter of comfort, letter of undertaking, payment on order instruments and guarantee assistance schemes. Further, it provides consulting services on techno-commercial issues relating to the RE sector. It has been established as an integral part of, and have played a strategic role in the GoI's initiatives for the promotion and development of the RE sector in India. IREDA is directly involved in implementing several significant schemes launched by the MNRE.

The company has a geographically diversified portfolio, with Term Loans Outstanding across 23 States and five Union Territories across India, as of September 30, 2023. As of September 30, 2023, it had 174 full-time employees excluding Board. As of September 30, 2023, 27.01% of its full-time employees were women, and it remain committed to providing growth opportunities for women employees.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 671941177 equity shares of Rs. 10 each comprising 403164706 fresh equity shares (worth Rs. 1290.13 cr. at the upper cap) and 268776471 equity shares (worth Rs. 860.08 cr. at the upper cap) by way of an Offer for Sale (OFS). It has announced a price band of Rs. 30 - Rs. 32 per share and mulls mobilizing Rs. 2150.21 cr. at the upper cap of the price band. The issue opens for subscription on November 21, 2023, and will close on November 23, 2023. The minimum application to be made is for 460 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25 % of the post-IPO paid-up equity capital of the company. IREDA has reserved 1875420 shares for its eligible employees and from the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. From the net proceeds of the fresh equity shares issue, it will utilize it for augmenting its capital base and for onward lending. 

The three joint Book Running Lead Managers to this issue are IDBI Capital Markets & Securities Ltd., BOB Capital Markets Ltd., and SBI Capital Markets Ltd., while Link Intime India Pvt. Ltd. is the registrar of the issue. 

The company has issued entire initial equity capital at par value (based on Rs. 10 FV) so far. The average cost of acquisition of the shares by the promoters/selling stakeholders is Rs. 10.00 per share. 

Post-IPO, IREDA's current paid-up equity share capital of Rs. 2284.60 cr. will stand enhanced to Rs. 2687.76 cr. Based on the upper cap of the IPO pricing, the company is looking for a market cap of Rs. 8600.85 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 2657.74 cr. / Rs. 346.38 cr. (FY21), Rs. 2874.16 cr. / Rs. 633.53 cr. (FY22), and Rs. 3483.04 cr. / Rs. 864.63 cr. (FY23). For the H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 579.32 cr. on a total income of Rs. 2320.46 cr. 

For the last three fiscals, it has posted an average EPS of 5.30, and an average RoNW of 14.91 %. The issue is priced at a P/BV of 1.11 based on its NAV of Rs. 28.80 as of September 30, 2023, and at a P/BV of 1.09 based on its post-IPO NAV of Rs. 29.28 per share (at the upper cap). 

If awe annualize FY24 earnings and attribute it to post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 7.42. 

For the reported periods, the company has posted PAT margins of 13.03 % (FY21), 22.04% (FY22), 24.82% (FY23), and 24.97% (H1-FY24), and RoCE margins of 12.56%, 15.33%, 15.44% and 9.26% for the corresponding periods respectively. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has already adopted a dividend policy in August 2023, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown REC Ltd. and Power Finance Corp. as their listed peers. They are trading at a P/E of 6.89, and 14.27 (as of November 16, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the offer have handled 21 public issues in the past three fiscals, out of which 11 issues closed below the issue price on the listing date.

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