Fundamental Analysis of IREDA

Company Overview

Indian Renewable Energy Development Agency Limited (IREDA) is a notified Public Financial Institution (PFI). The Government of India wholly owns it via the Ministry of New and Renewable Energy (MNRE). IREDA is engaged in the development, promotion, and provision of financial support for renewable energy projects. 

Industry Overview

The installed renewable energy capacity of the country (including hydro) stood at 165.94 GW, representing 40.6% of the overall installed power capacity as of October 2022.  Over the past few years, the installed renewable power generation capacity has gained meaningful growth, reflecting a CAGR of 15.92% between FY16 and FY22.

India is home to the fourth most attractive renewable energy market in the world. In 2020, the country ranked fourth for installed capacity of renewable power, fifth for solar power, and fourth for wind power. The market for renewable electricity is growing at the quickest rate in India, where new capacity additions are predicted to double by 2026.

In the upcoming decade, the energy demand in the country is likely to witness ample growth on the back of its sheer size and huge potential for growth and development. There are wider opportunities for the industry on the back of numerous growth factors, such as the government’s plan to achieve net zero carbon emissions by 2070. 

In addition, the country is planning to meet 50% of its electricity needs from renewable sources by 2030. The sector has become attractive from an investor’s perspective on the back of the increased support of the government and improved economics.

Segments Overview

IREDA operates its business through two segments:  

• Financing Activities: Under this segment, the company provides financial assistance for new and renewable energy (RE) projects and energy efficiency and conservation (EEC) projects. IREDA provides a comprehensive range of financial products and related services, from project conceptualisation to post-commissioning, for RE projects and other value chain activities, such as equipment manufacturing and transmission. 
• Generation of Power: The company is developing a 50 MW Solar PV project at Kasaragod, Kerala. However, it is not a reportable segment and is not generating any revenue for the business.

Operational and Financial Overview

During FY23, the company rolled out new products and updated its financing policies. IREDA has strengthened its scope of operations to support new and emerging technologies as a catalytic financing entity for the green energy sector. The company is now providing financing support for entities involved in the transmission and distribution of power, energy storage, e-mobility, energy efficiency, smart metering, ethanol and compressed biogas production, etc.  It also provides finances for any other projects, schemes, or activities relating to green energy technologies. 

The company operates a fundamentally strong business fueled by the highest-ever annual sanction, disbursement, loan book, profit, and net worth achieved in FY 2023. It disbursed ₹21,639.21 crore, reflecting a rise of 34.65% as compared to the disbursed amount ₹16,070.82 crore in FY22. IREDA’s loan book grew 39% in FY 2023 to ₹47,076 crore from ₹33,931 crore as of March 31 2022.

The company has maintained a strong focus on improving its asset quality along with business growth. It commenced a structured recovery and monitoring mechanism with monthly internal status reviews and quarterly interactions with borrowers. This helped the company in closing/upgrading 18 non-performing project loan accounts with a recovery of ₹202.43 crore. As a result, the company witnessed healthy improvement in NNPA to 1.66% as of March 31, 2023, as compared to 3.12% as of March 31, 2022.

Outlook

The company’s growth strategies revolve around maintaining its leadership in RE sectors such as solar, wind, hydropower and biomass, biofuels and cogeneration. The financing requirement for RE sectors is likely to expand prominently in line with the Government’s target of 500 GW installed non-fossil fuel-based power capacity by 2030. For this, the company is planning to continue launching financing products to meet the evolving needs of RE developers. 

In addition, IREDA is focused on leveraging its industry expertise to enhance its presence in new and emerging green technologies. The other business growth strategies include optimising borrowing costs to enhance competitiveness and profitability and streamlining the operating model to continue supporting non-linear growth.

SWOT Analysis

Strengths

• Track record of growth in the loan book and stable profitability in the RE financing space.
• Established and trusted brand name operating in a rapidly expanding sector.

Weaknesses

• Limitations to finance projects with high capacity due to its small capital base. 
• Inability to accept deposits as it is a Non-Deposit Systemically Important (ND-SI) NBFC.

Opportunities

• Higher demand for energy and the government’s plan to meet 50% of electricity need from RE by 2030.
• IREDA is targeting to have an early mover advantage in financing green hydrogen and its derivatives and other emerging technologies. This will help the company to tap into new markets and diversify its revenue streams. 

Threats

• The company is exposed to competitive pressure from other financial institutions that finance renewable energy projects.
• It is exposed to risks arising from the rising NPAs, which could hamper the business growth.

Conclusion

IREDA is a government-owned institution focused on supporting renewable energy and energy efficiency projects in India. The renewable energy sector in India is growing rapidly, with substantial government support. The company aims to meet the evolving needs of renewable energy developers, aligning with the government’s target of 500 GW of non-fossil fuel-based power capacity by 2030. However, IREDA faces challenges such as limitations in financing high-capacity projects due to its small capital base and the inability to accept deposits. 

Disclaimer: This article has been written for educational purposes only. The securities quoted are only examples and not recommendations.