Initial public offering – Renewable energy – Finance

Initial public offering – Renewable energy – Finance – The initial public offering (IPO) of the Indian Renewable Energy Development Agency (IREDA), an NBFC, will open for subscription today (November 21) and will remain open for subscription until Thursday (November 23). The company aims to raise ₹2,150 crore through the IPO, consisting of a fresh issue of ₹1,290.13 crore and an offer for sale of ₹860.08 crore.

The price band for the offer has been fixed at ₹30–32 per equity share, with a face value of ₹10 each. The net offer will be reserved for qualified institutional buyers at 50% of the total offer size, non-institutional investors at 15%, and retail investors at 35%.

Retail investors have the opportunity to submit bids for up to 13 lots, with each lot containing 460 shares. At the upper end of the IPO price band, at ₹32, retail investors are required to make a minimum investment of ₹14,720 per lot.

Let us take a look at some of the key points mentioned in the IREDA IPO RHP – Initial public offering – Renewable energy – Finance.

About IREDA

IREDA is an NBFC established in 1987 to provide innovative financing in RE and energy efficiency, conservation, and environmental technologies. It is a wholly owned Government of India (“GoI”) enterprise under the administrative control of the Ministry of New and Renewable Energy (the “MNRE”).

Also Read: IREDA IPO: PSU raises ₹643 crore from anchor investors

In September 2023, the company was upgraded from Schedule B to Schedule A in the list of CPSEs by the Department of Public Enterprises (“DPE”). The company was also conferred with Mini Ratna (Category I) status in June 2015 by the DPE, according to the company RHP report. 

Product Offerings 

The company provides a comprehensive range of financial products and related services, from project conceptualization to the post-commissioning stage in renewable energy (“RE”) projects and equipment manufacturing.

It provides financial assistance through both fund-based and non-fund-based facilities, including project finance, short-term loans, debt refinancing, performance guarantee and letters of comfort.

Also Read: 6 stocks listed in November 2022 surged between 50% and 321% over issue prices

The company mainly finances projects in the wind, hydro, solar, and bio-energy sectors, as well as emerging areas such as the battery-powered vehicle sector.

Competitive Strengths 

The company is the largest pure-play green financing NBFC in India, with loan assets of ₹470.7 billion as of March 31, 2023. As per the RBI, “green finance” means lending to and/or investing in the activities/projects that contribute to climate risk mitigation, climate adaptation and resilience, and other climate-related or environmental objectives, including biodiversity management and nature-based solutions.

Among power financing NBFCs, the company has the largest share of credit towards the RE sector other than PFC, which is also present in sectors such as infrastructure, roads, mining, and others, while the company is completely focused on the RE sector.

IREDA is the issuer of the first debt security (green masala bond) in India, listed on the IFSC exchange. It is the first financial institution in India to raise green masala bonds. IREDA is among the first financial institution to raise global funds for climate financing from DFIs / 213 multilaterals in India, the company stated in its RHP report. 

Peer Comparision 

The company’s primary peers are power sector financing NBFCs, primarily focusing on the financing of power generation, transmission, distribution, and other such activities. 

It competitors include Power Finance Corporation Limited, REC Limited, India Infradebt Limited, Tata Cleantech Capital Limited, and PTC India Financial Services Limited.

Loan book size

As of March 31, 2023, IREDA’s Term Loans Outstanding stood at ₹470,755.21 million, a substantial increase from ₹278,539.21 million recorded on March 31, 2021. This growth represents a compounded annual growth rate (CAGR) of 30.00%.

Furthermore, as of September 30, 2023, the Term Loans Outstanding figures were ₹475,144.83 million, respectively.

Financials 

The company’s total income stood at ₹2,655 crore, ₹2,860 crore, and ₹3,482 crore for the fiscal years FY21, FY22, and FY23, respectively. Correspondingly, it recorded net profit of ₹347 crore, ₹634 crore, and ₹865 crore in the same fiscal years.

Asset Quality  

Gross non-performing assets (“NPAs”) as a percentage of term loans outstanding came down from 8.77% 

The company net NPAs as a percentage of net term loans outstanding reduced from 5.61% as of March 31, 2021, to 3.12% as of March 31, 2022, 2.72% as of September 30, 2022, 1.66% as of March 31, 2023, and further to 1.65% as of September 30, 2023.

IREDA Dividend Policy 

“All central public sector enterprise including our company, are required to pay a minimum annual dividend of 30% of profit after tax or 5% of the net worth, whichever is higher, unless an exemption is provided in accordance with the CPSE Capital Restructuring Guidelines, the company said in its RHP report.

Key risks

The company stated that the volatility in interest rates could adversely affect its business, hedging instruments, net interest income and net interest margin, which in turn would adversely affect its business, results of operations and financial condition.

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 the company business, results of operations and financial condition, it added. 

Outlook: Renewable power sector

The government has been actively pursuing the growth of the renewable power sector and has implemented several initiatives. These initiatives mainly focus on promoting renewable energy, strengthening distribution networks, and contribute towards growth and sustainability of the power sector.

In order to achieve the aim of these initiatives, power sector companies will require huge funds to set up new renewable energy plants and upgrade the existing power plants. Transmission and distribution networks and NBFCs have a significant opportunity to meet the funding requirements of the power sector.