Growth on-track, asset quality normalising…
About the stock: IREDA is a systemically important non-deposit taking nonbanking financial company engaged in financing of renewable sector.
• The company has geographically diversified asset base with term loans outstanding across 23 states and 4 union territories across renewable segment.
Q3FY26 performance: IREDA delivered strong Q3FY26 performance, sustaining AUM growth at ~28% YoY (4% QoQ) to ₹87,975 crore, driven by healthy sanctions and robust disbursements across solar, state utilities and ethanol segment. NII grew 39.7% YoY (6.4% QoQ) to ₹869 crore, supported by balance sheet expansion and improvement in interest spread to 2.63%, while NIM were up 41 bps at 3.74%, aided by a ~61 bps YoY decline in CoB to 7.07%. PAT increased 37.5% YoY to ₹585 crore. Asset quality showed normalization trend, with GNPA/NNPA declining ~22/29 bps QoQ to 3.75%/1.68% respectively and PCR increasing 460 bps at 56.1%.
Investment Rationale
• Sustained growth momentum with steady return profile: IREDA continues to deliver strong AUM growth which is further anticipated to continue, thus modelling 27–28% CAGR expected over FY26–28E, driven by its dominant position in renewable energy financing. Robust loan growth, stable margins and operating leverage are translating into healthy earnings momentum. Sustained spreads supports profitability profile, with RoA expected to sustain around ~1.8–2% in FY26-28E.
• Asset quality normalization to support earnings stability: Asset quality indicators have begun to stabilize, with sequential improvement in GNPA (down ~22 bps) and controlled slippages in Q3FY26. Management’s conservative provisioning approach, seasoning of the loan book and improving recoveries are expected to keep credit cost contained at ~50–60 bps over FY26–28E, aiding normalized earnings trajectory.
• Structural long-term opportunity with competitive funding advantage: Government’s focus on scaling renewable energy capacity from ~254 GW to 500 GW by FY30 provides a multi-year growth runway for IREDA. Its strategic role as a nodal agency, diversified sector exposure and expanding footprint across emerging areas (green hydrogen, storage, EV infra) positions it well to capture incremental financing demand. Additionally, AAA domestic rating, access to domestic bonds (~87% of borrowings), ECBs and approval for 54EC bonds ensure competitive cost of funds, strengthening long-term return profile.
Rating and Target Price
• Despite temporary stress witnessed in Q1FY26, performance in Q3FY26 confirms normalization in margins, asset quality and earnings. Long-term structural growth story for renewable financing remains intact, supported by balance sheet growth, stable margins and sustained asset quality.
• While growth runway remains a tailwind with sustained return ratios, there exists inherent risk of volatility given lumpy exposure. Thus, rolling on to FY28E, we value the stock at ~2.5
