Strong earning growth; long term growth prospects intact…
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
Q4FY25 performance: IREDA reported strong performance in Q4FY25 with continued growth in AUM at 28% YoY to ₹76,282 crore. Operational performance remained robust (NII grew 21.2% YoY) driven by strong growth in AUM and ~42 bps YoY increase in margin at 3.27%. Resultantly, earnings grew at 49% YoY to ₹502 crore. Gross NPA improved by ~23 bps QoQ to 2.45%, though, credit cost remained higher at ₹129 crore in Q4FY25 vs ₹104 crore in Q3FY25.
Investment Rationale
• Robust growth to aid RoA; credit cost trend remains watchful: Healthy AUM growth (~28–29% CAGR in FY26E–27E) coupled with declining cost of funds is expected to drive NII growth (~28-30% CAGR), while operating expenses are likely to remain stable. While asset quality remains steady (GNPA at 2.45%), exposure to single stressed borrower (estimated at ~₹450 crore) remains watchful. Credit cost is expected to normalize at higher level (30-40 bps) ahead. Overall, we expect RoA to sustain at ~2% in FY26-27E, underpinning a favorable long-term outlook.
• Structural long-term growth prospects to aid traction in AUM: Government’s focus to increase renewable power capacity from 220 GW in FY25 to 500 GW by FY30 provides huge opportunity. IREDA being specialised power financiers is expected to play a major role in funding renewable projects. Thus, business growth is expected to remain healthy at ~25-30% CAGR in FY25-30E. Further, foray in retail business (approval received to set up a wholly owned subsidiary) such as PM KUSUM, rooftop solar, EVs, energy storage, green technology is seen to aid diversification.
• Diversified borrowing at competitive cost remains an advantage: IREDA’s strategic pivot towards domestic borrowing has improved funding mix, with domestic share rising from 77% in Dec’23 to 87% in FY25. Backed by a strong “AAA” credit rating and diversified sources, the company continues to secure long-term borrowings at competitive costs, reflected in a declining cost of funds (7.61% in FY25 vs 7.81% in FY24), supporting margin stability. While a higher share of floating-rate loans may introduce margin volatility amid a potential rate cycle reversal, planned retail subsidiary—focused on renewable energy financing could provide a cushion.
Rating and Target Price
• Long term structural growth story remains intact amid government’s focus on renewable sector and foray in retail segment. Operational matrix to remain largely steady with RoA at 1.9-2% ahead. Maintaining estimates broadly steady, we value the stock at ~4.1x FY27E BV (~25x FY27E EPS) assigning a target of ₹ 220. Maintain Buy rating on the stock.
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