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The Indian Renewable Energy Development Agency (IREDA) has been gaining positive returns for three consecutive months till June, making it a ‘high conviction pick’ by ICICI Direct. ICICI Direct has assigned a ‘buy’ call to the stock with a target price of ₹250, indicating a 28 percent upside in the next 12 months. The brokerage firm believes that IREDA is at the inflection point of the renewable revolution in India, making it a favored choice for long-term growth prospects. The stock has displayed exceptional performance this year, soaring nearly 90 percent year-to-date in 2024, with a significant jump over the last three months. However, it faced setbacks earlier in the year, dropping in February and March, but witnessing impressive growth in January. Since its IPO in November 2023, IREDA’s shares have surged over 509 percent, signifying strong investor interest and confidence in the company. With the Indian government’s focus on the renewable sector, IREDA is poised to benefit from the expanding opportunities in the green financing space. India ranks as the third-largest energy producer and the second-largest consumer globally, indicating a positive outlook for the renewable energy sector. The country’s electricity demand is projected to grow steadily, with a target of reaching a peak demand of 277 GW by FY27. As of December 2023, India’s installed power generation capacity was at 428 GW, with renewable sources contributing significantly. In line with the government’s goal to increase renewable capacity to 500 GW by FY30, substantial investments totaling ₹24.43 lakh crore will be required, presenting a lucrative opportunity for players like IREDA. The brokerage forecasts IREDA’s business growth to remain healthy, with a projected 25-30 percent CAGR in financial year 2024-2030, touching an AUM of ₹3.5 lakh crore by FY30. Positioned as a Systemically Important Non-Deposit taking Non-Banking Financial Company by RBI, IREDA holds a competitive borrowing advantage, sourcing about 81 percent of its borrowings domestically. Backed by a 75 percent Government of India stake and a ‘AAA’ rating, IREDA secures long-term borrowings cost-effectively. Despite a predominantly floating-rate loan structure, the company’s strong credit ratings and consistent AUM growth are expected to sustain Net Interest Income growth. Operational leverage and profitability are anticipated to improve, driven by robust AUM growth and operational efficiencies. ICICI notes that IREDA’s focus on sustainable growth in the renewable sector positions it as a long-term value play, despite potential risks such as floating-rate lending impacts and regulatory changes. While the stock has seen significant performance fluctuations, its overall growth trajectory indicates promise and investment potential in the evolving renewable energy landscape.
