Indian Renewable Energy Development Agency Limited IPO

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Corporate Structure and Regulatory Status: The company is a wholly owned Government of India (GoI) enterprise under the administrative control of the Ministry of New and Renewable Energy (MNRE). It was designated as a “Public Financial Institution” (PFI) under Section 4A of the Companies Act, 1956, and holds Infrastructure Finance Company (IFC) status as a Systemically Important Non-Deposit-taking Non-Banking Finance Company (NBFC-ND-SI). It also holds Mini Ratna (Category I) status.

Business Focus: The core business revolves around promoting, developing, and providing financial assistance for new and renewable energy (RE) projects, as well as energy efficiency and conservation (EEC) projects. The company offers a comprehensive range of financial products and services throughout the entire value chain, from project conceptualization to post-commissioning.

Financial Products and Services: The company provides a diverse set of financial products, including long-term, medium-term, and short-term loans for RE projects, manufacturing, and equipment financing. Other fund-based products include top-up loans, bridge loans, takeover financing, and loans against securitization of future cashflows. Non-fund-based products include letters of comfort, letters of undertaking, payment on order instruments, and guarantee assistance schemes. The company also offers consulting services on techno-commercial issues related to the RE sector.

Financial Performance: The company has demonstrated strong growth and business performance. Key financial highlights include significant growth in term loans outstanding, loans sanctioned, loans disbursed, total income, and profit after tax over the years. The company has maintained healthy asset quality, as evidenced by a reduction in gross non-performing assets (NPAs) as a percentage of term loans outstanding.

Geographical Diversification: The company has a geographically diversified portfolio, with term loans outstanding across 23 states and five Union Territories in India as of June 30, 2023.

Government Initiatives and Role: The company plays a strategic role in the Government of India’s initiatives for promoting and developing the RE sector. It is directly involved in implementing various schemes launched by the MNRE, such as being the fund handling agency for the Credit Linked Capital Subsidy Scheme and the Central Nodal Agency for the National Bioenergy Programme. The company is also involved in the implementation of other schemes related to biomass, co-generation, energy from waste/residues, and solar PV modules.

Credit Ratings and Asset Base: The company enjoys high credit ratings from rating agencies, and a significant portion of its term loans outstanding is secured, with 92.42% having security cover. This indicates a strong asset base and financial stability.

Own Renewable Energy Project: In addition to its financial products and services, the company owns a 50 MW Solar Photovoltaic Project at Kasaragod Solar Park in Kerala. The project generates revenue by injecting power into the Kerala State Electricity Board grid.

Objects of the Indian Renewable Energy Development Agency Limited IPO:

The Offer comprises the Fresh Issue and the Offer for Sale. The company will not receive any proceeds from the Offer for Sale. Further, the proceeds of the Offer for Sale shall be received by the Promoter Selling Shareholder and will not form part of the Net Proceeds. The company intends to utilize the net proceeds for the following objects:- (i)Augmenting the capital base to meet future capital requirements and onwardlending. (ii)The Company expects to receive the benefits of listing the Equity Shares on the Stock Exchanges, including enhancing the brand image among existing and potential customers and creating a public market for the Equity Shares in India.
RHP of Indian Renewable Energy Development Agency Limited IPO

Indian Renewable Energy Development Agency Limited IPO Details:

Open Date: Nov 21 2023
Close Date: Nov 23 2023
Total Shares: 671,941,177
Face Value: ₹ 10 Per Equity Share
Issue Type: Book Built Issue IPO
Issue Size: 2,150.21 Cr.
Lot Size: 460 Shares
Issue Price: ₹ 30 - 32 Per Equity Share
Listing At: NSE,BSE
Listing Date: Dec 04 2023

Promoters And Management:

Pradip Kumar Das is the Chairman and Managing Director of the Company. He is also holding additional charge of the post of Director (Technical) of the Company. He has been a Director of the Company since May 6, 2020. He holds a Bachelors’ Degree in Commerce from the University of Calcutta and a Post Graduate Diploma in Management from Xavier Institute of Management, Bhubaneswar. He is a fellow member of the Institute of Cost Accountants of India and a member of the Institute of Company Secretaries of India. He has over 30 years of experience in various sectors such as power, renewable energy, banking and finance at various public and private organisations. He has previously held the additional charge of the post of Director (Finance) (from May 6, 2020 to November 5, 2022) on the Board. Prior to joining the Company, he was the Director (Finance) of India Tourism Development Corporation Limited. He has also previously worked with REC Limited, Bharat Heavy Electricals Limited, Nuclear Power Corporation Limited, Bharat Heavy Plate and Vessels Limited and Kusum Products Limited. Ajay Yadav is the Government Nominee Director of the Company. He has been a Director of the Company since February 14, 2023. He is an Indian administrative service officer of the Bihar cadre from the batch of 2005. He is currently the joint secretary in the Ministry of New and Renewable Energy, Government of India. He holds a bachelors’ degree in engineering (mechanical) from the Indian Institute of Technology, Roorkee. He has over 18 years of experience in administration. He started his career as an assistant collector in Patna, Bihar, and has subsequently held several important positions with the State Government of Bihar, in various departments including revenue administration planning and agriculture/horticulture. He has also worked in various ministries of the Government of India such as the Ministry of Consumer Affairs, the Department of Food and Public Distribution and the Ministry of Civil Aviation. Padam Lal Negi is the Government Nominee Director of the Company. He has been a Director of the Company since February 7, 2023. He is, currently, the joint secretary and finance adviser in the Ministry of Civil Aviation and the Ministry of New and Renewable Energy, Government of India (additional charge). He holds a bachelors’ degree in arts and masters’ degrees in political science and sociology from the Panjab University. He has over 30 years of experience in administration. He joined the Government of India as the Indian defence accounts service officer in 1992 in the Defence Accounts Department, Ministry of Defence, Government of India. Prior to holding this position, he worked as the integrated financial adviser (BR), Delhi Cantonment Board, Ministry of Defence, Government of India. He has also held various important positions in the Ministry of Social Justice & Empowerment, Government of India and in the Andaman and Nicobar Command, among others.

Financials of Indian Renewable Energy Development Agency Limited IPO:

Particulars ( In Crore )
2021
2022
2023
6M-FY24
Revenue from Operations 2,655 2,860 3,482 2,320
Other Income 3 14 1 1
Total Revenue 2,658 2,874 3,483 2,320
Net translation/ transaction exchange loss 70 46 24 -30
Impairment on financial instruments 342 180 67 -114
Employee benefits expenses 47 59 63 33
Corporate Social Responsibility Expenses 16 10 7 4
Other Expenses 20 136 71 38
EBITDA 2,162 2,444 3,251 2,389
Depreciation & Amortisation 23 23 23 13
Finance Cost 1570 1587 2088 1557
EBIT 2,140 2,421 3,228 2,376
OPM (%) 81.36% 85.05% 93.34% 102.97%
PBT 570 834 1139 819
Tax 223 200 275 240
PAT 346 634 865 579
NPM (%) 13.03% 22.04% 24.82% 24.97%
No.of Shares 268.77 268.77 268.77 268.77
EPS 1.28 2.35 3.21 2.15

Comparison With Peers:

Peers (cr) Loan Book NIM Revenue PAT GNPA ROE Book Value P/B
IRDEA 46,641 3.32% 3483 864 3.21% 13.74% 28.24 1.133
REC 4,59,136 3.81% 39250 10195 3.39% 20.35% 241 1.38
PFC 8,32,903 3.77% 77568 21179 3.91% 25.16% 283 1.09

Recommendation on Indian Renewable Energy Development Agency Limited IPO:

Review and Recommendation of IRDEA IPO By IZ team is 5/10 The Indian Renewable Energy Development Agency Limited (IREDA) IPO presents a significant opportunity for investors, especially given its unique positioning and strong financials. Here's an analysis of various aspects of the IPO:

Corporate Structure and Regulatory Status

a) Government Backing: Being a wholly-owned Government of India enterprise, IREDA enjoys strong support and credibility. b) Regulatory Status: Its status as a PFI, IFC, and NBFC-ND-SI underlines its importance in the financial sector, especially in renewable energy.

Business Focus

a) Renewable Energy Emphasis: IREDA’s focus on renewable energy (RE) and energy efficiency and conservation (EEC) projects aligns with global trends towards sustainable energy. b) Range of Services: Offering financial assistance across the entire value chain enhances its attractiveness to a wide range of clients.

Financial Products and Services

a) Diverse Financial Products: The variety in loan types and financial instruments caters to different needs in the RE sector. b) Consulting Services: These add value and attract clients seeking expertise in renewable energy projects.

Financial Performance

a) Strong Growth Indicators: Significant growth in loans, income, and profits indicates solid business performance. b) Asset Quality: A reduction in gross NPAs as a percentage of term loans is a positive sign of financial health.

Geographical Diversification

Wide Reach: Operations across multiple states and Union Territories in India indicate a broad market presence and reduced geographical risk.

Government Initiatives and Role

Strategic Role: IREDA’s involvement in various government schemes emphasizes its pivotal role in India’s renewable energy policy implementation.

Credit Ratings and Asset Base

a) High Credit Ratings: These enhance investor confidence. b) Strong Asset Base: A high percentage of secured term loans indicates financial stability.

Own Renewable Energy Project

Direct Project Ownership: The 50 MW Solar Project adds a direct revenue stream, diversifying its income sources.

IPO Details

a) Offer Structure: The mix of Fresh Issue and Offer for Sale allows for capital augmentation without diluting the Government's stake significantly. b) Listing Benefits: Expected benefits include enhanced brand image and the creation of a public market for the shares.

Management and Governance

Experienced leadership by Pradip Kumar Das and other directors like Ajay Yadav and Padam Lal Negi brings a blend of expertise in finance, administration, and renewable energy.

Financials and Peer Comparison

a) Strong Financials: The revenue, PAT, and NPM growth are impressive. b) Peer Comparison: When compared with peers like REC and PFC, IREDA valuation looks on higher side

Investment Considerations

1. Pros: a) Strong government backing. b) Alignment with global renewable energy trends. c) Diversified financial products and services. d) Strong financial performance and asset quality. 2. Cons: a) Market risks related to the renewable energy sector. b) Regulatory changes can impact operations. c) Dependence on government policies for some business aspects.

Conclusion

The IREDA IPO is poised for potential success given its solid financials, strong government backing, and strategic importance in the renewable energy sector. However, investors should consider market and regulatory risks associated with the renewable energy sector. Overall, the IPO appears to be a promising opportunity for those looking to invest in a government-backed, renewable energy-focused financial institution. The Valuation seems to be on higher side as compared to PFC and REC.

Lead Manager of Indian Renewable Energy Development Agency Limited IPO:

  1. BOB Capital Markets Limited
  2. IDBI Capital Market Services Limited
  3. SBI Capital Markets Limited

Registrar of Indian Renewable Energy Development Agency Limited IPO:

  1. Link Intime India Private Limited

Company Address:

Indian Renewable Energy Development Agency Limited India Habitat Centre East Court, Core 4A, 1stFloor, Lodhi Road, New Delhi–110003 Phone: +91 11 24682206 Email: equityinvestor2023@ireda.in Website: https://www.ireda.in/

Discussion on Indian Renewable Energy Development Agency Limited IPO:

6 Comments

    NIM- Net Interest Margins

    1. Average cost of borrowings in FY 2022, 2023 and 3MFY24 was 6.23%, 6.33%, and 7.15%

    2. The Average rate at which they give loans in the market in FY22 , FY23 and 3MFY24 was 9.98%, 9.65% and 10.47%

    3. NIM = FY22 , FY23 and 3MFY24 was 3.75%, 3.32% and 3.32%

    Reply

    RHP outlines several key areas for diversification and expansion in India’s renewable energy sector where investment and funding are being targeted and can be a good business for IRDEA

    1. Green Hydrogen: The government aims to make India a global hub for the production, usage, and export of green hydrogen and its derivatives, setting an ambitious production target and investing in the necessary infrastructure to achieve it.

    2. Pumped Hydro Storage Power Plants: Recognizing the potential for pumped hydro storage, where water is pumped uphill into a reservoir and released to generate power when needed, the government has identified this as a significant opportunity for investment.

    3. Battery Storage Value Chain: With a substantial projected market size, the government is focusing on manufacturing, storage, and recycling of batteries, anticipating a significant increase in investment requirements over the next decade to meet the growing demand.

    4. Offshore Wind: The Ministry of New and Renewable Energy (MNRE) has set a goal for offshore wind energy capacity, which should encourage project developers with clear targets for 2030.

    5. Green Energy Corridor: Launched in 2015, this initiative aims to improve the transmission and evacuation infrastructure to facilitate the delivery of energy from renewable projects, with significant transmission projects already sanctioned.

    6. Rooftop Solar Power: This sector has seen incentivization for residential, institutional, and social sectors, with the government supporting both the installation and expansion of rooftop solar systems through subsidies and financial assistance.

    7. Green Mobility Value Chain: This encompasses fuel cells, charging infrastructure, and aims to electrify public and private transport. The government has set ambitious targets for the adoption of electric vehicles, underlining the expected market size and the growth potential in this sector due to policy support.

    Reply

    The renewable energy sector in India primarily consists of two types of enterprises:

    1. Independent Power Producers (IPPs): These entities set up their own renewable energy (RE) plants and enter into Power Purchase Agreements (PPAs) with State Distribution Companies (Discoms) to sell electricity.

    2. Captive Power Producers (CPPs): These are firms that generate electricity for their own use.

    The Indian Renewable Energy Development Agency (IREDA) provides financing for both these types of projects. However, financing IPPs is considered riskier due to the potential delay in payments from Discoms, which can lead to Non-Performing Assets (NPAs).

    A specific risk was highlighted in the Red Herring Prospectus (RHP) of IREDA, where in 2019, the Andhra Pradesh Discoms unexpectedly reduced the rates at which they were purchasing solar and wind power. This decision had significant implications for IPPs, although relief was later granted by the courts.

    This situation underscores the volatile nature of the renewable energy sector in India, particularly for IPPs, and the need for careful risk assessment and management in financing such projects.

    Reply

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