IREDA Rockets Over 500% from IPO Price: ICICI Direct Picks It as ‘High Conviction’ Stock – Here’s Why

IREDA, the Indian Renewable Energy Development Agency, has gained attention from ICICI Direct for its strong performance and pivotal role in India’s renewable energy sector. ICICI Direct has designated IREDA as a ‘high conviction pick’, citing three main reasons for its optimism.

Firstly, IREDA has shown impressive returns over the past months, with its stock surging nearly 90% year-to-date in 2024. Despite some fluctuations earlier in the year, it has significantly outperformed since its IPO in November 2023, marking a remarkable increase of over 500% from its IPO price of ₹32 per share.

IREDA, established in 1987, stands as India’s largest green financing NBFC, focusing on promoting and financing renewable energy and energy conservation projects. With strong government backing (GoI stake at 75%), it plays a vital role in facilitating the renewable energy revolution in India.

Investment Rationale:

1. Expanding Opportunities and Government Focus: India is a significant player in global energy markets, aiming to increase its renewable energy capacity to 500 GW by FY30, requiring substantial investments. IREDA’s expertise in financing these projects positions it well to capitalize on this growth.
2. Competitive Borrowing Advantage: Backed by a high credit rating and government support, IREDA secures its borrowings at competitive rates, bolstering its margins despite market fluctuations.
3. Operational Leverage and Profitability: With a projected growth in Assets Under Management (AUM) and operational efficiencies, IREDA anticipates sustaining profitability growth, enhancing its return on assets over the medium term.

Valuation:

ICICI Direct values IREDA optimistically, considering its smaller size in relation to its growth potential and strategic focus on green technology. While highlighting risks such as regulatory changes and potential asset quality concerns, ICICI Direct remains positive about IREDA’s long-term growth prospects amid India’s renewable energy drive.

IREDA continues to be a pivotal player in financing India’s renewable energy ambitions, supported by favourable government policies and its strategic positioning in the sector.