What you must know about IREDA IPO?

Indian Renewable Energy Development Agency Ltd (IREDA) was incorporated in the year 1987 and is a fully government owned company (100% government owned). IREDA is classified as a Mini Ratna (Category - I) government enterprise and falls under the Ministry of New and Renewable Energy (MNRE). It is a financial institution into the business of giving loans for renewable energy products in India. For FY22, it had sanctioned loans of Rs23,921 crore and had disbursed loans of Rs16,071 crore. IREDA basically extends financial assistance for new and renewable energy projects, as well as energy efficiency and conservation projects. Apart from project finance, IREDA also brings its domain skills in the renewable energy field into play. It offers project conceptualization to post-commissioning, for renewable energy projects. In addition, it also offers other support in the value chain which includes equipment manufacturing and transmission. The core philosophy of IREDA is to help India transition into a greener and more sustainable future. Its outstanding loan book stands at over Rs47,200 crore as of June 2023.

Out of its overall loan book portfolio, 30.0% is accounted for by solar energy projects, 23.0% by wind energy projects, 19.2% by loans to state utilities, 11.8% to small hydro projects, 8.2% to renewable manufacturing and 5.7% to biomass and cogeneration. In FY23, IREDA achieved 36.2% growth in sanctions and 34.7% growth in loan disbursements. For FY23, the gross NPAs are down yoy from 5.21% to 3.21% while the net NPAs are down in FY23 from 3.12% to 1.66% yoy. The net proceeds from the IPO fresh issue portion will be utilized for augmenting the capital base (a basic necessity for all financial institutions looking to expand their loan books). The OFS portion is being entirely offered by the promoters (government of India). The IPO will be lead managed by IDBI Capital Management Services, BOB Capital Markets and SBI Capital Markets Ltd. Link Intime India Private Ltd will be the registrar to the issue.

Highlights of the Indian Renewable Energy Development Agency IPO (IREDA)

Here are some of the key highlights to the public issue of Indian Renewable Energy Development Agency Ltd (IREDA).

• Indian Renewable Energy Development Agency Ltd (IREDA) has a face value of ₹10 per share and the price band for the book building IPO has been set in the band of ₹30 to ₹32 per share. The final price will be discovered within this band through the process of book building.
   
• The IPO of Indian Renewable Energy Development Agency Ltd (IREDA) will be a combination of a fresh issue and an offer for sale (OFS). As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. However, OFS is just a transfer of ownership and does not entail dilution of equity or of EPS.
   
• Let us start with the fresh issue portion first. The fresh issue portion of Indian Renewable Energy Development Agency Ltd (IREDA) IPO comprises the issue of 40,31,64,706 shares (4,031.65 lakh shares approximately), which at the upper price band of ₹32 per share will translate into fresh issue size of ₹1,290.13 crore.
   
• The offer for sale (OFS) portion of the IPO of Indian Renewable Energy Development Agency Ltd (IREDA) comprises the sale of 26,87,76,471 shares (2,687.76 lakh shares), which at the upper price band of ₹32 per share will translate into an offer for sale (OFS) size of ₹860.08 crore.
   
• The OFS selling will be by the promoter shareholders of the company, which is the Government of India. Since IREDA is currently 100%r owned by the government of India, the entire OFS portion of Out of the 2,687.76 lakh shares, will be offered by the Government of India only.
   
• Therefore, the overall IPO of Indian Renewable Energy Development Agency Ltd (IREDA) will comprise of the issue and sale of 67,19,41,177 shares (6,719.41 crore shares approximately), which at the upper price band of ₹32 per share will translate into total IPO issue size of ₹2,150.21 crore.

While the fresh issue will be capital and EPS dilutive, the offer for sale portion will only result in transfer of ownership. The entire OFS is being offered by the government of India.

Promoter holdings and investor allocation quota

The company was promoted by the Government of India, holding the outstanding shares of Indian Renewable Energy Development Agency Ltd (IREDA) under the seal of the President of India. Currently the promoters (government of India) hold 100.00% stake in the company, which will get diluted post the IPO to 75%, just about meeting the listing requirements of the stock exchange of 25% public ownership. As per the terms of the offer, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The stock of Indian Renewable Energy Development Agency Ltd (IREDA) will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee quota. Employees may get a discount to the IPO price, but that would be communicated separately in the application forms. The anchor portion, will be carved out of the QIB portion.

Lot sizes for investing in the IREDA (Indian Renewable Energy Development Agency)

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Indian Renewable Energy Development Agency Ltd (IREDA), the minimum lot size is 460 shares with upper band indicative value of ₹14,720. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Indian Renewable Energy Development Agency Ltd (IREDA).

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Indian Renewable Energy Development Agency Ltd (IREDA) IPO and how to apply?

The issue opens for subscription on 21st November 2023 and closes for subscription on 23rd November 2023 (both days inclusive). The basis of allotment will be finalized on 29th November 2023 and the refunds will be initiated on 30th November 2023. In addition, the demat credits are expected to happen on 01st December 2023 and the stock will list on 04th December 2023 on the NSE and the BSE. Indian Renewable Energy Development Agency Ltd (IREDA) will be special for more than one reason. It will test the appetite for financial stocks general and for PSU divestment in a financial institution after a very long time. Let us now turn to the more practical issue of how to apply for the IPO of Indian Renewable Energy Development Agency Ltd (IREDA).

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Indian Renewable Energy Development Agency Ltd (IREDA)

The table below captures the key financials of Indian Renewable Energy Development Agency Ltd (IREDA) for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

There are few key takeaways from the financials of Indian Renewable Energy Development Agency Ltd (IREDA) which can be enumerated as under

1. In the last 3 years, revenue growth has been steady and also growing. That is evident from the expansion of the revenue pool in sync with the growth in loan book of IREDA. The focus on renewable energy and the relatively comfortable level of NPAs have helped Indian Renewable Energy Development Agency Ltd (IREDA).
    
2. Being a financial lending company, it is the net profit margin that would really matter and that has been over 20% showing strong traction in terms of NII growth and also in terms of NIM expansion. Return on assets (ROA) is consistently above 1.5% and that is much better than the median for developmental financial institutions.
    
3. The company has had below average sweating assets, but it may not too relevant to a financial loan provider. However, the ROA for the latest year at 1.71% is fairly attractive, but here again, the assumption is that the latest year data sustains.

Let us turn to the valuations part. On the latest year standalone EPS of 3.78, the stock is available in the IPO at a P/E of 8.5 times, which is attractive if the current growth rate can be sustained in profits. However, on a weighted average basis, the P/E is still more attractive at around 6X earnings. That should sober further if you consider forward earnings. Also, the ROA at 1.71% is in a position to justify such valuations for the time being. But a quick look at qualitative factors is also warranted.

Indian Renewable Energy Development Agency Ltd (IREDA) brings to the table deep insights into the renewable energy space in India, an area where India still has a long way to go as it moves toward net zero in the next few decades. The gross NPAs and net NPA levels are fairly low, with net NPAs at below 2% in the latest year. Its digitized model will also make the model scalable. The stock looks like a solid stock with something for shareholders on the table. A long term view and a higher risk appetite would be called for, but it is a stock to participate in; at least as a proxy for the big renewable push of Government of India.