Uncovering the Reasons for the Fall in IREDA Share Price

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A significant infusion of around Rs 30 trillion is essential to meet the government’s ambitious renewable energy targets, of which Rs 12 trillion is expected to be provided by power financing NBFCs such as IREDA.

IREDA Shares Witness Volatility and Profit Booking

The stock price of Indian Renewable Energy Development Agency (IREDA) experienced a remarkable post-market debut rally, surging from Rs 32 to Rs 112 within just 10 trading sessions. Shortly after, the price further climbed to Rs 198, reflecting strong growth prospects and market momentum.

However, the optimism surrounding IREDA took a turn as the share price experienced a significant decline, being locked in the lower circuit for consecutive sessions. Consequently, investors who did not capitalize on IREDA’s peak witnessed a 20% erosion in their wealth within 5 trading sessions, with the stock now trading at Rs 154 from its all-time high of Rs 214.

Reasons Behind the Decline

Profit Booking

The sharp fall in IREDA’s share price reflects profit booking by investors. Following a substantial rally, investors chose to capitalize on the gains and secure profits. The surge in IREDA shares was prompted by the government’s clean energy initiatives announced in the Union Budget 2024, along with other developments in the renewable energy sector. As market volatility became apparent, investors sought to book profits in stocks that had delivered substantial returns, including IREDA.

Market Correction

The decline in IREDA’s share price is also in line with corrections observed in many public sector undertaking (PSU) stocks that experienced rapid surges. The broader market volatility has prompted a minor correction in the prices of various PSU stocks, including IREDA, reflecting a period of adjustment after heightened growth.

Looking Ahead

Despite the recent fluctuations, the long-term growth prospects for IREDA and the renewable energy sector remain compelling. It is crucial for investors to assess the market dynamics and the company’s underlying fundamentals when considering their investment strategies. As the renewable energy landscape continues to evolve, IREDA’s performance will likely be influenced by both industry-specific factors and broader market conditions.

IREDA’s Growth Prospects and Strategic Initiatives

Impending Inflows and Partnerships

In the upcoming period, IREDA is poised to receive substantial inflows following its inclusion in the MSCI Smallcap index during the February review. Experts anticipate inflows of around US$17 million post 29 February 2024.

Additionally, the company has ventured into a partnership with Indian Overseas Bank (IOB) to co-finance renewable energy projects in India, further bolstering its positioning in the sector.

Expansion and Strategic Focus

Aligned with the Government of India’s strategic focus, IREDA has identified seven key segments for expansion. This encompasses areas such as green hydrogen, pumped hydro storage power plants, battery storage value chain, offshore wind, green energy corridor, rooftop solar power, and green mobility value chain.

Furthermore, it has received approval from the Reserve Bank of India (RBI) to establish its wholly-owned subsidiary in the International Financial Services Centre (IFSC) located in GIFT City, Gujarat, signaling its intent to broaden its financial services footprint.

Financial Performance and Market Position

IREDA has demonstrated a strong financial performance, reporting a 67% increase in net profit to Rs 3.4 billion in Q3. This growth is attributed to the expansion of its loan book and a significant reduction in net non-performing assets (NPAs).

Positioned as the largest pure-play green financing non-banking financial company (NBFC) in India, IREDA has a strategic advantage as the renewable energy sector experiences substantial growth.

Power Financial
NBFCs
Market Share towards
Renewables (%)
IREDA31%
PFC32%
PFS1%
REC19%
TCCL7%
India Infradebt9%

Data Source: CareRatings

Future Outlook

As India’s renewable energy sector continues to expand, IREDA’s prospects are poised for significant growth. Notably, the company’s growth trajectory is reinforced by the looming financing requirements for renewable energy projects. The government’s objective of achieving 500 GW of non-fossil fuel-based electricity capacity by 2030 is expected to drive substantial financing needs, estimated at approximately Rs 30 trillion, with power financing NBFCs like IREDA contributing Rs 12 trillion.

With a solid foundation, strategic initiatives, and a pivotal role in financing the renewable energy targets, IREDA stands to capitalize on the burgeoning opportunities within the sector. As the demand for renewable energy financing grows, IREDA’s expansion and financial performance position it for significant growth in the foreseeable future.

Recent Performance of IREDA’s Share Price

In the last five trading sessions, the share price of IREDA has experienced a notable decline of approximately 20%. Currently, the stock is locked in the 5% lower circuit band, trading at Rs 154 compared to the previous close of Rs 162. It’s worth noting that IREDA had achieved a 52-week high of Rs 215 on February 6, 2024, and a 52-week low of Rs 50 on November 29, 2023.

Despite the recent downturn, the stock has demonstrated significant growth since its listing, with an increase of over 200%.

At its current price, IREDA is trading at a PE multiple of 47x and a price to book value ratio of 4x.

About IREDA

The Indian Renewable Energy Development Agency (IREDA) was established in March 1987 and is classified as a Mini Ratna (Category – I) government firm. It operates under the administrative control of the Ministry of New and Renewable Energy (MNRE).

For more than 36 years, IREDA has been actively engaged in promoting, developing, and providing support for new and renewable energy projects, as well as energy efficiency and conservation initiatives. The company offers a comprehensive range of financial products and services for renewable energy projects and other valuable chain operations, encompassing equipment manufacturing and transmission, from project conceptualization to post-commissioning.

One can explore investment opportunities with IREDA.

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