Phillip Capital sees a 56% downside potential in IREDA shares as best value already priced in
Phillip Capital has maintained a sell view on IREDA, raising the target price to Rs 130 from Rs 110, noting that the recent stock rally, driven mainly by passive flows rather than fundamental reasons, has already priced in the best value.
The domestic brokerage firm stated that they believe in continuing growth of the company as IREDA is likely to see strong loan growth at a CAGR of 25% over FY24-26 on rising demand for renewable energy in the country. However, the earnings growth is not expected to match the loan growth due to pressure on margins.
Higher exposure to the private sector and high proportion of the vulnerable portfolio do not provide confidence for low credit costs in the medium term.
“We expect IREDA’s earnings growth of 18%/20% in FY25/26, translating into return on equity of 16%. The stock trades at 7.6x/6.5x FY25/26 ABVPS of Rs 35/42. While loan growth is high, return ratios are moderate and there is higher exposure to the private segment – which undermines conviction for continued lower credit cost. We expect ROA to decline to 2.2% /2.1% in FY25/26 from 2.3% in FY24,” said Manish Agarwalla, Research Analyst at Phillip Capital.
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For the quarter ended June 2024, the company reported a net profit of Rs 384 crore against Rs 295 crore reported in the year-ago period while the revenue from operations stood at Rs 1.502 crore in the quarter as against Rs 1,144 crore logged in the corresponding quarter of the
