Can IREDA Get to Zero Net NPAs Post Navratna Status?

Steady double-digit growth for the past 12 quarters.

Dwindling net NPAs (1% compared to 7% in 2019).

Highest profit logged in FY24.

Make no mistake... no government entity has even come close to achieve this kind of track record.

On top of that, the PSU company was granted the 'Navratna' status this week.

This is again a big deal... getting a Navratna status means the company's board and management get much more autonomy and quick control on quick decision making.

As you'd know, it takes a lot of time for government entities to clear approvals... some calls need to be taken from the ministry level, which might sometimes delay the entire process.

BUT NOT ANYMORE!!

IREDA has now attained the Navratna status and has a faster approval process in place... think about no external interference for opening of subsidiaries, opening of branches, etc.

Before we deep dive into IREDA's analysis, let's understand what is a Navratna status and how can companies get it?

What is a Navratna Status?

The title "Navratna" means "nine jewels" in Sanskrit.

The Indian government gives the 'Navratna' tag to top-tier public sector undertakings (PSUs).

These companies are authorised to undertake substantial investments of up to Rs 10 billion (bn) without needing approval from the Centre.

The benefits are insane... these firms can invest up to 30% of their net worth within a year, if it stays below Rs 10 bn.

They can also make faster decisions for engaging in joint ventures, making alliances, and establishing subsidiaries, domestic or abroad.

Criteria for Achieving Navratna Status

For an Indian company to be accorded Navratna status, it should already hold the 'Miniratna' category I status and be listed under Schedule A of CPSEs.

Apart from that, a PSU company must meet certain criteria, which is not limited to:

• Net Profit: The company should have posted net profits in the last three years.
• Net Worth: The company must have a significant net worth.
• Turnover: The company should have a strong turnover to showcase its operational scale.
• Cost of Production and Cost of Services: The company needs to have a record of efficiency in managing costs.
• Earnings Per Share: There must be a consistent positive earnings per share over the preceding three years.

List of Navratna Companies in India

Here's a table showing the listed Navratna stocks along with their key parameters -

Navratna Stocks

Company	Year of Establishment
Engineers India (EIL)	1965
Container Corporation of India (CONCOR)	1988
Bharat Electronics (BEL)	1954
Hindustan Aeronautics (HAL)	1940
Neyveli Lignite Corporation (NLC India)	1956
Rashtriya Ispat Nigam (RINL)	1971
Rashtriya Chemicals & Fertilisers (RCF)	1978
Mahanagar Telephone Nigam (MTNL)	1986
National Buildings Construction Corporation (NBCC)	1960
National Aluminium Company (NALCO)	1981
National Mineral Development Corporation (NMDC)	1958
Rail Vikas Nigam (RVNL)	2003
Shipping Corporation of India (SCI)	1961
ONGC Videsh (OVL)	1965
RITES	1974
IRCON International	1976
IREDA	1987

Data Source: Equitymaster

Where IREDA Fits into the Picture...

With IREDA achieving the prestigious status, it's all set to move closer to its dream of achieving zero net NPAs.

As we mentioned above, the company has brought down its NPAs substantially in the past 5 years.

Steady decline in NPAs

n a recent interview, the company's CMD Pradip Das said that the current borrowing cost of 5-10 paisa would come down.

Meanwhile, IREDA has also asked the centre to enable the company in the 54 EC category capital gains bond. This bond issuance is expected to further reduce the average cost of borrowing.

Note that the pure-play renewable energy NBFC recently posted its earnings for FY24, leaving street estimates far behind.

Last week, the company released its FY24 earnings where it achieved an all-time high net profit of Rs 12.5 bn.

Additionally, IREDA achieved all-time high annual loan sanctions of Rs 373.5 bn and disbursements of Rs 250.9 bn in the financial year 2023-24.

Among power financing NBFCs, the company holds the largest share of credit toward the renewable energy segment, followed by Power Finance Corporation (PFC).

However, IREDA only focuses on renewable energy where PFC is into various sectors such as infrastructure, roads, and mining as well.

In March 2024, IREDA announced a comprehensive borrowing plan, aiming to mobilize Rs 242 bn through various financial instruments.

The government's push for renewable energy offers a lending opportunity for companies like IREDA.

These NBFCs mainly finance power generation, transmission, distribution and related projects. They fund a range of projects including thermal power plants, transmission lines, and renewable energy ventures such as solar and wind farms.

In recent years, power financing NBFCs have grown due to increased demand for funds in the power sector and government initiatives.

Moreover, these NBFCs have improved their asset quality over time, with a decrease in gross NPAs attributed to the restructuring of stressed assets, write-offs, reduced slippages and enhanced provisioning.

How IREDA Share Price has Performed Since Listing

In the past 5 days, IREDA share price has gained 7%.

On the day it achieved the Navratna status, shares of the company spiked over 10%.

IREDA has a 52-week high of Rs 215 touched on 6 February 2024 and a 52-week low of Rs 50 touched on 29 November 2023.

In 2024 so far, IREDA share price has gained 70%!

Since listing, the stock is up 184%.

Gearing up for Major Growth

IREDA has a robust track record of financing renewable energy projects in India. It enjoys a geographically diversified portfolio, with term loans outstanding across 23 states and five Union Territories across India.

The company has disbursed over Rs 1.6 (trillion) tn loans to renewable energy projects, accounting for over 60% of the total renewable energy capacity installed in the country.

One look at the NBFC's past financials will tell you that it is extremely well-capitalised.

Moreover, its capital-to-risk-weighted asset ratio (CRAR) is well in line with the regulatory norms.

Under RBI prudential norms, IREDA is required to maintain a CRAR of 15%. Over the past few years, the lender has consistently exceeded and sustained these requirements. Plus, the NBFC enjoys healthy return ratios.

	2020-21	2021-2022	2022-2023
Net Interest Margin (%)	3.93%	3.75%	3.32%
CRAR(%)	17.12%	21.22%	18.82%
Loan Book Size or AUM (Rs bn)	2,78,539	3,39,306	4,70,755
Net NPAs	5.61%	3.12%	1.66%

Data Source: Ace Equity

In the nine months ending December 2023, the lender raised Rs 51 bn through borrowing. The in March 2024, IREDA declared a fresh fundraising plan of Rs 242 bn through borrowings.

Looking ahead, the company aims to extend financial assistance to various RE projects, including new and emerging RE sectors while improving its asset quality.

The government's strong focus on renewables and India's ambitious sustainability goals, make IREDA a promising play on India's clean energy future.

Happy Investing!

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