Shares of Indian Renewable Energy Development Agency Ltd (IREDA) climbed nearly 9 per cent in Monday's trade after a strong set of June quarter results. While revising upward its target price on IREDA, PhillipCapital maintained its 'Sell' rating on the stock, saying the recent rally on the counter was driven by passive flows rather than any major fundamental reason. The best is already priced in to the stock, it said as it revised its IREDA target price to Rs 130 from Rs 110 earlier, factoring in June quarter results.
On Monday, the IREDA stock climbed 8.90 per cent to hit an all-time high of Rs 310 on BSE. PhillipCapital's target price of Rs 130 on the stock suggests a potential 58 per cent downside over the prevailing price.
PhillipCapital said a strong loan growth and pipeline provides visibility on IREDA's balance sheet growth. IREDA also managed its yields well but as the leverage in the balance sheet increases, net interest margin should come under pressure, it warned. Decline in provision coverage ratio led to negative credit cost in Q1, it said.
"IREDA to see strong loan growth at a CAGR of 25 per cent over FY24-26 on rising demand for renewable energy in the country. But 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," it said.
PhillipCapital expects IREDA's earnings growth at 18 per cent in FY25 and 20 per cent in FY26, translating into return on equity of 16 per cent.
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 per cent/2.1 per cent in FY25/26 from 2.3 per cen in FY24. The recent rally in the stock is driven by passive flows rather than any major fundamental reason. We believe the best is already priced in to the stock. We maintain SELL rating with revised target of Rs 130 (Rs 110 earlier), valuing the company at 3 times FY26 ABVPS of Rs 42," it said.