IREDA grapples with rising NPAs despite strong operating performance
Indian Renewable Energy Development Agency Ltd’s shares have declined about 6% since 10 July, when it reported a 36% year-on-year drop in its June quarter (Q1FY26) net profit to ₹247 crore as provisions rose sharply.
The performance marks a reversal from Q4FY25, when profit grew 49%. Despite a benign interest rate environment, the state-owned non-banking finance company has an overhang of non-performing assets.
IREDA’s Q1 interest income grew 29% to ₹1,909 crore, while finance and other costs rose at a slower pace, leading to a 49% growth in operating profit. Net interest margin rose by 31 basis points (bps) year-on-year to 3.6%. However, a sharp rise in provisioning to ₹363 crore, higher than FY25’s ₹237 crore, and a writeback of ₹30 crore in Q1FY25 hurt Q1FY26 net profit.
In April, this column had stated that IREDA’s investors would need to watch for provisioning surprises to cover for its NPAs.
The higher provisioning is on account of an almost 80% sequential jump in gross NPA (GNPA) to ₹3,300 crore. This includes reclassification of a loan account from FY20, apart from advances to Gensol Engineering Ltd turning bad.
The Amravati High Court had barred IREDA from classifying a ₹783 crore outstanding loan account as an NPA following a dispute and this restriction was lifted earlier this month.
The market regulator barred Gensol and its promoters from accessing the securities market in April due to fraudulent activities. IREDA’s insolvency application against Gensol could be a long-drawn process and it may not be able to recover a large portion of the loan.
Loans outstanding
IREDA’s total loans outstanding were at ₹79,900 crore as of 30 June, up 26% year-on-year and notably higher than the single-digit growth in aggregate credit for the banking sector, as per Reserve Bank of India data. GNPA as a percent of loans outstanding widened to 4.13% from 2.45% in Q4FY25.
With stress in some of its big-ticket loans, IREDA seems to be reducing loans to the private sector, which grew 21% in Q1 versus 43% for the public sector. It has also increased the issue of bonds to mobilise funds, relatively cheaper than bank loans, which rose by 51% against 6% growth in bank loans.
IREDA shares are down about 45% over the past one year but still up almost four-fold from its issue price ahead of listing in November 2023. The stock trades at FY26 estimated price-to-book value of 3.2x, as per Bloomberg, and it looks adequately priced.
Reducing NPA levels is crucial for the stock movement hereon.
