Ireda posts strong growth momentum in Q4, but Gensol loan is a concern

With the cut in the benchmark repo rate by 50 basis points to 6% over the past two monetary policy meetings and the change in the monetary policy stance from neutral to accommodative, there may be a further uptick in credit demand for the state-owned lending agency.

Ireda’s interest income climbed 40% year-on-year to ₹1,860 crore, exceeding the 35% growth during the first nine months of FY25. With Q4 interest expenses up 30%, net interest income rose 57% to ₹757 crore.

The non-banking financial company managed to reduce borrowing costs by increasing recourse to bond issuances. The share of bonds in total funds increased to 56% at the end of FY25 from 45% a year ago, reducing its dependence on costlier bank loans.

Ireda’s outstanding loans reached ₹76,300 crore, up 28% year-on-year, with the private sector accounting for three-fourths of the total. Asset quality improved with a 23-basis point sequential decline in gross non-performing assets (NPA) to 2.45%, although it’s still higher than 2.36% a year ago.

Credit demand remains strong with significant investments in the renewable energy sector. As per the Central Electricity Authority, 29 GW of renewable energy capacity was added in FY25 against an average of 16.3 GW in the previous three years.

“(We expect) Ireda to see strong loan growth at a CAGR of ~23% over FY25-27 on rising demand for renewable energy in the country,” PhillipCapital India said in a 15 April report.

Vulnerable portfolio

However, the broking firm expects Ireda’s return on assets to drop to 2.3% and 2.2% in FY26 and FY27 from 2.5% in FY25, as credit costs rise. The lender’s borrowing costs may increase due to higher exposure to the private sector and a high proportion of the vulnerable portfolio, according to the report.

This includes its exposure to Gensol Engineering Ltd, barred by the Securities & Exchange Board of India in its 15 April interim order. As per an ICRA rating action report dated 4 March, IREDA has a total exposure of ₹470 crore to Gensol, including ₹216 crore towards working capital. Ireda had unpaid dues of ₹56 crore from Gensol as of 15 March, according to Sebi.

The exposure, with a high probability of default, can significantly affect Ireda’s profitability ahead. Further, its provisions coverage ratio for stage-3 loans at the end of Q4 was 45.3% against 58.8% a year ago, although it was marginally better than 44.5% in Q3.

Stage-3 loans refer to doubtful debts. This means the lender needs to get back about 55% of the money from its NPAs which may be a tough ask because 62% of its NPAs are more than three years old.

The Ireda stock has gained 24% over the past one month, with its successful issue of perpetual bonds and board approval to increase the borrowing limit in March boosting investors’ confidence.

A perpetual bond doesn’t have any maturity, helping the issuer lend more aggressively and also improves its capital adequacy ratio. While Ireda appears strongly positioned to gain from the growing market, investors would need to remain watchful for any provisioning surprises to cover its NPAs.