Sharp Selloff in IREDA Continues Amid Broader Market Weakness
Shares of Indian Renewable Energy Development Agency (IREDA) slumped over 7% to ₹154 on February 28, as the stock entered the Futures & Options (F&O) segment with the launch of the March derivatives series. The downturn follows a strong rally in the previous weeks, with gains recorded in four of the last five trading sessions.
Stock Performance: 50% Drop From Post-Listing Peak
- IREDA stock has now plunged 50% from its post-listing all-time high of ₹310, which was reached on July 15, 2023.
- The stock has been in a downward spiral for two consecutive months, losing over 20% in February alone, marking its steepest monthly decline since its listing in December 2023.
- In January 2024, the stock had already declined by 6%, reflecting a broader correction in renewable energy stocks.
The sharp fall aligns with the overall market weakness, where broader indices have seen heavy sell-offs due to global trade tensions, interest rate concerns, and profit booking by institutional investors.
IREDA’s QIP Approval: Shareholder-Backed Fundraising Plan
Amidst the stock’s sharp correction, IREDA recently secured shareholder approval to raise ₹5,000 crore through a Qualified Institutional Placement (QIP).
- This move will dilute the government’s stake by up to 7% post-issuance.
- The funds raised will likely be utilized for business expansion, capital requirements, and scaling up investments in renewable energy projects.
- The company also received approval to amend its Articles of Association, aligning its structure with its newly granted Navratna status.
Impact of F&O Inclusion on IREDA’s Volatility
The inclusion of IREDA in the F&O segment is a key factor behind the stock’s recent volatility.
- Stocks entering the F&O segment often witness sharp price movements, as they become more liquid and open to short selling and speculative trading.
- Analysts believe that the increased trading volume and derivatives exposure could result in higher fluctuations in the coming weeks.
IREDA’s Q3 FY25 Performance: Strong Growth in Revenue & Profitability
Despite the sharp correction in share price, IREDA’s financial performance remains strong, with a robust Q3 FY25 earnings report.
- Net Profit: ₹425 crore, reflecting a 27% year-on-year increase.
- Revenue: ₹1,698 crore, growing 36% YoY, driven by higher lending to renewable energy projects.
- Cost of Borrowing: Declined to 7.68%, compared to 7.82% in the same quarter last year, improving profitability.
- Net Interest Margin (NIM): Expanded to 3.33%, a significant improvement compared to previous quarters.
- Total Expenses: Increased by 33.8% to ₹1,160.78 crore, primarily due to higher operational and financial costs.
- Gross Non-Performing Assets (NPAs): Improved to 2.68%, down from 2.90% in Q3 FY24, indicating better asset quality and loan recovery performance.
Market Outlook: Will IREDA Regain Momentum?
While IREDA’s long-term fundamentals remain strong, its recent market correction highlights investor concerns regarding valuation, external market factors, and speculative trading pressures.
Highlighting Factors to Watch
- Impact of QIP issuance on stock price: The dilution effect of ₹5,000 crore capital raising could weigh on near-term stock performance.
- Broader market sentiment: If the market correction continues, IREDA may face further downside pressure.
- Renewable energy sector outlook: Government policies and capital investments in the green energy sector will play a crucial role in the stock’s future trajectory.
- Short-term volatility from F&O trading: Increased participation in derivatives markets may lead to price swings, but it also enhances liquidity and institutional participation.
At 2:00 PM, IREDA shares were trading at ₹156, down 6.85% for the day, reflecting continued selling pressure despite strong financial fundamentals.