IREDA Faces Potential 60% Drop in Stock Price, Phillip Capital Maintains ‘Sell’ Rating

Indian Renewable Energy Development Agency (IREDA) could see a significant decline in its stock price, with brokerage firm Phillip Capital maintaining a ‘sell’ rating on the company. The target price has been raised to ₹130 from ₹110, indicating a potential downside of 60% from the recent record high.

According to Phillip Capital, the recent surge in IREDA’s stock was largely driven by passive flows rather than fundamental factors. The brokerage firm suggested that the current price already reflects the best possible scenario for the stock, as highlighted in a report by The Economic Times.

Despite anticipating a strong loan growth at a CAGR of 25% over the next few years due to the increasing demand for renewable energy in India, Phillip Capital does not expect earnings growth to align with the loan growth due to margin pressures.

The asset quality of IREDA showed improvement in the recent period, with gross NPA dropping to 2.19% and net NPA improving to 0.95%. The company reported a net profit of ₹384 crore for the quarter ending June 2024, showing continued financial growth.

Manish Agarwalla, Research Analyst at Phillip Capital, projected an earnings growth of 18% and 20% for FY25 and FY26, respectively, translating to a return on equity of 16%. Despite the positive loan growth outlook, concerns over margin pressures and exposure to the private sector remain.

Phillip Capital emphasized that IREDA’s current stock price already accounts for the best possible outcomes, hinting at potential downward movement. The stock, which debuted in the market last year and surged nearly tenfold, trades in ‘overbought’ territory with an RSI of 83.6, indicating a possible correction.

Shares of IREDA are currently trading at ₹294.99, up by 3.77% during the afternoon session. The stock has shown resilience over the past few trading sessions, registering gains for the fourth consecutive day.