Ireda shines in December quarter, but NPA risks remain
IREDA’s Q3 profit jumped 38% on strong interest income and lower funding costs, but legacy NPAs and lumpy exposures continue to cloud the outlook.
Shares of Indian Renewable Energy Development Agency Ltd (Ireda) rose about 2% after its December-quarter (Q3FY26) results showed a strong 38% jump in net profit to ₹585 crore, aided by robust interest income growth and a slower rise in funding costs.
Interest income climbed 25% year-on-year to ₹2,130 crore, while the cost of funds rose at a slower 19% pace. This lifted net interest margin by 12 basis points to 3.74%.
For the first nine months of FY26, Ireda’s income grew 27%, but profit rose a more modest 15%. Earnings were weighed down by higher provisioning after the reclassification of a loan from FY20 as a non-performing asset (NPA) and the Gensol Engineering exposure turning bad.
Asset quality risks
Asset quality showed some improvement sequentially, with gross NPAs declining to 3.75% in Q3 from 4.13% in Q1. However, stress remains elevated compared with 2.68% in Q3FY25.
The provision coverage ratio improved to 56.1% from 44.5% a year earlier, but concerns persist as 55% of gross NPAs are over three years old, raising questions about recovery prospects.
Business momentum remains strong. The outstanding loan book expanded 28% year-on-year to ₹88,000 crore at the end of Q3FY26. Loan disbursement growth moderated to 32% in Q3, from 54% in the first half of the year.
Following the Gensol episode, IREDA appears to be tilting its incremental lending towards the public sector, which accounted for 40% of additions in Q3, up from a 28% share in loan outstanding till Q2.
Funding advantage
Lower borrowing costs continued to support profitability. The cost of funds averaged 7.07% for 9MFY26, compared with 7.68% a year earlier.
“AAA domestic rating, access to domestic bonds (about 87% of borrowings), external commercial borrowings, and approval of 54EC bonds ensure competitive cost of funds, strengthening long-term return profile," ICICI Securities said in a 12 January report.
Purchase of 54EC bonds allow the taxpayers to claim exemption from long-term capital gains tax on sale of property. However, the lender faces inherent risk of volatility given lumpy exposure, cautions ICICI Securities.
Valuation check
Despite the earnings growth, IREDA shares are down about 30% over the past year amid concerns over asset quality. The stock, however, remains up more than four times from its IPO price of ₹32 in November 2023.
At current levels, the stock trades at 2.36 times its FY27 estimated book value, according to Bloomberg, a valuation that appears reasonable. Sustained credit growth and a clear improvement in asset quality will be key for any meaningful re-rating.
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