After sailing through on the first day, the initial public offering (IPO) of state-owned Indian Renewable Energy Development Agency (IREDA) continued to witness a steller response from the investors during the second day of the bidding process. The issue was subscribed 3.99 times on day 2 so far.

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The non institutional investors (NII) portion of the issue was subscribed the most by 6.54 times, while that of retail investors was booked 3.90 times. The quota reserved for qualified institutional buyers (QIB) was subscribed 2.25 times, while the allocation for employees was 4.38 times.

According to the data, the investors made bids for 188.12 crore equity shares, compared to the 47.09 crore equity shares offered for the subscription by 3:40 pm on Wednesday. The three-day bidding for the issue will close on November 23.

This is the first public sector enterprise IPO by the government after Life Insurance Corporation launched in May 2022.

What analysts say

IREDA operates in niche segment of RE which is poised to grow at rapid pace with government's increased focus. Further, elevation of IREDA to the ‘Schedule A’ category opens the door for 'Navratna' status, which would strengthen the balance sheet further. This along with lowest cost of funding and stringent corporate governance provides IREDA a competitive edge, said analysts at Motilal Oswal Financial Services.

"The stock is attractively priced at 1.0 times 1HFY24 P/BV (price-to-book value) (on an annualised and diluted basis). Hence, we recommend Subscribe," the brokerage said.

According to market analysts, IREDA's IPO shares attracted around 20-30% premium in the grey market over its upper price band.

The grey market is an unofficial platform wherein the IPO shares can be bought and sold till the listing. Most investors generally get a bit of help from the grey market to guess the possible listing price of any public offer.

The Miniratna government enterprise has fixed a price band of ₹30-32 per share, with a lot size of 460 equity shares and its multiples thereon. The company is aiming to raise ₹2,150.21 crore through the share sale.

Considering the upper end of the price band, the post issue implied market capitalisation of IREDA would range between ₹8,063 crore and ₹8,601 crore.

The offer includes of a fresh issue of 40.32 crore shares aggregating to ₹1,290.13 crore and an offer for sale (OFS) of 26.88 crore shares worth ₹860.08 crore.

Proceeds from the IPO will be utilised to augment the capital base to meet future capital requirements and onward lending. IREDA expects to receive the benefits of listing the equity shares on the stock exchanges.

Post-issue, the government’s stake in IREDA will reduce to 75%, compared to the current 100%, while the public stake will increase to 25%.

Risk and concerns

- Financial performance could suffer if the company is unable to effectively manage the quality of growing asset portfolio and control the level of NPAs.

- Volatility in interest rates could adversely affect the business, hedging instruments, net interest income and net interest margin.

- IREDA’s business is subject to periodic inspections by the RBI, and any noncompliance or significant lapses with observations made by the RBI could expose to penalties and restrictions.

IREDA is a wholly owned GoI enterprise with over 36 years of experience in extending green financial assistance. It offers comprehensive suite of financial products for Renewable Energy projects (RE; sectors like Solar, Hydro, Wind,

Ethanol, etc), and emerging technologies (EV, Green Hydrogen, Fuel Cells, etc).

IDBI Capital Markets, BOB Capital Markets, and SBI Capital are the book-running lead managers to the IPO, while Link Intime India is the registrar. The equity shares will be listed on both the exchanges.