ICICI Securities has maintained a BUY recommendation on IREDA, citing strengthening growth momentum, improving asset quality trends, and sustained margin stability. The brokerage has set a 12-month target price of Rs 180, implying an upside of about 31% from prevailing market levels. After a brief phase of stress earlier in FY26, the Q3FY26 performance confirms that the company’s earnings trajectory is normalizing, supported by robust loan growth, improving spreads, and controlled credit costs. As India accelerates its renewable energy ambitions, IREDA remains structurally positioned to play a central role in financing the energy transition.

Q3FY26 Confirms Growth Resilience and Earnings Normalisation

IREDA delivered a strong operational performance in Q3FY26, reinforcing confidence in its medium-term growth outlook. Assets under management rose nearly 28% year-on-year, reaching Rs 87,975 crore, driven by healthy sanctions and disbursements across solar projects, state utilities, and the ethanol segment.

Net interest income increased 39.7% YoY to Rs 869 crore, supported by balance sheet expansion and a steady improvement in spreads. Profitability followed suit, with profit after tax rising 37.5% YoY to Rs 585 crore, reflecting both operating leverage and margin improvement.

Margins Strengthen as Cost of Borrowing Eases

One of the most notable takeaways from the quarter was the improvement in funding economics. Net interest margins expanded to 3.74%, aided by a decline of roughly 61 basis points in the cost of borrowings, which fell to about 7.07%.

Interest spreads improved to 2.63%, underlining IREDA’s ability to pass on funding advantages while maintaining pricing discipline. ICICI Securities believes this margin stability is sustainable, given the company’s access to diversified funding sources, including domestic bonds, ECBs, and tax-efficient instruments.

Asset Quality Shows Clear Signs of Stabilisation

After a volatile phase earlier in the year, asset quality indicators began to normalize in Q3FY26. Gross NPAs declined sequentially by about 22 basis points to 3.75%, while net NPAs improved to 1.68%.

Provision coverage strengthened to 56.1%, reflecting management’s conservative stance on credit costs. According to the brokerage, seasoning of the loan book, improving recoveries, and tighter underwriting standards should help contain credit costs at around 50–60 basis points over FY26–FY28, lending stability to earnings.

Loan Book Expansion Anchored in Renewable Energy Demand

IREDA continues to benefit from its strategic position in India’s renewable financing ecosystem. The company’s loan book is geographically diversified across 23 states and four union territories, reducing concentration risk while maintaining exposure to high-growth clean energy segments.

Government plans to scale renewable capacity from about 254 GW to 500 GW by FY30 create a multi-year funding opportunity. IREDA’s expanding footprint across emerging areas such as green hydrogen, energy storage, and EV infrastructure further enhances its long-term relevance.

Financial Trajectory Points to Sustained Compounding

ICICI Securities models AUM growth of 27–28% CAGR over FY26–FY28, translating into strong earnings momentum. Net interest income, pre-provision operating profit, and net profit are all expected to grow at a healthy pace, supported by operating leverage and stable margins.

Return on assets is expected to sustain near 1.8–2.0%, while return on equity is projected to improve steadily as balance sheet scale offsets near-term volatility.

Valuation Anchored to Book Value Expansion

Despite strong growth prospects, valuation remains a key consideration. ICICI Securities values IREDA at approximately 2.5x FY28E adjusted book value, factoring in both the structural growth opportunity and the inherent volatility associated with lumpy project exposure.

At current levels, the stock trades at a discount to its medium-term earnings and book value growth potential, in the brokerage’s view. The revised target price of Rs 180 reflects confidence in normalized profitability and improving asset quality.

Key Risks Remain, But Are Largely Manageable

The brokerage flags certain risks that investors should monitor. A tighter liquidity environment could exert pressure on borrowing costs, while isolated project-level slippages may introduce short-term volatility in asset quality metrics.

However, strong provisioning buffers, diversified exposure, and government backing mitigate downside risks. Over the medium term, the structural demand for renewable financing is expected to outweigh cyclical headwinds.

Investment Call: BUY With a Medium-Term Lens

ICICI Securities believes IREDA is entering a more stable phase after navigating early FY26 stress. With asset quality normalizing, margins stabilizing, and growth visibility improving, the company appears well-positioned to compound earnings over the next three years.

The brokerage reiterates its BUY rating with a target price of Rs 180, recommending the stock for investors seeking exposure to India’s renewable energy financing theme with improving return ratios and a strengthening balance sheet.