Indian Railway Finance Corporation IPO open now!

Indian Railway Finance Corporation IPO open now!

Last updated: 18 Jan, 2021 | 06:31 am

Indian Railway Finance Corporation IPO open now!

About Indian Railway Finance Corporation (IRFC)

  • IRFC is the dedicated market borrowing arm of the Indian Railways. Its primary business is financing the acquisition of rolling stock assets, which includes both powered and unpowered vehicles. This includes locomotives, coaches, wagons, trucks, flats, electric multiple units, containers, cranes, trollies of all kinds and other items.
  • In Fiscal 2020, it financed Rs 71,392 crore accounting for 48% of the actual capital expenditure of the Indian Railways.
  • In Fiscals 2017, 2018 and 2019, IRFC was responsible for financing 72%, 93% and 82%, respectively, of the Indian Railway's total rolling stock.

AUM breakup

  • As per the latest quarterly data, total AUM consisted of 61% of lease receivables primarily in relation to Rolling Stock Assets, 2.5% of loans to central public sector enterprises under the administrative control of Ministry of Railways(MoR), and 36.5% of advances against leasing of Project Assets.
  • AUM grew by 32.45% to Rs 2.66 lakh crore in FY20 from Rs 2 lakh crore in FY19.

Financial Highlights

  • Growth in Total Revenue from operations has been impressive. In FY20 revenue grew by 22.15% to Rs 13,421 crore. For the 6 months ended September 30, 2020, it was at  Rs 7,384.83 crore, up 12% on-year.
  • Net profit jumped by 50% in FY20 to Rs 3,192 crore. For the 6 months ended September 30, 2020, it was at Rs 1,886 crore as compared to Rs 1,630 crore a year ago.
  • While AUM growth was able to sustain largely, disbursements saw a fall of 22% for the first half of FY21.

Issue Details 

  • Issue open: 18 Jan - 20 Jan 2021
  • Price band Rs 25- Rs 26
  • Issue Size: Rs 4,455 Cr - Rs 4,633 Cr
  • Face value: Rs 10
  • Reservation for QIB - 50% , Non institutional Investors -15% , Retail -35%
  • Bid Size - Multiples of 575 shares

INDmoney Analysis

  • Given the nature of its business, IRFC does not have a comparable peer. On the upper price band of Rs 26, the issue is attractively priced at a 1x the FY20 book value per share. 
  • The company follows a cost-plus based business model. IRFC earns a margin over the weighted average cost of borrowing. This margin is determined by the Ministry of Railways in consultation with them at the end of each Fiscal. For example in FY20, IRFC is entitled to a margin of 0.4% for financing Rolling Stock Assets and a margin of 0.35% for financing Project Assets.
  • In the near future, the expansion plans of the Indian Railways are expected to scale exponentially. The financing needs will also expand thus benefiting IRFC. 
  • IRFC has strong fundamentals and has delivered good growth in recent years. It has a low-risk profile, since it caters to the Indian Railways and other Public sector Undertakings. Moreover, it has a low cost of borrowing and diversified sources of funding. Given all the factors above, we remain positive on the long term prospects of the issue.