5 Things to know before investing

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The First public
sector NBFC which is going to be listed on stock exchange with 4,600 Crores
IPO.

Here are 5 things
you should understand before investing into this IPO:

About The Company :

Incorporation Year
: 1986

Indian Railway
Finance Corporation (IRFC) was set up on 12th December, 1986 as the dedicated
financing arm of the Indian Railways for mobilizing funds from domestic as well
as overseas Capital Markets. IRFC is a Schedule ‘A’ Public Sector Enterprise
under the administrative control of the Ministry of Railways, Govt. of India

It is also
registered as Systemically Important Non–Deposit taking Non Banking Financial
Company (NBFC – ND-SI) and Infrastructure Finance Company (NBFC- IFC) with
Reserve Bank of India (RBI).

The Company’s
principal business therefore is to borrow funds from the financial markets to finance
the acquisition / creation of assets which are then leased out to the Indian
Railways.

The Union Cabinet
had in April 2017 approved listing of five railway companies. Four of them —
IRCON International Ltd, RITES Ltd, Rail Vikas Nigam Ltd and Indian Railway
Catering and Tourism Corp — have already been listed.
 

Watch the whole Explanation on YouTube :

IRFC IPO By BEAT THE STREET 

Business Model of IRFC:

Leasing of
Assets

IRFC follows a
leasing model to finance the rolling stock assets and project assets of Indian
Railways. 

Lending to
Railway Subsidiaries

IRFC also has
presence in lending activities and have provided funds to various companies in
Railway sector like Rail Vikas Nigam Limited (RVNL), Konkan Railway Corporation
Limited, Rail Land Development Authority, Railtel Corporation of India and
Pipavav Railway Corporation Limited.

Funding Mechanism

IRFC has been
meeting its funding requirements from various sources to extract the lowest possible
pricing from the markets like Tax free Bond, taxable Bond, ECB(External Commercial
Borrowing),Loan from Banks etc.

Strengths & Concerns of the Company :

Strength :

     
Sound
Credit rating i.e. CRISIL AAA/A1+ and ICRA AAA/A1+

Also Read on FinMedium:  The NPCI Rival – Beat The Street

     
Strong
Financial performance

     
Experienced
management team

     
President
of India act through the Ministry of Railways(MOR) is promoter of the Company.

     
Diversification
of borrowing portfolio

     
Broaden
their financing portfolio

     
Continued
focus on asset-liability management

     
Provide
advisory and marketing services.

Concerns :

               They
derive significant revenue from Indian Railways. If there is a loss or reduction in                            business or if Indian Railways  find other avenues for  direct
borrowing, this would                                  impact company business.

     Its
business growth is dependent on the growth of Indian Railways. Such business is
susceptible to Government of India initiatives to either modernize the railways
and slow down the growth of Indian Railways.

     Its
operational efficiency would completely dependent on its ability to maintain
and get diverse sources of funds and at a low cost. If there is any disruption
in its funding sources or if there is any inability to raise funds for low
cost, it would impact its business.

     Its
margin on the rolling stock assets to the Ministry of Railways is not
favorable, then it would have an impact on its business.

Basic Details about the IPO:

     
Open:
Dec 28, 2020

     
Close:
Dec 30, 2020

     
IPO
Size: ₹4600 Crore (Approx.)

     
Face
Value: ₹10 / Equity Share

     
Price
Band: ₹25 to ₹26 / Share

     
Listing
on: BSE & NSE

     
Retail
Portion: 35%

     
Minimum
Lot Size: 575 Shares

     
Minimum
Amount: ₹14,950

     
Pre
Issue Promoter Shareholding: 100%

Also Read on FinMedium:  Vedanta Limited Delisting Analysis

     
Post
Issue Promoter Shareholding: 86%

 

Financial Performance of the Company :

(Rs. In Crores)

 

FY 2018

FY 2019

FY 2020

Revenue

9,268

11,133

13,838

Expenses

6,675

8,232

10,146

Net income

2,049

2,254

3,691

Net Margin

22.1

20.3

26.7

 

      • PAT
shown steady CAGR of 16%.

      • Net
worth increased with 17% CAGR.

      • Revenue
shown increase of 13% CAGR.

 

Indian Railway
Asset Financed during Last 5 Years

 

Current Year Financial 2020 vs 2019 :

 

How does IRFC help
IRCTC?

     
IRFC
plays a major role in financing the growth of Indian Railways. Due to
diversified sources of funding and strong credit ratings in India, IRFC has
managed to borrow money at competitive costs.

     
The
funds raised by IRFC are used to fulfil Indian Railways’ development needs and
also to purchase rolling stock assets such as locomotives, coaches, wagons,
trucks, flats, electric multiple units, containers, cranes, trolleys of all
kinds and other items.

 

Points to be considered before investing :

     • Highest
Credit Rating

      • Valuation
at this level is as per PE Ratio 7.62x with upper price band of 26.(3 Years)

      • There
are no listed peers in the same industry, hence we cannot say IRFC Share price
is under priced       or overpriced. 

     •  At
this Price range Co. is performing well in last years.

      •  Some
Concerns like : Negative operating cashflow, Indian Railways Impact on Business
and Interest Rate changes will affect its business. Like If there is any
disruption in its funding sources or if there is any inability to raise funds
for low cost, it would impact its business.

 

Note : Please take
advice from your financial advisor before investing.

Blog by Nimish Maheshwari 

Open Dmat account with us :

 

Note : No content of this blog should be construed to be investment advice. You should consult a qualified financial advisor prior to making any actual investment or trading decisions. All information is for educational and informational use only. The Author accepts no liability for any interpretation of article or comments on this blog being used for actual investment. This is purely an information services, and any trading done on the basis of this information is at your own, sole risk.

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