IRFC IPO | 10 Things You Must Know

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Indian Railways Finance Corp (IRFC) has finally launched its three-day initial public offering today, delayed by the Covid-19 pandemic. Let’s talk about it.

In the last 3 years, four companies had listed from the Indian Railways. IRCON, RITES & RVNL had a decent listing, IRCTC went on to become a blockbuster.

Also Read : How to Apply for IPO online (step by step guide)

The empire of Indian Railways: Indian railways in the fourth longest rail network in the world with a revenue of Rs. 1.83 trillion ($26.2 bn) for FY2020. It operates a total running track of 96,552 km. It is divided into 17 zones and operates more than 19,000 trains per day ( 12,000 passenger trains & 7,000 freight trains). Freight remains the major revenue segment for the Indian Railways. It utilises 1/3 rd of its capacity and generates 2/3rd of the revenues. Passenger trains utilise two-thirds of capacity but generate only one-third of the revenues.

1) About IRFC

Started in December 1986, IRFC is a government-owned NBFC that serves only one client — The Indian Railways and its many subsidiaries by financing the railways operations. It is the largest financier for Indian Railways with a contribution of 48.2% of total fund raise in FY20. As of March 2019, IRFC had financed 85.4% of Locomotives, 85% of passenger coaches & 70.4% of wagons held by Indian Railways.

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2) IPO Details:

IRFC plans to raise Rs 4,633 crore through IPO. here are the details:

IPO Date: Jan 18, 2021 – Jan 20, 2021
Face Value: ₹10 per equity share
IPO Price: ₹25 to ₹26 per equity share
Market Lot: 575 Shares
Listing At: BSE, NSE
Finalisation of Basis of Allotment: Jan 25, 2021
Initiation of Refunds: Jan 27, 2021
Credit of Shares to Demat Acct: Jan 28, 2021
IPO Shares Listing Date: Jan 29, 2021

3) Financials:

AUM had grown at 17.5% CAGR in the last 3 years from 1.23L Cr to 2L Cr as of FY20. NII had grown at 11.8% CAGR from 2095 Cr to 2927.8 Cr as of FY20. NIMs had contracted 20 bps in the last 3 years from 1.8% to 1.6%. Return on Assets had improved from 0.7% to 1.2% from FY18 to FY20. PAT had grown at a CAGR of 34.7% from 921 Cr to 2254 Cr as of FY20.

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4) AUM Break-Up (%) and key ratios:

5) Peer comparison & Valuations:

Valuations: At an upper band of Rs 26/- the company is looking at a valuation of 33,978 Cr market cap. This gives us a PE of 10.8 times. They have ~580 Cr of Net tax asset & unabsorbed deprecation. Because of which the PAT has boosted for this year. We can expect a PAT of approx 3300 – 3500 Cr for next year. This will give us a one year forward PE of 9.7.

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6) Objective:

The net IPO proceeds are proposed to be utilized for the following objects:

  • To augment company’s equity capital base to meet business future growth requirements.
  • To meet general corporate purposes.

Also read: Decoding Technical Analysis for Traders & Investors.

7) Competitive strengths

  • Strategic role in Indian Railways growth.
  • Sound credit rating i.e. CRISIL AAA/A1+ and ICRA AAA/A1+.
  • Competitive cost of borrowing.
  • Strong financial performance.
  • Sound asset-liability management.
  • Experienced management team.

8) Grey Market premium:

The grey market premium of IRFC is at Rs 1.25-1.30 per share today.

9) Pros

a) The company has long term AAA rating from all major credit rating agencies.
b) The company has a strong capital adequacy with Tier 1 Capital at 303.7%
c) The company hasn’t reported any NPA in the last 3 years.
d) AUM had grown at 17.5% CAGR in the last 3 years from 1.23L Cr to 2L Cr as of FY20.
e) IRFC is a monopoly.

10) Cons:

a) The monopoly status has its own disadvantages too. If the railways don’t make progress, IRFC doesn’t make money. About 99% of revenue is generated through lease rental and interest payments.

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b) A higher share of public private partnership may impact the borrowing needs from IRFC.

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Akshay Seth
Research Analyst (SEBI Regd.)
Linkedin | akshay.equity@gmail.com

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Akshay Seth is a SEBI Registered Research Analyst. Has taken sessions on 'Equity Analysis' in IIT Madras, IIT Delhi, IIT Guwahati, IIT Mandi, NMIMS Mumbai. Can be contacted for Stock Advice and Learning Stock Analysis (Fundamental & Technical). +91 8826423141 | info@equityboxx.com
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