IRFC IPO : 5 Things to know before investing

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+

      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%

      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 

Beat The Street

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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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