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
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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