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IPO Review - Indian Railway Finance Corporation (IRFC) - ICICI Direct

Posted On: 2021-01-15 05:32:39 (Time Zone: Arizona, USA)

Indian Railway Finance Corporation (IRFC) is the dedicated market borrowing arm of the Indian Railways. The company registered with the RBI as a NBFC and is classified under the category of an "Infrastructure Finance Company". The primary business is financing the acquisition of rolling stock assets, which includes both powered and unpowered vehicles, as enumerated in the Standard Lease Agreement, leasing of railway infrastructure assets and national projects of the Government of India, and lending to other entities under the Ministry of Railways, Government of India. In FY20, IRFC had financed 76% of the rolling stock purchased and leased to the MoR (Ministry of Railways). IRFC's total revenue from operations increased by 19.3% from ₹9207.9 crore in FY18 to ₹10987.4 crore in FY19 and by 22.2% to ₹13421.9 crore in FY20, and was ₹7384.8 crore in 1HFY21. In FY18, FY19, FY20, and 1HFY21, net profit stood at ₹2001.46 crore, ₹2139.93 crore, ₹3192.09 crore and ₹1886.84 crore, respectively.

Investment Rationale

Strategic role in financing growth of Indian Railways

IRFC is dedicated market borrowing arm for the Indian Railways and has played a strategic role in financing the operations of the Indian Railways. In FY20, IRFC financed ₹71,392 crore, accounting for 48.2% of the actual capital expenditure of the Indian Railways. In FY18, FY19, FY20, and 1HFY21, it financed Rolling Stock Assets worth ₹18,669.86 crore, ₹24,055.08 crore, ₹33,544.10 crore and ₹10,816.4 crore, respectively. The extensive expansion plans of the Indian Railways in the future will involve significant financing, and as a primary financing source for the Indian Railways, the company's operations will increase significantly. The financing targets are determined annually by the MoR (Ministry of Railways) based on the annual planned capital outlay contained in the Union Budget of India for Indian Railways Strong distribution network.

Priced at P/BV of 1x H1FY21 (post issue) on upper band

As a dedicated finance arm of Indian Railways, IRFC remains a low risk model with no non-performing asset and RoE at 11-12%. At the higher end of the price band of Rs. 26 per share, the stock is available at a P/B of ~1x on H1FY21 BV.

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