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Indian Railway Finance Corporation Limited IPO (IRFC IPO) envisages to raise up to Rs 3,088.8 crore through the issue of fresh equity shares and another Rs 1,544.4 crore through an offer for sale. Indian Railway Finance Corporation Limited is the borrowing arm of the Indian Railways. Indian Railway Finance Corporation IPO will be the first one of the calendar year 2021 and the subscription will start from Jan 18. The Rs 4,600 crore IRFC IPO will be the first by a public sector NBFC.

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IRFC IPO Details

Issue Period	8th Jan – 20th Jan 2021
Issue Details	Fresh Issue upto 1,188,046,000 Equity Shares
	+ Offer for Sale of upto 594,023,000 Equity Shares
Issue Size (₹ Cr)	₹ 4,455 Cr – ₹ 4,633 Cr
Price Band	₹ 25 – 26
Bid Lot	575 Shares
Issue Structure :
QIB	50% of the net offer
NIB	15% of the net offer
Retail	35% of the net offer- 623,654,150 Equity Shares- ₹ 1,622 Cr)
BRLMs	DAM Capital, HSBC Securities, ICICI Securities, SBI Capital Markets
Registrar	KFin Technologies Pvt. Ltd.

Updates:

• ANCHOR ISSUE: IRFC anchor issue got a good response, garnered Rs 1,389 crore from 31 anchor investors and has allocated 53.45 crore equity shares at Rs 26 per share. This includes Goldman Sachs, BNP Paribas, Kuwait Investment Authority, and Monetary Authority of Singapore. Monetary Authority of Singapore picked 4.15% for Rs 57.62 crore. BNP Paribas picked 3.24% of the shares for Rs Rs 44.97 crore, Kuwait Investment Authority was allotted 2.8% of the shares for Rs Rs 39.98 crore, and Goldman Sachs got 2.16% of the stocks for an investment of Rs 29.98 crore. Government of Singapore was the largest investors among foreign institutions buying 16.39% of the anchor investor portion for Rs 235 crore. Four domestic mutual funds which include HDFC and Nippon were allocated 32.61 crore equity shares from the anchor investor portion.

 

About Indian Railway Finance Corporation Limited

• IRFC, set up in 1986, is the dedicated financing arm of the Indian Railways. The main objective of the IRFC is to meet extra budgetary requirements of the Indian Railways through market borrowings.
• Its primary business is financing the acquisition of rolling stock assets, leasing of railway infrastructure assets and national projects of the GoI and lending to entities under the Ministry of Railways.
• The company follows a financial leasing model for financing the Rolling Stock Assets. The period of lease with respect to Rolling Stock Assets typically 30 years, comprises a primary period of 15 years followed by a secondary period of 15 years, unless otherwise revised by mutual consent
• IRFC also follows a leasing model for Project Assets, which typically provide for lease periods of 30 years.
•  In Fiscal 2020, IRFC financed ₹ 71,392 crore accounting for 48.22% of the actual capital expenditure of the Indian Railways.
•  As of September 30, 2020, IRFC total AUM consisted of 55.34% of lease receivables primarily in relation to Rolling Stock Assets, 2.25% of loans to central public sector enterprises entities under the administrative control of MoR (“Other PSU Entities”), and 42.41% of advances against leasing of Project Assets.

Indian Railway Finance Corporation Limited: Financials

Particulars /  Rs. In Cr.	h1fy21	h1fy20	fy20	fy19	fy18
Revenue from Operations	7,383.12	6,574.77	13,421.02	10,987.35	9,206.97
Revenue Growth (%)	12.29%	–	22.15%	19.34%	–
EBITDA as stated	7,328.06	6,567.93	13,355.22	10,938.82	9,169.88
Profit Before Tax	1,886.84	1,630.39	3,192.10	2,755.34	2,531.94
Profit for the period	1,886.84	1,630.39	3,192.10	2,139.93	2,001.46
Equity Share Capital	11,880.46	9,380.46	11,880.46	9,380.46	6,526.46
Reserves	19,806.51	16,865.03	18,419.29	15,485.84	13,797.82
Net worth	31,686.97	26,245.49	30,299.75	24,866.30	20,324.28
RoNW (%)	6.09%	6.38%	11.57%	9.47%	12.33%
NAV (₹ )	26.67	27.98	25.5	26.51	31.14
FV	10
EPS –Basic (₹ )	1.59	1.74	3.4	3.26	3.07
Dividend (%)	5.33%	–	2.13%	4.81%	3.57%
Equity Post IPO	13068.51
FV	5
IPO Price	26
EPS (Post IPO) FY20	2.44
PE	10.64
EPS (Post IPO) Ann Fy21	2.89
PE	9.00
P/ BV	1.95
Market Cap	33978
Market Cap  /  Sales	4.6

Pros

• IRFC plays a strategic role in financing growth of Indian Railways
• It has Competitive cost of borrowings based on strong credit ratings of AAA.
• IRFC has diversified sources of funding
• IRFC has shown consistent financial performance.
• IRFC operates on cost plus model and follows a low risk business model along with demonstrated strong asset-liability management.

Cons

• Considerable dependence on Indian Railways.
• Any direct borrowing by the Indian Railways or resort to new means of funding by the Railways could have an adverse effect on IRFC.
• Any disruption in funding sources or any inability to raise funds at a low cost could have a material adverse effect on business.
• Unfavorable margin on the Rolling Stock Assets leased to Railways, which is are decided mutually, may impact business.
• IRFC could face liquidity risk if there is any mismatch in the tenor of leases and borrowings
• The company is currently exempt from provisioning requirements of deferred tax assets or deferred tax liability, while withdrawal of the exemption may impact the profitability of the company.

Indian Railway Finance Corporation Limited IPO: Assessment

• After the IPO, government stake in the company will stand at 86.4%. Further efforts by Govt. to reduce stake though means like OFS may keep the stock under pressure.
• The government is likely to continue to disinvest in tranches in future to raise funds for itself, keeping the scrip under constant pressure.
• IRFC financial performance has been encouraging with revenue and profits growing 21% and 26% CAGR over FY18-20.
• IRFC gas diversified sources of funding, follows a cost plus business model , has high credit rating and overall has a low risk profile.
• A comparison with peers is depicted:

company/parameters	Revenues	PAT	NPM	PE	P/adj BV
IRFC	13421	3192	24%	9	0.97
PFC	62189	7122	11%	2.69	0.84
REC	29799	4886	16%	4.7	0.85
HUDCO	7,313	1708	23%	6.84	0.76

• IRFC is being offered at a premium to its peers. However, IRFC is on a strong wicket with better performance, better asset quality, AUM growth, cost to income ratio etc.
• The annualized EPS on post IPO equity works out to Rs. 2.44 for H1FY2021. At the price band of Rs. 26, the P/E being demanded is ~9x.
• In the recent past all the four Railway companies, i.e. IRCTC, RVNL, IRCON & Rites have done well.
• IRFC has posted impressive growth in operating income at 20.7% CAGR between FY18-20. Net profits have grown at a CAGR of 26.3% during this period.
• IRFC is unlikely to face any asset quality issues
• There is no guarantee that IRFC IPO will be able to deliver listing gains. I intend to apply in IPO from a medium term perspective given its low risk business model and good asset quality, good response to anchor issue and faith that Indian railways will continue to grow. I intend to apply on Day 3 and this view will be negated if there is a very tepid response to the issue on day 1 & day 2. ( I applied in the IPO based on general assessment of the company & Day 1 response)
• Do check this page for any last minute updates

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering & Management . Also Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2)  Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors.  I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or  leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.