IRFC (Indian Railway Finance Corporation) IPO: The first IPO of 2021.

Incorporated in 1986, IRFC (Indian Railway Finance Corporation)  is a public sector enterprise and is wholly owned by Government of India. It, being a non-banking financial company and an infrastructure finance company was initially setup as a special purpose vehicle. As the name suggests, it is the finance provider of railways and plays a major role in the growth and expansion of Indian railways where 40 per cent of the expenditure of Indian railways is provided by IRFC. Sound credit rating by CRISIL AAA/A1+(lowest credit risk) and ICRA AAA/A1+

Objectives of the Company:- 

• Acquisition of Rolling Stock Assets (Wagons, Tracks, Multiple Electronic Units, Locomotives, Coaches) 
• Leasing of Railway Infrastructure Assets (Providing Financial Lease For 30 Years) 
• Lending to Entities and the Ministry of Railways

Utilisation of the Issue:-

The IPO proceeds are likely to be utilised for the following objects 

• To meet general corporate purposes. 
• To augment companies equity capital base. 
• To meet business future growth requirement.

Where does IRFC raise fund from? 

• Government Funding 
• Through Taxable & Tax-free Bonds 
• Life Insurance Corporation & Other Sources (Funds Being Raised at Nominal Rates)

Opportunities for IRFC:- 

• Monopoly in The Market.
• Expansion of Indian Railways means IRFC Expansion. 
• Zero NPA 
• Very Low Capital Expenditure

Risks for IRFC:- 

• Government in the Budget Announced running of 150 Private Trains and the fund if raised from Private Sources Will be a Risk for IRFC but one should not forget cheap IRFC funding. 
• With every change of Government there is change in plans. 
• Post IPO promoter holding will still stand at 86 percent which at some point will have to be reduced to 75 percent [as per SEBI guidelines] giving us a little insight of what will happen to the left over 11 percent (might be sold off at a loss) 
• Clashing with the INDIGO PAINTS IPO (where the HNI might be interested)

Financials:- 

• The EPS rose from 3.07 to 3.4 from FY 2018 to FY 2020.
• CAGR of Net Income from FY 2018 to FY 2020 is 34.20. 
• CAGR of Revenue from FY 2018 to FY 2020 is 22.2%. 
• PE Ratio is in the range of 7%-7.5% (No other entity in this segment to compare from ) 
• Return on Average Net Worth from FY 2018 to FY 2020 is 11% .
• Net Assets value Per Share on 31st March 2020 is Rs 25.5 and as on 30th September 2020 is Rs. 26.67.

IPO Issue Details:

• The IRFC IPO open date is 18-01-2021, and the close date is 20-01-2021.
• Size of IRFC IPO is Rs. 4,633 crores.
• The IRFC IPO market lot size is 575 shares. A retail-individual investor can apply for up to 13 lots (7475 shares or ₹194,350).
• The IRFC IPO price band is Rs. 25-26 per equity share.
• The anchor book will open on 15-01-2021 and will be allocated up to 60 per cent of the portion reserved for QIBs, to build investor confidence on the IPO. 

-Articulated By Divya Pansari

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This article is being furnished for informational purposes only. We make every effort to use reliable & comprehensive information, but we do not represent that the contents of the article are accurate or complete.