IRFC(Indian Railway Finance Corporation)-IPO

IRFC (Indian Railway Finance Corporation)

IPO Details

IRFC IPO will be the first IPO of this year. IRFC intends to raise about ₹4,600 crores through its IPO. The company will raise about ₹3,200 crores through the fresh issue and the government will raise about ₹1,400 crores. After the issue Government will own an 86% stake in the company.

Company Analysis

IRFC is owned by the Government of India. IRFC is registered as NBFC in RBI which directly works for the Ministry of Railways(MOR). IRFC raises funds and manages assets for MoR. IRFC helps in financing all the projects of MoR by taking debt or any other way. IRFC buys assets needed to complete projects of MoR and then it leases the assets to MoR for long period of like 20-30 years. So if IRFC leased some assets to MoR for 30 years, this IRFC may recover the number of assets in 15 years, and in the next 15 years, IRFC generates revenue. IRFC also provides funding to other rail companies like RailTel, Rail Vikas Nigam Limited (RVNL). There are already 4 rail companies (IRCTC, RVNL, RITES, Ircon International) listed on exchanges and IRFC will be the fifth. 

Industry Analysis

IRFC works for railways, so the growth in railways will directly affect the growth of IRFC. 

With ₹102 lakh crore worth of national infrastructure projects in offing, ₹15 lakh crore is expected to be given to the Ministry of Railways.

In FY20, IRFC contributed about Rs 71,000 crore to the Indian Railways CAPEX outlay plan. IRFC hopes to meet 70 percent of the total CAPEX requirement of Railways in FY21. IRFC had disbursed ₹3.4 lakh crores as of March 2020 to Indian Railways. So far in FY21, it has disbursed ₹30,000 crores. The company's AUM as of March 2020 stood at ₹2.66 lakh crores with a net worth of ₹31,000 crores, 13.19 percent return on equity (RoE), and 1.5 percent of return on assets (RoA).

IRFC’s long-term domestic borrowing program was awarded the highest credit rating of 

“CRISIL AAA/Stable”,

“[ICRA] AAA (Stable)” and 

“CARE AAA [Triple A]” by CRISIL, ICRA, and CARE respectively. 

IRFC also got its short-term borrowing program rated, obtaining the highest rating of 

‘‘CRISIL A1+’’, 

‘‘[ICRA] A1+’’, and 

“CARE A1+ [AOne Plus]” by CRISIL, ICRA and CARE.

During the financial year 2019-20, three international credit rating agencies – 

Standard & Poor’s(S&P), Fitch, and Moody’s – have awarded “BBB- with Stable Outlook”, “BBB- with Stable Outlook” and “Baa2 with Negative Outlook” ratings respectively to your Company. 

Besides, the Company obtained an issuer-specific credit rating of “BBB+ with Stable Outlook” from the Japanese Credit Rating Agency

IRFC being a PSU has the advantage of getting debt at low rates of interest as the safety of debt is high. NPAs of IRFC have been 0% since its inception, therefore there has been no default on loan. But IRFC has huge debt in its books, the debt to equity of the company is 9.36 as of 2019. 

Financials

Source: Indian Railway Finance Corporation Limited. Annual Report 2019-20

On y-o-y revenues grew 20%. And the profits increased by an amazing 40%.

The company's revenues grew at a CAGR of 12.17% and net profits increased at a CAGR of 30%. And assets showed a CAGR of 17.28%. And the long-term debt showed a CAGR of 25.76%.

Conclusion

IRFC IPO seems to be attractive as its profits and revenues are growing and when calculated its intrinsic value according to the formula given by Sir Benjamin Graham it says that the company is undervalued. And even the company is associated with the railway sector it has a lot of growth potential and even last year government announced of privatization of Indian Railways so it also opens opportunities for IRFC.