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Indian Railways Finance Corp (IRFC) has finally launched its three-day initial public offering today, delayed by the Covid-19 pandemic. Let's talk about it.
In the last 3 years, four companies had listed from the Indian Railways. IRCON, RITES & RVNL had a decent listing, IRCTC went on to become a blockbuster.
Also Read : How to Apply for IPO online (step by step guide)
The empire of Indian Railways: Indian railways in the fourth longest rail network in the world with a revenue of Rs. 1.83 trillion ($26.2 bn) for FY2020. It operates a total running track of 96,552 km. It is divided into 17 zones and operates more than 19,000 trains per day ( 12,000 passenger trains & 7,000 freight trains). Freight remains the major revenue segment for the Indian Railways. It utilises 1/3 rd of its capacity and generates 2/3rd of the revenues. Passenger trains utilise two-thirds of capacity but generate only one-third of the revenues.
1) About IRFC
Started in December 1986, IRFC is a government-owned NBFC that serves only one client — The Indian Railways and its many subsidiaries by financing the railways operations. It is the largest financier for Indian Railways with a contribution of 48.2% of total fund raise in FY20. As of March 2019, IRFC had financed 85.4% of Locomotives, 85% of passenger coaches & 70.4% of wagons held by Indian Railways.
2) IPO Details:
IRFC plans to raise Rs 4,633 crore through IPO. here are the details:
IPO Date: Jan 18, 2021 - Jan 20, 2021
Face Value: ₹10 per equity share
IPO Price: ₹25 to ₹26 per equity share
Market Lot: 575 Shares
Listing At: BSE, NSE
Finalisation of Basis of Allotment: Jan 25, 2021
Initiation of Refunds: Jan 27, 2021
Credit of Shares to Demat Acct: Jan 28, 2021
IPO Shares Listing Date: Jan 29, 2021
AUM had grown at 17.5% CAGR in the last 3 years from 1.23L Cr to 2L Cr as of FY20. NII had grown at 11.8% CAGR from 2095 Cr to 2927.8 Cr as of FY20. NIMs had contracted 20 bps in the last 3 years from 1.8% to 1.6%. Return on Assets had improved from 0.7% to 1.2% from FY18 to FY20. PAT had grown at a CAGR of 34.7% from 921 Cr to 2254 Cr as of FY20.
4) AUM Break-Up (%) and key ratios:
5) Peer comparison & Valuations:
Valuations: At an upper band of Rs 26/- the company is looking at a valuation of 33,978 Cr market cap. This gives us a PE of 10.8 times. They have ~580 Cr of Net tax asset & unabsorbed deprecation. Because of which the PAT has boosted for this year. We can expect a PAT of approx 3300 – 3500 Cr for next year. This will give us a one year forward PE of 9.7.
The net IPO proceeds are proposed to be utilized for the following objects:
- To augment company's equity capital base to meet business future growth requirements.
- To meet general corporate purposes.
7) Competitive strengths
- Strategic role in Indian Railways growth.
- Sound credit rating i.e. CRISIL AAA/A1+ and ICRA AAA/A1+.
- Competitive cost of borrowing.
- Strong financial performance.
- Sound asset-liability management.
- Experienced management team.
8) Grey Market premium:
The grey market premium of IRFC is at Rs 1.25-1.30 per share today.
a) The company has long term AAA rating from all major credit rating agencies.
b) The company has a strong capital adequacy with Tier 1 Capital at 303.7%
c) The company hasn’t reported any NPA in the last 3 years.
d) AUM had grown at 17.5% CAGR in the last 3 years from 1.23L Cr to 2L Cr as of FY20.
e) IRFC is a monopoly.
a) The monopoly status has its own disadvantages too. If the railways don’t make progress, IRFC doesn’t make money. About 99% of revenue is generated through lease rental and interest payments.
b) A higher share of public private partnership may impact the borrowing needs from IRFC.
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