IRFC OFS: Govt denies greenshoe option; issue opens for retailers today, should you apply?

IRFC OFS: The offer-for-sale (OFS) of Indian Railway Finance Corporation Ltd (IRFC) shall open for retail bidders on Thursday, February 26 after the Government of India, the promoter of the financial services provider, decided not to exercise the oversubscription option, limiting the stake sale to only 2 per cent.

Government had planned to divest 2 per cent stake in IRFC through OFS route, with an additional 2 per cent greenshoe option, taking the overall stake sale to 4 per cent. However, the Ministry of Railways, action on behalf of the President of India informed the bourses that it will not exercise the oversubscription option. The floor price for the OFS has been set at Rs 104 apeice.

The issue was open for non-retail investors on Wednesday, February 25. Institutional investors showed decent interest on the first day, placing bids for over 22.34 crore shares, or 95 per cent of the 23.52 crore shares reserved. Institutional bids were worth around Rs 2,326 crore at an indicative price of Rs 104.12 per share.

Shares of IRFC settled at Rs 104.43 on Wednesday, falling more than 4.5 per cent for the day. The Government is selling its stake to achieve its divestment plan and to meet minimum public shareholding norms. The issue will kick-off for retail investors today, with some investors wondering if they should consider the OFS after the stock fell 30 per cent from its 52-week high.

Answering the question, Abhishek Jain, Head of Research, Arihant Capital Markets Ltd said that investors should approach it with caution. Although the stock has corrected nearly 50 per cent from its all-time highs and is currently around Rs 100–104 levels, valuations still appear expensive on an overall basis, he said.

"While railway capex continues to flow, the environment could remain challenging. That said, at around Rs 100–104, long-term investors may consider applying. However, from a valuation standpoint, the stock does not appear inexpensive even after the recent correction, and investors should factor that into their decision," he added.

Echoing the similar tone, Mahesh M Ojha, Vice President Research & Business Development at Kantilal Chhaganlal Securities said that the investors with a long term horizon, at least 12-18 months, should consider this OFS. "The additional float and overhang of more dilution may take some time to absorb in the markets. The stock will react on quarterly earnings as well."

To recall, shares of IRFC were listed in November 2021, when the company raised a total of Rs 4,633 crore via IPO, by selling its shares for Rs 26 apeice with a lot size of 575 equity shares. Incorporated in 1986, IRFC is a public-sector enterprise, primarily engaged in financing the acquisition of rolling stock assets, leasing of railway infrastructure assets, and lending to entities.

More shares hitting the market could create some pressure on the shares. Traders would expect short-term weakness until the offering is completed, said Dr Ravi Singh, Chief Research Officer at Master Capital Services. IRFC is fundamentally solid, has a quasi-sovereign credit quality, will continue to produce stable revenues and plays a vital role in financing railway projects, he added.

"IRFC shares are at a discount to their historical multiples. Investors might choose to buy shares of IRFC as they open through the OFS to take advantage of lower share prices and are comfortable from short-term price fluctuations. Overall, there is not likely to be a long-term impact due to the OFS on IRFC, but it provides a tactical opportunity for investors to evaluate," Singh adds.