Shares of Indian Railways Finance Corporation (IRFC) will list tomorrow (January 29) on BSE and NSE.
Amid a sustained selloff in the broader market indices, the GMP (grey market premium) for IRFC has fallen to Rs 0.20-0.25 from Rs 1.5 today.
The IPO of the fifth railway's company to hit the stock market since 2017- comprises an issue size of Rs 4,600 crore, out of which the fresh issuance will comprise Rs 3,100 crore and OFS Rs 1,500 crore.
During the three-day subscription process between January 18-20, 2021, the IPO was subscribed nearly 3.5 times. It received bids for 432 crore shares against the issue size of 124.75 crore. Ahead of the IPO, IRFC had raised about Rs 1,400 crore from anchor investors.
The first-ever IPO by a non-banking financial company (NBFC) in the public sector is being done by a dedicated market borrowing arm of the Indian Railways.
IRFC IPO's objective is to augment the company's equity capital base to meet business future growth requirements. The company will not receive any proceeds from the offer for sale and the same will be received by the Government of India.
The government plans to reduce its stakeholding in IRFC to 86% from 100% from the IPO. The issue includes a reservation of Rs 50 lakh worth of shares for eligible employees.
IRFC share allotment was finalised on 25th January.
Nirali Shah, Senior Research Analyst, Samco Securities said," IRFC is the first IPO to hit Dalal Street in the calendar year 2021 which is a direct play on the growth of Indian railways. The Company's leases and loans are backed by MOR and that's why it has reported nil NPAs for the quarter ended September 2020. IRFC's AUM has also grown at a 20% CAGR from 2018 to 2020."
She added," However, despite being the primary lender to the Indian Railways the company comes with its own set of risks. Firstly, it is highly dependent on the MOR for its margins and any adverse determination of the margin will also impact its profitability. Additionally, there is a possibility that its cost of funds may rise in the future. Keeping these inherent risks in mind, we feel investors should assess their own risk appetite and then decide to go for the IPO."
LKP Securities said in its note, "The company's primary business is financing the acquisition of Rolling Stock Assets and Project Assets of the Indian Railways and lending to other entities under the MoR. Over the last three decades, the company has played a significant role in supporting the capacity enhancement of the Indian Railways by financing a proportion of its annual plan outlay. The promoter of the company is the President of India, acting through the MoR. As of September 30, 2020, the company's 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."
Geojit in its IPO Note said today," IRFC follows a low-risk business model with a margin determined by the MoR at the end of each fiscal year. For FY18-20, revenue grew at a CAGR of 21% while PAT grew by 26% CAGR. In FY20, IRFC reported PAT of Rs.3,192cr on revenue of Rs.13, 421cr. In FY17, 18, 19 and 20, IRFC financed 72%, 93%, 84% and 76%, respectively, of the rolling stock purchased by it and leased to the MoR. From April 1, 2017, to September 30, 2020, IRFC financed Rs. 1.79 trillion to the Indian Railways. At the upper price band of Rs.26, IRFC is available at a P/E of 9x and P/B of 1.1x on an annualized basis, which appears attractive. Considering the extensive expansion plans of the Indian Railways, monopoly in the business, a low-risk business model and stable RoE, we assign a Subscribe rating for the issue."
"IRFC's gross NPAs are nil as it has entire exposure to Railways or its controlled entities for which the RBI has exempted IRFC from asset classification norms. IRFC has a significant dependence on Railways for its revenues. Change in Capex plans or policies like Railways having ability to raise its own funds, detrimental changes to the term of the agreement, lack of support in terms of ability to raise funds at lower rate or availability of funds are some of the key risk factors impacting the business and result of the operation," IIFL said in a note.