The initial public offering (IPO) of Indian Railway Finance Corporation(IRFC), the borrowing arm of Indian Railways is set to open on 18th January 2021 and will remain open for subscription till 20th January 2021.
Established in 1986, IRFC is a Schedule ‘A’ Public Sector Enterprise under the Ministry of Railways’ administrative control. It functions as the dedicated financing arm of the Indian Railways for mobilizing funds from domestic and overseas capital markets for acquiring rolling stock assets and infrastructure building which constitutes a significant part of annual capital expenditure incurred by Indian Railways.
Since its inception, IRFC has played a significant role in supporting the expansion of the Indian Railways by financing a significant proportion of its annual expenditure. IRFC intends to use the IPO proceeds to increase its equity capital base to meet its future capital requirements arising out of growth in business and general corporate purposes.
Some quick facts about the IRFC IPO:
The price band for the IRFC IPO is set at Rs 25-26.
The minimum lot size is of 575 shares. An individual retail investor can bid in multiples of 575 shares thereafter.
The issue size for IRFC IPO is Rs. 4633 crores at the higher price band.
Shares of IRFC are expected to be listed around 29th January 2021.
Key strengths and opportunities
• IRFC plays a significant role in supporting the capacity enhancement of the Indian Railways by financing a proportion of its annual plan outlay.
• Sound credit ratings such as CRISIL AAA/A1+, ICRA AAA/A1+ and CARE AAA and CARE A1+.
• Competitive cost of borrowing.
• Consistent growth in terms of funding and profitability
• Low-risk business model as Ministry of Railways has historically never defaulted in its payment obligations under the Standard Lease Agreement. Additionally, lease payments to IRFC by the MoR form part of the annual railway budget in India’s Union Budget.
• Sound asset-liability management which ensures minimum asset-liability mismatches.
• Experienced management team.
Key challenges to consider before you invest in IRFC IPO:
In its Red Herring Prospectus, the company has listed some factors which may impact the future performance of the company, such as:
• Loss of or decrease in business from the Indian Railways, any direct borrowing by the Indian Railways or introduction of any new avenues of funding by the Ministry of Railways.
• Any slowdown in the growth of Indian Railways.
• Any disruption in the company’s funding sources or any inability to raise funds at a low cost.
• In the event the interest margin on the Rolling Stock Assets funded by the company is not favourable.
• Mismatch in the tenor of the company’s leases and borrowings may lead to reinvestment and liquidity risk.
• Any adverse change in terms of the Standard Lease Agreement entered into by the company with the Ministry of Railways.
• Any downgrade in IRFC’s credit ratings or India’s debt rating.
Bottom line: Should you invest in IRFC IPO?
Due to its consistent growth in profitability and attractive valuations, the IRFC IPO appears to be a good bet. However, before investing in the IRFC IPO or any stock in the secondary market, it is very important to conduct a detailed research with respect to the company’s financial statements, key ratios and future growth prospects.
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