Indian Railway Finance Corporation Ltd - IPO Note (Not Rated)

Indian Railway Finance Corporation Ltd.

Issue Opens: January 18, 2021
Issue Closes: January 20, 2021
Face Value: ? 10
Price Band: ?25-26
Issue Size: ~?4,633cr (at upper price band)
Bid lot: 575 Equity shares
Issue Type: OFS & Fresh Issue
 

Post Issue percentage is at upper price band

Company Background

Indian Railway Finance Corp. (IRFC), registered with RBI as a systemically important NBFC (ND-IFC), is the dedicated market borrowing arm of the Indian Railways (IR). Its primary business is to finance the acquisition of rolling stock, leasing of railway infrastructure assets & national projects of the Government of India (GoI) and lending to other entities under the Ministry of Railways (MoR).

Offer Details:

The total issue size is ?4,633Cr which consist of Fresh Issue of ?3,089Cr and Offer for sale of ?  1,544Cr at the upper end of the price band. The proceeds from the fresh issue are proposed to be utilized towards: 

• Augmenting IRFC’s equity capital base to meet future capital requirements arising out of growth in its business; and 
• General corporate purposes

Financials

Source: RHP, 5paisa Research, *Ratios and other figures are not annualized and are on pre IPO basis.

Strategic importance to IR:
 
IRFC mainly raises money from the markets (both domestic and / or international) to buy railway assets like rolling stock and finances infrastructure assets. It then leases them to IR over a period of 15-30 years and earns lease rentals in return. IRFC plays a critical role in facilitating priority capex for IR which has been historically lagging, owing to constraints on budgetary support and has been garnering attention over the past 6-7 years, thanks to assistance from Extra Budgetary Resources.

Nil asset quality concerns:
 
IRFC’s gross NPAs are nil as it has entire exposure to MoR or its controlled entities for which the RBI has exempted IRFC from asset classification norms. As per the RHP, the MoR has historically never defaulted in its lease payment obligations which is likely to continue going ahead

Key Risk Factor:

IRFC has significant dependence on IR and MoR for its revenues. Change in capex plans or policies like IR having ability to raise its own funds, detrimental changes to term of 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 operation.

Outlook & Valuation: 

IRFC has a low risk model, adequate liquidity & ALM and ability to raise funds at most competitive rates. At the upper end of the price band, IRFC is seeking post IPO multiple of ~1xx 1HFY21 P/BV (~0.6x/0.7x for PFC/REC).

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