IPO Support

Things to Know Before Subscribing to IRFC IPO

This article envisages about the things to know before subscribing to IRFC IPO. The word IRFC IPO stands for the Indian Railway Finance Corporation- Initial Public Offer. IRFC is the dedicated market borrowing of the Indian Railways, and is offering up to 178.2 Crore shares with the face value of Rs.10 each.

 It comprises the new Issue of up to 118.8 Crores shares and offers for sale up to 59.4 Crores Equity Shares by the Government of India^[1]. This has come to the public because the Initial Public Offer was announced on 18^th January 2021. The importance of this IPO rises due to them because of the price offered for shares. This will improve the government sector as a whole.

What is the IRFC IPO?

The Indian Railway Finance Corporation-IRFC IPO was established to borrow funds from the market to finance the creation or acquisition of assets which is to be leased to the Indian Railways. This company was established in 1986.

Through acquisition of the assets and leased to the Railways, IRFC gets some form of benefits related to depreciation of assets. It is a kind of risk-free business model as there are lease receivables from the MoR (Monthly Operating Receivables) which are considered by the Union Budget. The Lease rentals are earmarked in the Budget assuring Revenue to IRFC. 

It is interesting to note that IRFC is a whole government-owned PSU under Ministry of Railways. IRFC is involved in the financing acquisition of rolling stock assets, leasing railway infrastructure, and funding to entities under MoR. It has financed several projects of the Indian Railways and is instrumental in the development of Indian Railways.

Background of IRFC IPO

The Union Government approved the IPO listing of the five railways companies in which IRFC has been included.

SWOT Analysis of Indian Railways

Indian Railways is a huge company, and with so many passengers travelling every day. It is the largest network in Asia. However the problem persists in transportation and the use age is low. To 15 Lakhs Crore has been awarded to improve the infrastructure of railways. Here, IRFC is the rolling asset provider to railways.

Governance of IRFC IPO

The governance and functioning of the IRFC IPO:

1. In 2017, the Cabinet brought FDI-foreign direct investment and approved the disinvestment of five railway companies including IRFC.
2. Where IRFC is the first railway division to list in the stock exchange. Whereas, the IRFC was listed as 100% listing gain in 2019.
3. The issue size contains both new issues of shares and offers for sale of equities from GOI. IRFC is looking to divest 1.72 crore equity shares, where the 1.18 crore are fresh equities, and 59 crore offer for sale shares.
4. The issuer has reserved 60% of the offer size for QIB investors, remaining 15% and 35% will allot to non-institutional and retail investors.
5. There are running managers for booking Issue such as DAM Capital Advisors, HSBC Securities and Capital Markets (India), ICIC Securities and SBI Capital Markets are appointed on behalf of the IRFC.
6. KFintech Pvt Ltd will act as the registrar of the offer.
7. The shares will be launched at BSE and NSE.

Opportunities attached to IRFC IPO

In Financial Year, 2020, IRFC booked Rs.3659.40 Crores, where the estimated annual growth is mentioned as 9.5% p.a.

The intrinsic value of IRFC is 3659.40 *(8.5+ (2 *9.5)) = Rs. 100,633.5 Crores. Where the market cap of the company is Rs. 4633.37 Crores.

This brings a massive opportunity with the introduction of IRFC IPO, after showing the intrinsic value of the IRFC of his investments in the company.

The positive factor of IRFC IPO

The IRFC plays a crucial role in financing the projects of the Indian Railways since it is the dedicated borrowing arm.

1. Cost of borrowing issued is minimum

IRFC offers a competitive cost of borrowing as it has the diversified source of funding.

2. High Credit Rating

The credibility and Goodwill of IRFC are much better, and it has the most substantial credit rating.

3. Generates the Revenue for railways

The IRFC has a cost-effective agreement with Indian Railways, generating the steady Revenue for Railways.

4. Shows Low-Risk Business Model

The business model of the IRFC is of low risk, due to the nature of the agreement with MoR.

5. Active Asset & Liability Management

It helps to ensure the least mismatch between the assets & liabilities as it follows the asset management strategy.

6. Sound Borrowing Capacity

IRFC has sound lending, structure finance and law with exposure to the Private and Government sectors.

The Objective of the Issue

The prime objective of the IRFC IPO:

1. To expand the company base of equity to meet the business future requirements.
2. To meet the general corporate needs.

Why should IRFC IPO be subscribed?

The subscription of the IRFC IPO should be done because:

1. Due to its citing useful and attractive valuation.
2. Due to the upper price band of Rs 26, IRFC is available at the Price/Earnings ratio is 9x and Price/Book Value of 1.1x on an annualized basis, which appears attractive.
3. To bring the extensive plans of the Indian Railways, and maintaining the monopoly in business from the longest time, a low-risk business model and stable Return on Investment.
4. It is estimated that the IPO proceeds from the Fresh Issue will be used to boost IRFC’S capital Base.
5. The stated reasons are prime for subscribing its IPO.

Conclusion

It can be concluded that before investing in the IRFC IPO, it is essential to understand that IPO support for any company is significant for its future growth and development. The IPO creates a positive impact on the mind of the investor. The advantages of the IRFC IPO are that due to its unique business model, and reliance on the Indian Railway profits, there are fewer chances of its fall. The company runs a risk-free business model, despite railways having a long term debt. IRFC is India’s first NBFC to get it listed. The dependence of Indian Railways to expand its reach and infrastructure shows the scope of revenue generation for IRFC. Even if the government changes its policies of MoR, then also the IRFC is earning profits.