Indian Railway Finance Corporation limited IPO

Indian Railway Finance Corporation Limited IPO

Indian Railway Finance Corporation known as IRFC is a finance arm of the Indian Railways. Incorporated in 1986, Indian Railway Finance Corporation (IRFC) is a public-sector enterprise that is wholly-owned by the Government of India.

The company is registered with the RBI as a systemically important NBFC and is classified under the category of an “Infrastructure Finance Company”. Its primary business is financing the acquisition of rolling stock assets, which includes both powered and unpowered vehicles, for example, locomotives, coaches, wagons, trucks, flats, electric multiple units, containers, cranes, trollies of all kinds and other items of rolling stock components as enumerated in the Standard Lease Agreement (collectively, “Rolling Stock Assets”), leasing of railway infrastructure assets and national projects of the Government of India (collectively, “Project Assets”) and lending to other entities under the Ministry of Railways, Government of India (“MoR”).

It follows a financial leasing model to finance rolling stock assets procurement for a lease period of 30 years. The key thing to note is in the last 30 years IRFC has zero NPA. In fiscal 2019, the actual capital expenditures by the Indian Railways were Rs. 1,334 billion, out of which, IRFC financed Rs. 525.35 bn accounting for 39.34% expenditures.

Strengths of the Company:

    1. Plays Strategic role in financing the growth of Indian Railways.
    2. The cost of borrowings is comparatively low based on strong credit ratings in India and diversified sources of funding.
    3. Financial performance is a consistent and cost-plus model.
    4. Low-risk business model.
    5. Strong asset-liability management.
    6. Experienced senior management and committed team.

IRFC IPO is a main-board IPO of 1,782,069,000 equity shares of the face value of ₹10 aggregating up to ₹4,633.38 Crores of which Fresh Issue 11,88,04,60,000 Shares Equity Shares, aggregating up to Rs 3088.92 Crore Offer for Sale comprises: Up to 59,40,23,000 Equity Shares, aggregating up to Rs 1546.44 crore. The issue is priced at ₹25 to ₹26 per equity share.

The minimum order quantity is 575 Shares. The IPO opens on Jan 18, 2021, and closes on Jan 20, 2021. The shares are proposed to be listed on BSE, NSE.

IPO Objective:

    • Offer for Sale: The Company will not receive any proceeds from the Offer for Sale.
    • Fresh Issue: Net Proceeds from the Fresh Issue are proposed to be utilized in augmenting the company’s equity capital base to meet business future growth requirements.

Financial Performance:

  FY2018 FY2019 FY2020 H1 FY2021
Revenue 9,207.80 10,987.40 13,421.10 7,384.80
Expenses 6,675.90 8,232.00 10,229.00 5,498.00
Net income 2,002.30 2,140.10 3,191.50 1,887.30
Margin (%) 21.7 19.5 23.8 25.6

Tentative Time Table:

  • 13th Jan: Announcement of Price Band
  • 12th Jan: Anchor Investors Allotment
  • 18th Jan: Offer Opens
  • 20th Jan: Offer Closes
  • 27th Jan: Finalization of Basis of Allotment
  • 27th Jan: Unblocking of ASBA Accounts
  • 28nd Jan: Credit of Equity Shares to Depository Accounts
  • 29th Jan: Commencement of Trading


The market cap @26/share on listing day will be around 33000 crores and it is going to enter the top 100 large-cap company list. IRFC operates on a unique business model, quite contrasting to REC/PFC. Whatever price they borrow from the market, while financing to MoR, they provide it with a 40 basis point margin.

For railway companies, the margin is 150 basis points. Eyeing the budget it is expected that IRFC may get further orders from the railways as the government is planning to run 150 private trains. However, if the government doesn’t fix IRFC as the only NBFC for Railways, IRFC may lose its monopoly. We recommend a “Subscribe” rating only for the long term.

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