Home >Markets >Stock Markets >IRFC makes tepid debut; lists at 4% discount over issue price

Shares of Indian Railway Finance Corporation (IRFC) made a tepid listing on Friday. The stock was listed at 24.90, 4.2% discount over its share price of 26. The initial public offering (IPO) was open for subscription from 18-20 January with a price band of 25- 26. The issue was subscribed 3.49 times.

This is the first stock listing of 2021 wherein the government plans to sell around 13.64% in the company to raise around 4,633.38 crore at the upper end of the price band. The net proceeds from the fresh issue are proposed to be utilised for augmenting the equity capital base of the company to meet their future capital requirements arising out of growth in their business and for general corporate purposes.

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IRFC is a dedicated market borrowing arm of the Indian Railways and is wholly-owned by the Government acting through the Ministry of Railways. Its primary business is financing the acquisition of rolling stock assets and project assets of the Indian Railways and lending to other entities under the ministry.

“The company has supreme asset quality with nil non-performing asset (NPA) since its inception along with robust net profit growth of 30% CAGR in PAT for the past three years. It has recently granted a zero tax under income tax act due to its unrecognized depreciation. The company’s management clarified that nil tax will remain for certain financial years," said Canara Bank Securities Ltd ahead of the issue. It added that as of 31 March 2020, the company trades at 1.02 times price to book (P/B) for FY20 earnings.

IRFC follows a financial leasing model for financing the rolling stock assets with typically 30 years comprising a primary period of 15 years followed by a secondary period of 15 years.

According to Nirmal Bang Securities, IRFC is a proxy play on the strong capex growth in Railways which has witnessed a considerable pickup post FY15 as the NDA government accelerated the overall infrastructure spending including railways.

“Upon comparing IRFC with other PSU non-banking financial companies (NBFCs) having exposure to infrastructure sectors, we observe that IRFC has a marginally lower return on equity (ROE) which is compensated by higher growth; although valuations appear to be higher than peers," Nirmal Bang Securities said.

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