IGI Logo

About the Company

Incorporated in 1986, Indian Railway Finance Corporation (IRFC) is wholly-owned by the Government of India acting through the Ministry of Railways (MoR). It is registered with the Reserve Bank of India as a NBFC and are classified under the category of an ‘Infrastructure Finance Company’ under Section 45-IA of the Reserve Bank of India Act, 1934. It is the dedicated market borrowing arm of the Indian Railways.

Its primary business is financing the acquisition of rolling stock assets, which includes both powered and unpowered vehicles (locomotives, coaches, wagons, trucks, flats, electric multiple units, containers, cranes, trollies of all kinds).

The MoR is responsible for the procurement of rolling stock assets and for the improvement, expansion and maintenance of project assets. IRFC has played a significant role in supporting the capacity enhancement of the Indian railways by financing a proportion of its annual plan outlay. It follows a financial leasing model to finance rolling stock assets procurement for a lease period of 30 years comprising a primary period of 15 years followed by a secondary period of 15 years.

In addition, IRFC also extend debt financing to other PSU entities. It maintains the highest possible credit rating both for domestic and international borrowings.

Objects of the Issue

* Augmenting its equity capital base to meet future capital requirements arising out of growth in the business

* General corporate purposes

Valuation

IRFC plays a crucial role in financing the operations of the Indian Railways. In FY20, IRFC has financed Rs. 714 bn which accounted for 48.2% of the actual expenditure of the Indian railways.

Going forward, with government’s increased focus on infrastructure and transport, rising income levels and urbanization, we anticipate the budget allocation would continue to increase in the coming years for Indian Railways. This would provide a significant financing opportunity for IRFC as it is the primary financing source for the Indian Railways.

The company meets its funding requirements through various sources which includes market borrowings of various maturities and currencies. Its strong credit rating and diversified sources of funding allows the company to offer competitive cost of borrowing. It enjoys the credit rating of AAA from CRISIL and CRISIL A1+. The financial performance has been encouraging for the company as its revenue and profits have grown at 21% and 26% CAGR over FY18-20.

Further, given its strong relationship with MoR, the company maintains a low risk profile. In order to minimize interest rate and foreign currency exchange risks, IRFC enters into hedging arrangements with respect to a portion of its interest rate risk and foreign currency exposure, particularly arising from its external commercial borrowings. Going forward, the company plans to further diversify its borrowing profile by exploring additional fund raising options at cost effective rates, including Indian Rupee denominated bonds issued in international markets.

It intends to broaden its financing portfolio by funding various Project Assets including those relating to the decongestion of the railways network and the expansion of the existing network of the Indian Railways. It also plans to leverage its significant and diversified experience in fundraising and financing activities for the Indian Railways to provide financial structuring advisory and consultancy services.

Therefore, given the promising long term growth prospects and low risk business model, we have a positive view on the company for long term. On the valuation front, IRFC is valued at 1x Sep-20 BVPS. Investors having long term view can invest in the company

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer http://ex.religareonline.com/disclaimer

SEBI Registration number is INZ000174330

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaimer