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IRFC IPO fully subscribed on strong retail demand: 10 things to know

The 4,600 crore IPO of Indian Railway Finance Corporation (IRFC), which opened on Monday, was fully subscribed today, supported by strong retail demand. It is the first IPO by a non-banking financial company (NBFC) in the public sector. At the end of Day 2, the IPO was 1.22 times subscribed. The retail segment was 2.33 times subscribed while the HNI segment 0.24%.

IRFC public issue closes on January 20. IRFC, the dedicated market borrowing arm of the Indian Railways, is offering up to 178.2 crore shares of face value of Rs. 10 each. It comprises fresh issue of up to 118.8 crore shares and an offer for sale of up to 59.4 crore equity shares by the government of India. Post IPO, the shareholding of government will come down to 86.4%, from 100% earlier.

Here are 10 things to know about IRFC IPO:

1) IRFC is issuing shares at a price band of 25 to 26. The lot size is 575. Or in other words, bids can be made for a minimum of 575 equity shares and in multiples of 575 equity shares thereafter. The application money per lot is 14,950 at 26 per share.

2) IRFC IPO indicative timeline: According to brokerages IRFC share allotment is likely to be finalised on 25th January while listing could happen on 29th January.

3) KFin Technologies Private Limited is the registrar of IRFC IPO and will manage share allocation and refund.

4) IRFC will use the IPO proceeds from the fresh issue to boost its capital base and general corporate purposes.

5) DAM Capital Advisors, HSBC Securities and Capital Markets (India), ICICI Securities and SBI Capital Markets are Lead Book Running Managers of the issue.

6) “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,” Religare Broking said in a note. For the year ended March 2020, IRFC had posted a net profit of 3,192 crore. Its assets under management was at 2.78 lakh crore as of September 30, 2020.

As of September 30, 2020, IRFC’s total assets under management, consisted of 55.34% of lease receivables primarily in relation to rolling stock assets, 2.25% of loans to central public sector enterprises entities under the administrative control of MoR (“Other PSU Entities”), and 42.41% of advances against leasing of Project Assets.

7) “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 one time September 2020 book value per share. Investors having long term view can invest in the company,” Religare Broking said.

8) LKP Securities also recommends subscribe to the IRFC issue. “Attractive valuation with healthy return ratios make us optimistic on the long term prospects for IRFC,” the brokerage said.

“IRFC’s gross NPAs are nil as it has entire exposure to Railways or its controlled entities for which the RBI has exempted IRFC from asset classification norms,” IIFL Securities said in a note.

9) IRFC’s primary business is financing the acquisition of rolling stock assets and project assets of the Indian Railways and lending to other entities under the Railways. Over the last three decades, the company has played a significant role in supporting the capacity enhancement of the Indian Railways by financing a proportion of its annual plan outlay.

10) Ahead of the IPO, IRFC had raised 1398.63 crores from 31 anchor investors.

Key risk factors: “IRFC has significant dependence on Railways for its revenues. Change in capex plans or policies like Railways 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,” IIFL said in a note.

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