Started in 1986, the Indian Railway Finance Corporation (IRFC) is a public-sector enterprise that is wholly-owned by the Government of India and dedicated market borrowing arm of the Indian Railways. IRFC is primarily engaged in financing the acquisition of rolling stock assets, leasing of railway infrastructure assets, and lending to entities under the Ministry of Railways (MoR). Being the borrowing arm of Indian Railways, IRFC is responsible to raise funds for MoR that is required to procure rolling stock assets (wagons, trucks, electric multiple units, locomotives, coaches), its improvement, expansion, and assets management. Company 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, unless otherwise revised by mutual consent. In terms of the leasing arrangements, the principal amount pertaining to the leased assets is effectively payable during the primary 15 years lease period, along with the weighted average cost of incremental borrowing and a margin determined by the MOR in consultation with IRFC at the end of each Fiscal. Typically, the weighted average cost of incremental borrowing factors in any expenses incurred by Company with respect to any foreign currency hedging costs and/ or losses (and gains, if any) as well as any hedging costs for interest rate fluctuations. A nominal amount of Rs 1,00,000 per annum shall be payable for the second 15 year period or until the Rolling Stock Assets are sold out to the MoR or any other buyer before the completion of the lease period. The lease rentals during the second 15 year period are subject to revision with mutual consent. As of September 30, 2020, company's total AUM, 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. In Fiscals 2017, 2018, 2019 and 2020 (revised estimate), company were responsible for financing 72%, 93%, 84% and 76%, respectively, of the rolling stock purchased by them and leased to the MoR (Source: Ministry of Railways). The total value of Rolling Stock Assets financed by them as of March 31, 2020 and as of September 30, 2020 was Rs 2,238,107.84 million and Rs 2,346,271.68 million, respectively, while the value of Rolling Stock Assets financed in Fiscal 2020 and in the six months ended September 30, 2020, was Rs 335,441.09 million and Rs 108,163.84 million, respectively. As per financial performance, IRFC has posted total income/net profits of Rs. 8013.79 cr. / Rs. 921.17 cr. (FY18), Rs. 9268.38 cr. / Rs. 2049.08 cr. (FY18), Rs. 11,133.59 cr. / Rs. 2254.66 cr. (FY19) and Rs 13,421.09 cr / Rs 3191.54 cr (FY20). For upto H1 of FY21, company has posted profit of Rs 1887.26 Cr on total revenue of Rs 7384.82 Cr. So company has shown good performance. IRFC has posted an average EPS of Rs. 3.30 and average RoNW of 11% for last three fiscals. Issue is priced at a P/BV of 0.97 as per NAV of 26.67 on 30.09.20. As per FY20 earnings, P/E is around 10.65. If we attribute latest annualised earnings of FY21 on fully diluted equity post issue, then asking price is at a P/E of around 9. As per RHP, there is no listed peers. On BRLM's front, four BRLMs are associated with this IPO, and have handled around 23 IPOs in last three fiscals, and from last 10 IPOs, 5 opened below issue price and remaining opened above issue price on the day of listing. As of now, from last 10 IPOs, 2 are trading below issue price and remaining above issue price. ( As on 15.01.2021 ) As per financials, results are good, RoNW is 11.57% for last three fiscals and issue looks reasonably priced with respect to current earnings and future growth prospectus. Government of India is working on modernisation of Indian Railway and expected to spend good amount in next few years, which may go through this company, so future growth will be good. Performance of BRLMs are good. So we give SUBSCRIBE rating to this IPO and one may invest from long term perspective.
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