The ₹4,600 crore IPO from IRFC is ‘attractive,’ and the best thing about the borrowing arm for Indian Railways is the assured margin

• The issue from the government-owned company will remain open till January 20, making it the first IPO of 2021.
• The best thing about the borrowing arm for the Indian Railways is the cost-plus model. All brokerages have a ‘subscribe’ rating on the stock.
• Analysts believe that the IPO is attractively priced and can offer a good investment opportunity for the investors. Healthy financials, growth visibility and strong credit ratings are some of the reasons why they like this issue.
• The stock was commanding a grey market premium of 8% over the issue price band of ₹25-26 per share.

The ₹4,634 crore initial public offering (IPO) of Indian Railway Finance Corporation (IRFC) is now open for subscription. The issue from the government-owned company will remain open till January 20, making it the first IPO of 2021.

The best thing about the borrowing arm for the Indian Railways is the cost-plus model. Whatever cost IRFC pays for raising funds from the market, the Ministry of Railways has agreed to pay a little more as margin. This certainty of a profit margin is a big advantage for IRFC, and that’s why nearly every analyst on the street has a ‘subscribe’ rating on the IPO.


The grey market premium indicates a subdued demand for its shares — the stock was commanding a premium of 8% over the issue price band of ₹25-26 per share. However, investment experts believe it could be because of the IPO clashing with Indigo Paints, and the investors may be divided based on their interest.

All you need to know about IRFC IPO:

• Indian Railway Finance Corporation Limited (IRFC) is the dedicated market borrowing arm of the Indian Railways.
• This is also the first IPO by a non-banking financial company (NBFC) in the public sector.
• The IPO comprises a fresh issue of 59.43 crore equity shares and offer-for-sale of up to 118.80 crore shares.
• Once the IPO is concluded, the shares are likely to hit the bourses on January 29.
• The equity shares will be listed on both the exchanges — BSE and NSE.

Cheap valuation, healthy financials, growth visibility and much more — here’s what analysts have to say about the IPO

Attractive valuation

Analysts believe that the IPO is attractively priced and can offer a good investment opportunity for the investors. The team at brokerage firm, Anand Rathi, has highlighted that the company is reasonably valued at current valuation and enjoys high credit worthiness. At the upper price band, the shares are offered at 8 times its earnings and at 0.97 times the price-to-book ratio, with a market cap of ₹33,978 crore.

The price to book ratio is the financial ratio used to compare a stock's market value to its book value. Traditionally, any value under 1 is considered a good P/B value, indicating a potentially undervalued stock.

It enjoys ‘monopoly’ in the sector

IRFC works as the dedicated market borrowing arm for the Indian Railways and has played a strategic role in financing the operations of the Indian Railways.

According to Kotak Securities, the extensive expansion plans of the Railways in the future will involve significant financing, and the company’s operations, as a primary financing source for the Indian Railways, will increase massively. In fiscal 2020, it financed ₹713.92 billion, accounting for 48.22% of the actual capital expenditure of the Indian Railways.

As the company funds the Ministry of Railways, it has a significantly low client-risk profile and no asset quality concerns. As of September 2020, IRFC did not have any non-performing assets.

Strong credit ratings

For any NBFC, credit worthiness is a crucial indicator. And IRFC has the highest possible credit ratings for an Indian issuer, both for domestic and international borrowings, given its diversified funding source.

The company has received the highest credit ratings from CRISIL, ICRA, CARE and other credit rating agencies.


ICICI Direct says that the company has managed to keep the cost of borrowing competitive because of its diversified sources of funding, highest credit ratings and strategic relationship with the Ministry of Railways.

Healthy financial position and cost-plus model

The company has also recorded consistent financial performance over the past three fiscal years. The overall revenues grew at a compounded annual growth rate (CAGR) of 19% since FY17 till March 2020. And, the net profit grew by a CAGR of 26.3% during FY18-20.

According to Kotak Securities, the company’s cost-plus based Standard Lease Agreement with the Ministry of Railways (MoR) has historically provided them with a margin over the weighted average cost of incremental borrowing determined by the MoR in consultati on. And, the cost-plus pricing model for financing typically provides for a relatively higher margin.

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