Should investors consider investing in India’s first PSU NBFC – IRFC?

Indian Railway Finance Corporation, a subsidiary of Indian Railways, is a non-banking financial company with a market cap of over Rs. 30,000 crore. At the end of March 2021, it had reported annual revenue of Rs. 15,770 crores. 

It is the largest financier of Indian Railways, contributing to nearly 50% fundraise in 2020. Its principal business is to borrow funds from the financial markets, finance the acquisition of assets, and then lease them to the Ministry of Railways and collect rental payments.IRFC is the legal owner of Indian Railways’ assets. It leases stock for 30 years periods with primary period of 15 years followed by secondary period of 15 years. Railways payback the principal amount during the primary period.

IRFC also lends to other companies like Railtel, Rail Vikas Nigam Limited, and Konkan Railway. However, the Indian Government remains its biggest client. It might stay like this for some 10 years because it finances the National Railway Plan. Under NRP, the Government aims to spend Rs. 10 lakh crore to improve railway infrastructure and facilities.

The IRFC share price net interest income had grown by 11.8%. Despite being a government entity, its cost of borrowing is on the higher side at 7.09%. Till 2020, it had not reported a single non-performing asset in three years. Besides that, its return on assets had improved from 0.7% to 1.2% in two financial years leading to FY20. Its profit after tax had also grown significantly to over 26%.

The company has received the highest credit ratings from various credit rating companies. In March 2021, its net annual sales were over Rs 15,000 crore, up 13% from Rs 13,000 crore in March 2020. It also reported an EBIT of Rs 15,650 crore, up over 14% from March 2020. While in 2020, its EPS had decreased to Rs. 3.66, the IRFC share rose to Rs 23.75 in March 2021.

As per an ICICIdirect report, the strengths of IRFC in stock market are as follows:

  • IRFC effectively uses shareholders’ funds, as shown by improving return on Equity overthe past two years.
  • Growth in quarterly net profit with increasing profit margin compared to the previous year.

For disclaimer and detailed report, click here: 

https://www.icicidirect.com/mailimages/IDirect_IRFC_IPOReview.pdf

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