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Indian Railway Finance Corporation debuts at discount, what should investors do?

The share is worth holding long term, at least for three to four quarters, says Gaurav Garg of CapitalVia Global Research. He expects IRFC to give good returns.

January 29, 2021 / 01:37 PM IST
 
 
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Indian Railway Finance Corporation, the subsidiary of Indian Railways, disappointed investors as shares listed at a four percent discount to issue price on January 29.

The weak market conditions and lower-than-expected subscription to its initial public offering (IPO) weighed on sentiment. The equity benchmarks have corrected around 6 percent in the last five consecutive sessions.

The stock was trading at Rs 25.55, down 1.73 percent from its issue price of Rs 26 at 1246 hours after opening 3.8 percent lower at Rs 25 on the BSE.

Experts say the financing arm of Indian Railways is a long-term investment and investors should hold shares with that perspective.

"We believe IRFC is a long term investment play and not a listing day superstar like Burger King and Route Mobile in the recent IPOs. We advise allotted investors should hold on to their investment to enjoy the decent return on investment (ROI) on a long term basis," Prashanth Tapse, AVP Research at Mehta Equities told Moneycontrol.

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Gaurav Garg, Head of Research at CapitalVia Global Research, said the share was worth holding for at least three to four quarters. He expects IRFC to give impressive returns.

IRFC had close to zero non-performing assets (NPAs) and the current P/E, which is 7.64, was attractive as the business might do well in the long term, he said.

Incorporated in 1986, Indian Railway Finance Corporation is a dedicated market borrowing arm of Indian Railways. Its primary business is financing the acquisition of rolling stock assets, which includes both powered and unpowered vehicles, for example locomotives, coaches, wagons, trucks, flats, electric multiple units, containers and cranes.

It also leases railway infrastructure assets and national projects of the Government of India and lends to other entities under the railways ministry.

IRFC reported strong growth in revenue at a 20.7 percent CAGR in FY18-FY20, while its net profit grew at a CAGR of 26 percent during the same period.

Why buy?

Given the muted listing, investors can start accumulating IRFC shares but need to hold the same for a long term, experts say.

"One should look to accumulate or add-on more using the opportunity of muted listing. Before adding, investors should consider IRFC's monopoly business strength; cost plus margins business model with zero NPA risk, advance receivable of lease rentals and sound asset liabilities management in railway infrastructure which are strong rationales for a long-term visible play," said Tapse.

"We assume in future it can also come under midcap radar under AMFI clarification rule, which will trigger decent money inflow from mutual fund/PMS/HNI and create value. Hence, we recommend investors to 'hold with long term bet only'," he added.

Investors should add the stock into portfolio in the range of Rs 24-26, Garg said. "IFRC might be in focus in Budget 2021 as allocation for railways might give a pleasant surprise with respect to the previous budget," he said.

Indian Railway Finance Corporation raised Rs 4,633 crore via public issue during January 18-20, which included a fresh issue of Rs 3,089 crore and an offer for sale of Rs 1,544 crore. The company will utilise fresh issue proceeds for future capital requirements.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Sunil Shankar Matkar
first published: Jan 29, 2021 01:37 pm

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