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Indian Railway Finance Corporation IPO day 1: Issue subscribed 65%, retail portion fully booked

Mehta Equities believes IRFC IPO gives investors a unique opportunity to invest in a dedicated market borrowing arm created by the Minister of Finance to support financing requirements of Indian Railways.

January 18, 2021 / 05:32 PM IST
 
 
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The maiden public issue of Indian Railway Finance Corporation, the subsidiary of Indian Railways, has subscribed 64.7 percent so far on January 18, the first day of bidding.

The offer has received bids for 80.89 crore equity shares against an IPO size of over 124.75 crore equity shares, the bidding data available on the exchanges showed.

The abovementioned IPO size excluded the anchor book which already received a good response from investors. The company raised Rs 1,390 crore of its total issue size of Rs 4,633 crore, through the anchor book.

The retail investors remained strong in the primary as well as a secondary market. The portion set aside for them has subscribed 1.25 times on the first day itself, while the employee portion was subscribed 13.52 times. The reserved portion of non-institutional investors saw a subscription of 9.18 percent and that of qualified institutional investors 0.01 percent.

The 1,78,20,69,000 equity shares public issue consists a fresh issue of 1,18,80,46,000 equity shares and an offer for sale of 59,40,23,000 equity shares by the President of India. The issue includes a reservation of Rs 50 lakh worth of shares for eligible employees.

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Indian Railway Finance Corporation IPO opens today: Should you subscribe?

The price band for the issue, which will close on January 20, has been fixed at Rs 25-26 per share.

"On valuations parse at upper price band (Rs 26), the issue is asking for market cap Rs 33,979 crore with PE (annualised FY21) 8x times and on P/BV basis, it is available below 1x which seems to be fairly and reasonably priced to attract long term investors," said Mehta Equities.

Hence, in the view of the reasonable valuations and growth supportive rationales, the brokerage recommended investors to subscribe for the long term only while investors who look for listing gain only may see decent 10-15 percent listing gains in the best-case scenario. "We argue investors should look at this IPO offer only with a long term perspective wherein it can deliver healthy returns on investment," said the brokerage.

Indian Railway Finance Corporation IPO opens: 10 things to know about the issue

IRFC, wholly-owned by the Government of India, is the dedicated market borrowing arm of the Indian Railways. Incorporated in 1986, it follows a financial leasing model to finance the acquisition of rolling stock assets, which includes locomotives, coaches, wagons, trucks, flats, electric multiple units, containers, cranes, trollies, etc.

IRFC is also into leasing railway infrastructure assets and national projects of the Government of India (project assets) and lending to other entities under the Ministry of Railways (MoR).

Mehta Equities believes IRFC IPO gives investors a unique opportunity to invest in a dedicated market borrowing arm created by the Minister of Finance to support financing requirements of Indian Railways.

Over the years, IRFC plays a significant role in supporting the capacity enhancement of the Indian Railways by financing the majority proportion of their annual plan outlay which gives a long term business visibility, the brokerage feels.

Considering its monopoly in the industry, cost-plus margins business model, receivable of lease rentals in advance, sound asset liabilities management, zero NPA risk, and scope on high growth in railway infrastructure will act as strong levers and drive profitable growth for long term play, the brokerage said, adding the good fact of this IPO is that the fresh issue money would be utilised for future capital requirement arising out of growth in IFRC business.

IRFC reported revenue growth at a CAGR of 21 percent and PAT 26 percent during FY18-FY20. In FY20, IRFC reported PAT of Rs 3,192 crore on revenue of Rs 13,421 crore.

The book running lead managers to the issue are DAM Capital Advisors, HSBC Securities and Capital Markets (India), ICICI Securities, and SBI Capital Markets.
Moneycontrol News
first published: Jan 18, 2021 11:43 am

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