The Indian Railway Finance Corporation is an NBFC with the objective of financing Indian Railways. It was founded in 1986 and IPOed last month.
- Market Cap ₹ 32,475 Cr.
- Enterprise Value ₹ 266,751 Cr
- Current Price ₹ 24.8 (ipo price: ₹ 25)
- Stock P/E 8.80
- Book Value ₹ 23.7
- March 20 revenue: ₹ 13,838 Cr and PBT: ₹ 3,692
Whom does it lends to:
- Majorly it acquires rolling stock assets and then leases it to the Ministry of Railways(MoR). The lease terms between IRFC and MoR are revised every year.
- It also finances other PSUs like RVNL.
- The borrowing target is also provided by MoR at the start of the year.
How does it borrow:
- Long term issuer rating is AAA by Crisil, ICRA, Care. Baa3- by Moody’s.
- From Domestic and International markets. Though domestic contribution is > 80%.
- term loan from LIC (biggest lender), banks and other institutions, Sale of bonds, internal accrual and asset securitization.
Promoters: Its a PSU with the GoI’s holding at 86%. 14% is public.
- 3yr revenue growth cagr: 15% 3yr profit after tax growth cagr: 58%
- current ROCE 5.93% ROE 13.2%
Future Growth Drivers: Govt of India’s ambitious 100 trillion Rs planned infra investment (national infra pipeline 2019-2025). Railways should get a good chunk of it. (new locomotives, tracks, electrification etc) and that would be needed to be financed.
- 0 NPA since 1986. Prospects of any NPA in future is really slim because MoR get its fund from the union budget.
- High credit rating results allows them to borrow at good rate. This can help them negotiate with MoR for better terms.
- Number of employees: 26. IMO the chances of fraud/scam reduces if the number of employees are low. Obviously employee cost also remains low.
- Risks relating to damage to Rolling Stock Assets as a result of natural calamities and accidents are passed on to the MoR.
- Foreign currency risk is also passed down to MoR.
- Good historic performance.
- Only one client. But that client is MoR.
- Final say on margins is with MoR and is decided every year. This is a big risk IMO.
- No stock based incentive to KMP. Also the KMP remuneration is very low in comparison to PAT. (< 0.5%). Whats the incentive to the management to give their hearts out??
I believe the Company is trading at cheap valuation and shouldn’t be considered just a dividend company when there is a strong railway infra push by the government which will directly translate to higher borrowing via IRFC. Though i can’t get my head around as to why is a PSU making big bucks out of govt’s pockets.
Looking forward to insightful opinions from fellow Valuepickrs!!
Disc: Tracking. Not yet invested.