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    IRFC IPO: Grey market premium tepid, but brokers say issue attractive


    Dealers say the stock was commanding a grey market premium of Rs 1.60 over the upper limit of the price band of Rs 25-26 a piece on Thursday afternoon, compared with Rs 1.20 earlier in the day.

    IRCTC shares got listed in October 2019 with listing gains of a staggering 101%.
    NEW DELHI: Unlisted shares of Indian Railway Finance Corporation (IRFC), whose Rs 4,633 crore IPO will hit the market on Monday, were commanding a muted premium in the grey market on Thursday. This is even as brokerages have largely turned positive on the company's prospects and are recommending a 'subscribe' rating on the issue.

    Dealers say the stock was commanding a grey market premium of Rs 1.60 over the upper limit of the price band of Rs 25-26 a piece on Thursday afternoon, compared with Rs 1.20 earlier in the day.

    Abhay Doshi, Founder,, said there is a frenzy for the small IPO of Indigo Paints, which will also hit the market next week. That paints stock is commanding a premium of 60 per cent in the grey market.

    "The size of the IRFC IPO is quite big. The company's financials, no doubt, are strong. But people are not seeing it as the next IRCTC. Maybe, if the offer sees strong subscription during the issue period, the grey market premium will pick up," he said.

    IRCTC shares got listed in October 2019 with listing gains of a staggering 101 per cent. They ended that session rallying 128 per cent. Another railways stock, RVNL, had a flat debut in April 2019. Before that, Ircon International had in September 2018 got listed at a 14 per cent discount to its issue price, largely due to weak market sentiment.

    At the upper end of the price band at Rs 26, the IRFC stock was valued at a one time FY20 price to book value.

    "Attractive valuation with healthy return ratios make us optimistic on the long-term prospects of IRFC," said LKP Securities, which has a 'subscribe' rating on the issue, but with a long-term view.

    IRFC is the dedicated market borrowing arm of the Indian Railways. Its primary business is financing the acquisition of rolling stock assets, leasing of railway infrastructure assets and national projects of the government and lending to other entities under the Ministry of Railways (MoR).

    The MoR is responsible for the procurement of rolling stock assets and for the improvement, expansion and maintenance of project assets and IRFC is responsible for raising finances necessary for such activities.

    In FY20 , the company financed Rs 71,392 crore, accounting for 48.22 per cent of the actual capital expenditure of the Indian Railways.

    "Keeping in mind the relatively low risk business model, strategic role in financing growth of Indian Railways and long term prospects considering electrification and network expansion, we recommend a SUBSCRIBE rating to the offer, as a long term investment opportunity. The offer is well priced at a 1 time book value per share (BVPS) as of September 2020," said BEPL Capital.

    The issue would comprise 1,782,069,000 shares and the price band has been fixed at Rs 25-26 per share. At the upper price band, the issue size would be Rs 1,633.37 crore. Qualified institutional bidders (QIBs) would have a quota limit of 50 per cent; retail quota would be 35 per cent while the quota for non-individual investors has been fixed at 15 per cent.

    The IPO will include fresh issue of up to 1,188,046,000 shares, aggregating up to Rs 3,088.91 crore. It will also comprise an offer for sale (OFS) of 594,023,000 shares by the government, amounting to Rs 1544.44 crore.

    The issue will close for subscription on January 20.

    As of September 30, 2020, the company's total AUM consisted of 55.34 per cent of lease receivables primarily in relation to rolling stock assets, 2.25 per cent of loans to central public sector enterprises entities under the administrative control of MoR and 42.41 per cent of advances against leasing of project assets..

    As far as the company's financials are concerned, the company's total revenue rose 22.15 per cent to Rs 13,421 crore in FY20 from Rs 10,987 crore in FY19. Sales were up 19.33 per cent in FY19. It stood at Rs 7,384 in the six months ended September 30.

    Profit for the six months ended September 30 stood at Rs 1,886.84 crore against Rs 3192 crore5 in FY20, Rs 2,140 crore in FY19 and Rs 2,001 crore in FY18.

    The company's capital adequacy ratio as of March 31, 2020 and September 30, 2020 was 395.39 per cent and 433.92 per cent, respectively. As of September 30, 2020, the company did not have any non-performing assets.

    "During FY17-20, IRFC’s overall revenues grew at a CAGR of 19 per cent driven by strong growth in average AUM
    (nearly 25 per cent CAGR). The company is cost efficient with a cost-to-income ratio at 2.94 per cent with moderate margins (NIM: 1.38 per cent)," LKP said.

    Net proceeds of the IPO are proposed to be utilised towards augmenting the company's equity capital base to meet future capital requirements arising out of growth in business and general corporate purposes.

    DAM Capital Market Advisors (formerly known as IDFC Securities), HSBC Securities and Capital Markets, ICICI Securities and SBI Capital Markets are managing the offer.

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    3 Comments on this Story

    Binesh Binesh48 days ago
    No risk with slight benefits
    Abhayraj Rai50 days ago
    checkout this post !
    Dinesh Prasad Gupta50 days ago
    Govt wants to squeeze the retail investors. There is nothing left for them
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