Personal Finance

IRFC IPO – Overview, Detailed Analysis

January 16, 2021

IRFC IPO – Overview, Detailed Analysis

Investors in the Indian stock market represent a huge appetite for Initial Public Offers (or IPOs). With IPOs, most companies have expansion plans, therefore as their business skyrockets, so do your investments. Instead of buying stocks after the company showcases its success story, you get to be a part of one.

Year 2020 witnessed around 15 IPOs that went on to raise more than Rs 25,000 crore. Some IPOs like Happiest Minds, Chemcon Specialty, Mazagon Dock Shipbuilders, Burger King, and Mrs. Bectors’ were subscribed more than 100 times. Mrs. Bectors’ ended the pandemic packed year by being the highest subscribed IPO which was 198 times, whereas SBI Cards and Payment Services had the largest issue size, more than Rs 10,000 crores.

The First IPO of 2021

The first issue of the new calendar year of 2021 is of the government-owned IRFC or Indian Railway Finance Corporation, which is the first railway’s non-banking finance PSU to go public.

IRFC, which was established in 1986, is a dedicated financing arm of the Indian Railways for mobilizing funds from domestic as well as overseas markets. The primary business or objective of IRFC is to meet the predominant portion of the ‘Extra Budgetary Resources’ (EBR) requirement of the Indian Railways through market borrowings at the most competitive rates and terms.

IRFC finances the acquisition of Rolling Stock Assets and Project Assets of the Indian Railways and lending to other entities under the Ministry of Railways. Over the last three decades, IRFC has played a significant role in supporting the capacity enhancement of the Indian Railways by financing a proportion of its annual plan outlay.

In the fiscal year of 2017, 2018, 2019, and 2020 (revised estimate), the company was responsible for financing 72%, 93%, 84%, and 76% respectively, of the Indian Railway’s total rolling stock (Source: Ministry of Railways). The total value of Rolling Stock Assets financed by the company as of September 30, 2020 was Rs. 234,627.17 crore.

According to its website, IRFC, is a Schedule ‘A’ Public Sector Enterprise under the administrative control of the Ministry of Railways, Govt. of India and non-deposit taking Non-Banking Financial Company (NBFC) and Infrastructure Finance Company (NBFC- IFC) with Reserve Bank of India (RBI).

The Union Cabinet, in April 2017, had approved the listing of five railway companies. Four of them — IRCON International, RITES, Rail Vikas Nigam, and Indian Railway Catering and Tourism Corp (IRCTC) – have already been listed.

IPO Listing Details

Indian Railway Finance Corporation (IRFC)’s initial public offering of Rs 4,455 – Rs 4,633 crores will hit the markets on January 18 and close on January 20. IRFC is issuing shares at a price band of Rs. 25 to Rs. 26 with a minimum lot size of 575 shares.

IRFC is offering up to 178 crore equity shares with a face value of Rs. 10 each. The initial public offering comprises a fresh issue of up to 118.8 crore equity shares and an offer for sale of up to 59.4 crore equity shares by the government. IRFC filed its draft red herring prospectus for IPO with SEBI in January 2020.

Up to 50% of the net issue will be reserved for the Qualified Institutional Buyers (QIB) while the company has reserved 35% of the issue for the retail investors and 15% of the issue will be reserved for non-institutional investors.

DAM Capital Advisors(formerly known as IDFC Securities Limited), HSBC Securities and Capital Markets (India), ICICI Securities, and SBI Capital Markets are the Book Running Lead Managers to the issue. While KFin Technologies will be the registrar for the issue.

What will the Proceeds be Used For?

The dedicated market borrowing arm of Indian Railways will utilise the net proceeds towards augmenting the company’s equity capital base to meet future capital requirements arising out of growth in business and general corporate purposes. The shares of IRFC are proposed to be listed on BSE and NSE.

IRFC’s Strengths & Business Risks

Strengths:

● Strategic role in financing the growth of Indian Railways

● Competitive cost of borrowing based on strong credit ratings in India and diversified sources of funding

● Consistent financial performance and cost-plus model

● Low-risk business model

● Strong asset-liability management

● Experienced senior management and committed team

Risks:

● Revenue dependency on Indian Railways business. The new funding avenues will have a negative impact.

● The negative or slow growth of Indian Railways will have an adverse impact

● Disruption in funding sources and higher funding costs will impact the business negatively

● The unfavorable margin on rolling stock assets leased can impact financial condition and operation.

● Mismatch in the tenor of their leases and borrowings may lead to reinvestment and liquidity risk, which may adversely impact their financial condition and results of operations

● Any downgrade in their credit ratings or India’s debt rating could increase their finance costs

● Any change in the terms of the Standard Lease Agreement entered with the MoR may have an adverse effect on their business, financial position, and result of operations.

How to Apply for IPO on Paytm Money

1 Log in to the Paytm Money app and complete your fully digital KYC for stock, if not done already.

2 Once your details are verified and the Demat account is created, click on the IPO section on the home screen.

3 You will then be able to see a list of past and upcoming IPOs where you can apply for IPOs that are open for applications.

4 Next, you must add details for bidding such as quantity, amount, and so on. Maximum 3 bids are allowed.

5 After that, you have to enter your UPI id so that the funds for your highest bid are blocked. You will receive a mandate for the same on your UPI app.

6 Once you accept the mandate, your application will be successfully submitted.

7 Once the allotment happens, you will be notified about your allotment status.