The Rs 4,633 crore initial public offer (IPO) of Indian Railway Finance Corporation (IRFC) has opened today and will be available for subscription till 20^th January, 2021. The price band has been fixed at Rs 25-26 per share. IRFC, a wholly-owned government of India (GoI) enterprise under the administrative control of ministry of railways (MoR), is registered with the Reserve Bank of India (RBI) as a Non-Banking Finance Company (NBFC) under the category of Infrastructure Finance Company.

The primary business of IRFC is financing the acquisition of rolling stock assets, which includes both powered and unpowered vehicles such as locomotives, coaches, wagons, trucks, flats, electric multiple units, containers, cranes, trollies of all kinds and other items of rolling stock components, leasing of railway infrastructure assets and national projects of the government of India and lending to other entities under the MoR, GoI.

From about Rs 4,600 crore that the IPO is expected to mop up, roughly about Rs 1,500 crore will go to the government and two-third will accrue to IRFC. The company proposes to utilize the net proceeds from the fresh issue for augmenting its equity capital base to meet the future capital requirements arising out of growth in its business and general corporate purposes.

IRFC has a strong leasing model for financing the rolling assets. Typically, the period of lease is around 30 years with the first 15 years focused on recovering the principal amount along with the weighted cost of borrowing plus a margin and the last 15 years to generate revenue. Since commencement of business till September 30, 2020 IRFC has financed 11,670 locomotives, 66,603 coaches, 244,902 wagons and 85 cranes and truck machines which amounts to Rs 2,34,627 crores of rolling stock assets already being financed. It is a huge milestone the company has achieved.

IRFC earned a margin of 40 basis points (bps) over the weighted average cost of incremental borrowing for financing rolling stock assets and a spread of 35 bps over the weighted average cost of internal borrowing for financing project assets.

The company has been consistently maintaining the highest possible credit ratings assigned by CRISIL, ICRA & CARE i.e. AAA; A1+, which is indeed the highest credit rating benchmark in India. Also IRFC’s plays a strategic role in financing growth of Indian railways through its embedded low risk business model backed by strong asset-liability management; competitive cost of borrowings and diversified sources of funding. The company has demonstrated consistent growth in funding and profitability. Besides, cost-plus based standard lease agreement with the MoR has historically rendered with a margin over the weighted average cost of incremental borrowing. At the upper end of the price band at Rs 26 the IRFC stock is valued at one time FY20 price to book value.

(With inputs from AUM Capital Market)