IPO

Indian Railway Finance Corporation IPO : The First IPO of 2021

Indian Railway Finance Corporation is a public owned company. It is entirely owned by the Government. The govt. is also responsible for the management activities of the same. As per the shareholding pattern the govt. holds 100% stake in it. The primary task of Indian Railway Finance Corporation is to handle financial aspects of the Indian Railways by mobilizing and channeling the funds through Indian as well as foreign capital markets. It began its operation in 1986 and in the 30 yrs tenure has served immensely in supporting the expansion and development plans of Indian Railways through financing.

The company’s primary goal is to borrow funds from the market at most discounted rates and easy terms and to supply the same to Railways for meeting the Extra Budgetary Resources requirements.

It finances not only expansion plans but also helps in acquisition or creation of assets and infrastructure. It performs financial tasks for every entity under MOR (ministry of railways).

As per the records the total expense of Indian Railways in 2019 was around 1300 billion dollars and nearly 40% was provided by IRFC. This proportion amounts to roughly 520 billion dollars.

IPO Details

The solo promoter of the company is the President of India who does his functions through the MOR (ministry of railways).

Indian Railway Finance Corporation IPO is set to be launched on 18th January and it closes on 21st January. The share price fixed is 25 – 26 Rs. per share and the face value per share is 10 Rs. It is going to be a book built issue and the lot size would be roughly around 575 shares. The listing is going to be done at both exchanges i.e. BSE and NSE. The issue size is quite huge given the low valuation of shares. The issue size is approximately 1782 crore eq shares of 10 Rs. each which amounts to roughly 4633 crore Rs. Out of that the fresh issue is for 1188 crore shares and offer for sale is for 594 crore shares. The IPO registrar is Kfintech Pvt Ltd.

Tabular Data

IPO OPENING DATE	18th January
IPO CLOSING DATE	20th January
ISSUE TYPE	Book Built Issue
Face Value per share	Rs. 10
IPO price band	25 – 26 Rs
LOT SIZE	575 shares
MINIMUM ORDER QUANTITY	575 shares
ISSUE SIZE	1,78,20,69,000 EQUITY SH. (Rs. 10 each)
OFFER FOR SALE	59,40,23,000 EQUITY SH. (Rs. 10 each)
FRESH ISSUE	1,18,80,46,000 EQUITY SH. (Rs. 10 each)
LISTING AT	BSE, NSE
LISTING DATE	28th January

The IPO allotment date is set at 25th January and the refunds are planned on 27th January. The shares are to be credited on 27th January in the DEMAT accounts. Listing is planned on 28th January.

Lot Size and Promoter Details

For retail investors the minimum lot size is fixed at 575 shares and the amount for such investment is 14950 Rs. The retail investors can also apply for 13 lots at a time amounting to 7475 shares. The amount for that investment is 194350 Rs.

The promoter holding will also considerably change post listing. The Promoter holding pre listing is 100% and it will change to 86% post listing.

The lead managers for this IPO are :

HSBC Securities & Capital markets Pvt. Ltd.
ICICI Securities Ltd.
IDFC Bank Ltd.
SBI Capital Markets Ltd.

Objectives

The major objectives behind the IPO listing are :

To increase the equity capital base of the company and gather more funds for further expansion projects and capital requirements.
For meeting the expenses related to general corporate purposes.

Company Financials

PARTICULARS (in crore Rs.)	2017	2018	2019	2020
ASSETS	1.29 L	1.62 L	2.06 L	–
REVENUE	8015	9280	11130	13840
NET PROFIT	920	2045	2255	3692

As we can see the company’s assets, net profit and revenue have been constantly increasing at a very good rate. Hence the company is profitable, stable and growing constantly. Hence it is a good investment tool.

Categorical Break Up

CATEGORY	EQUITY SHARES
Anchor investors	53,45,63,010
QIB	35,63,75,340
NII	26,72,81,505
RII	62,36,56,845
Employment Quota	1,92,300
TOTAL	178,20,69,000

Earning Strategy of Indian Railway Finance Corporation

The company has strategies aligned to borrowing functions of it. OT strictly keeps a note of the rates and requirements a-of funds and the market position as well. Hence it has to get a perfect mix of market trend and borrowing rate for successful acquisition of funds at low rates. The company performs various strategies at many levels for making this happen the strategies are :

It diversifies its borrowing portfolio so that in case one source becomes costly than the previous acquisition range it can shift the source. This allows the company to have backup plans as and when required.
It constantly works on expanding its financing portfolio so that business grows.
The company strictly manages the balance between asset and liability in the balance sheet so that it always holds a good position and credibility in the market.
It also provides advisory services to MOR so that they can plan their projects based on cost of allocation of funds and future prospects. It is also involved into strategic consulting to various entities listed under MOR’s purview.

Pros

Plays very important role in strategy formation for Railways of India
Great credit ratings from CRISIL and ICRA. Both rating are A1+/AAA
Utilized various sources for acquiring funds
Involved in domestic and capital markets for capital gains
Consistent performance
Low risk and high return
Good asset and liability balance in the annual sheets for every year
Experienced team for management

Cons

Company’s business totally depends upon the MOR and its entities. The majority part of its business is associated with Railways. This means if Railways find another source for acquiring funds at lower costs the business of IRFC would be affected. Also if Railways suffer from loss or degradation in business the revenue of IRFC will directly be affected. Also any policy changes in the markets affect the company’s borrowing model.
The company’s growth depended on the growth of Railways as per the current business model. Hence if Railway’s business is affected the direct impact would be on IRFC. This is not good for any company. It should get other sources of income so that its dependence on railways decreases gradually.
Its work is solely for having finance capacity to provide to MOR when required. For this it is dependent on various funding sources. Hence if the acquisition of funds becomes costlier the cost model of the company gets affected totally.
It has to keep the tenures of lease and borrowings in mind while performing movement of cash. Any mismanagement in liquidity of cash can cost its contracts to expire.