IRFC shares make tepid debut on bourses; trade at discount to IPO price while benchmark indices gain

Shares of Indian Railway Finance Corporation (IRFC) made a lacklustre listing debut on Dalal Street on Friday at Rs 25 per share, the lower a discount of 3.85% from the upper band of the issue price of Rs 26 apiece. Minutes after listing the stock price moved lower to Rs 24.4 per share. IRFC, a non-bank finance company (NBFC) owned by the Ministry of Railways is the first IPO fo 2021. On listing the stock was commanding a market capitalization of Rs 33,000 crore. The stock has failed to mirror the bumped listing of IRCTC, another Ministry of Railway firm.

IRFC, a state-owned NBFC works for the Ministry fo Railways exclusively. The IPO of the firm was successfully completed earlier this month, raising Rs 4,633 crore from the market of which the firm will get Rs 3,088 crore while the rest was an Offer for Sale (OFS) by existing shareholders. The issue was subscribed 3.49 times by investors with massive bidding by employees of the company who oversubscribed their quota 42 times. Retail investor subscription was at 3.66 times while Qualified Institutional Buyers (QIB) bid for 3.78 times their portion. NII quota was subscribed 2.67 times.

Analysts at Ambit Capital have termed IRFC shares as a “quasi-sovereign bond earning marginally higher than G-sec”. “Expected valuation of ~1x P/B is at 30-40% premium to PFC/REC. But at this point IRFC enjoys higher earnings visibility backed by very low credit risk and almost assured business flow; expansion into the private sector cannot be ruled out,” they added.

IRFC could be a bet on the growth of India’s railway infrastructure. However, the same could also be a risk for the company as its growth depends on the expansion plans of Indian Railways. A poor fiscal environment can impact the firm as investment stalls. On the financial front, earnings for IRFC grew at a CAGR of nearly 50% between the financial year 2017 and the current fiscal year led by ~26% AUM growth. Through the IPO, the government’s shareholding in the stock has gone down to 86% from 1000% pre-issue while the public shareholding jumps to 14%.