Why IRFC Share Price is Rising

In a significant milestone, Indian Railway Finance Corporation (IRFC) shares surpassed Tata group company Tata Steel's market cap in intraday trade today.

IRFC's marketcap also surpassed other biggies like Jio Financial Services and Varun Beverages.

Shares of the company zoomed over 17%, hitting a new all-time high of Rs 134. The stock is now up over 5x from its IPO price.

Let's find out the reasons justifying the current rally and what you could expect from the multibagger stock in 2024.

Why IRFC Share Price is Rising in 2024

#1 Potential Fundraising Plans

According to reports, IRFC is planning to raise up to Rs 25 billion (bn) which also involves a greenshoe option of raising Rs 20 bn, through bonds maturing in five years and three months.

The company informed last week that it has invited bids from investors and bankers.

The Indian government owns 86.36% stake in IRFC. This is much higher than the minimum public shareholding norms.

So the company might look at fundraising options and dilute some stake along the way.

According to reports, around 20% of IRFC's outstanding equity will become eligible for trading once its lock-in period ends on 29 January 2024.

Once the IPO lock-in period ends, shares of the company could see some volatility although lock-in ending does not necessarily mean that the shares will be sold in the market... it just means that so and so shares will become eligible to be traded.

#2 Optimism Ahead of Budget

Railway stocks like IRFC are also in news ahead of the upcoming Budget.

The Indian government declaring fresh infusion for the development of railway infrastructure and expected strong Q3 results by railway companies have fuelled the optimism.

#3 Strong Growth Prospects

Apart from the rumours about a potential fundraising, IRFC shares are rallying owing to strong growth prospects.

The government recently announced a massive investment of around Rs 7 trillion for the development of rail infrastructure. This move will primarily benefit railway PSUs like IRFC.

IRFC's principal business is to borrow funds from the financial markets to finance the acquisition/creation of assets, which are then leased out to the Indian Railways.

This massive capital-intensive project by the government will create a substantial funding requirement for the Indian Railways. IRFC, established as its dedicated financing arm, is perfectly positioned to benefit.

Meanwhile, the company boasts of sound financials, and it has reported good numbers for the September 2023 quarter.

Analysts are expecting the company to continue reporting good numbers in the future quarters as well as given the government's focus on the sector which will need massive capital infusion.

IRFC's robust balance sheet size with nil gross NPA, low overheads, and the Indian Railways' huge capex needs bode well for the company's growth prospects over the long term.

However, one must not expect everything similar with IRFC and PSU stocks especially in the election year 2024.

Investors might face disappointments if earnings growth does not keep up with expectations. It would not be wise to expect similar returns in 2024 from IRFC compared to an excellent year like 2023.

How IRFC Share Price has Performed Recently

IRFC share price rallied over 17% today to hit a fresh all-time high of Rs 134.

In the past one month, the stock has gained over 40% while in the past 1 year, IRFC shares have zoomed over 300%.

With such huge gains in such short time, investors remain as bullish as ever on IRFC.

Interestingly, the company came out with its IPO three years ago at Rs 26. Skip forward to today and the stock is up over 5x since listing and over 6x since its historic lows.

IRFC's marketcap has now topped Rs 1.7 trillion and shares are currently trading at a PE ratio of 24.4x and a price to book value multiple of 3.1x.

Here's a table comparing IRFC with its peers -

Comparative Analysis

Company	IRFC	PFC	REC	Satin Creditcare
ROE (%)	14.7	18.2	20.6	15.4
ROCE (%)	5.3	9.3	9.1	12.7
Latest EPS (Rs)	4.6	40.5	47.9	30.7
TTM PE (x)	24.7	9.8	8.9	8.9
TTM Price to book (x)	3.1	1.8	1.8	1.2
Dividend yield (%)	1.3	3.4	2.9	0.0
Industry PE	12.5
Industry PB	2.1

Data Source: Ace Equity

About IRFC

Indian Railway Finance Corp Ltd is engaged in the business of borrowing funds from the financial markets to finance the acquisition/creation of assets which are then leased out to the Indian Railways or any entity under the Ministry of Railways.

Its only operating segment being leasing and finance. The company generates maximum revenue from lease income.

Its sole objective is to raise money from the debt capital markets to part-finance the plan outlay of Indian Railways.

The money so made available is used predominantly for acquisition of new rolling stock assets to be leased to Indian Railways or developing railway infrastructure.

For more details, see the IRFC company fact sheet and quarterly results.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...