Business

Key factors to check before buying IRFC Shares

Indian Railway Finance Corporation Limited plays a very strategic role in the growth of Indian Railways. It is a dedicated arm of the Indian Railways that borrow money from the market and lends it back to the Indian Railways and other related entities. Following are the key things to know before buying the IRFC share:

Business model

IRFC says its business is characterised by lowrisk and is a cost-plus business model. All the costs incidental to lending and borrowing pass through the Ministry of Railways, including the cost of hedging. It is a low-risk business model because no cost is borne by the company, although the margin is not that

Financials

The company management said the revenue from operations has grown by about 29% YoYin FY22, and the profit has grown at 38% YoY. The company claims to have low overheads and administrative costs. Only 0.13% of our total revenue is the establishment cost of this company. The return on Equity stands at about 15%, return on assets at about 1.5%, which compares well with the industry average.

Interestingly, they need not pay any tax because of the existence of an unabsorbed depreciation balance that helps keep the taxable income at zero. However, thecompany’s margins are abysmally low because its purpose is to keep the cost of railways low. 

Growth record

Ever since 1986, when the company was formed as a Special Purpose Vehicle of Indian Railways to be the sole borrowing arm to fund the capital expenditure requirements of Indian Railways, the Asset Under Management has grown rapidly at a rate of 15.32% YoY. As of date, it stands at Rs. 4.15 lakh crore. 

Credit rating

Various agencies have a different ratings on the company and its bonds. In June 2022, Fitch Ratings revised the outlook of Indian Railway Finance Corporation Limited to ‘Stable’ from ‘Negative’. The revised rating of IRFC is ‘BBB- Rating Outlook Stable’. The long-term ratings from ICRA, CRISIL, and CARE are AAA, the highest grade. The low rating by foreign rating agencies is because they rate government-owned companies in line with the respective sovereign ratings. 

Price-performance

The IRFC share price performance has been dismal. Since it was listed on bourses in January 2021, the stock has traded in the red on most days. As of June 2022, the stock is down over 20%. 

Analysts advise

In its Strengths, Weaknesses, Opportunities, and Threatsanalysis, ICICIdirect said it sees eight points of strength against six weaknesses. It has spotted three opportunities in the counter compared to the single threat. 

Key technical indicators

Most technical indicators are bearish on the stock. The IRFC share price today trades below 20-day, 50-day, 100-day, and 200-day simple moving averages. Similarly, it trades below 20-day, 50-day, 100-day, and 200-day exponential moving averages. 

For a disclaimer and detailed report, click here: 

https://www.icicidirect.com/stocks/indian-railway-finance-corporation-ltd-share-price

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