IRFC IPO opens today: Should you subscribe?

 The Rs 4,600-crore initial public offering (IPO) of Indian Railway Finance Corporation’s (IRFC) opens for subscription today. This is the first IPO of the year and will close on January 20.

IRFC is also the first government-owned or public sector non-banking financial company (NBFC) to go public.

The initial public offering is of up to 178.20 crore shares with a face value of Rs 10 each. It will comprise of a fresh issue of 118.80 crore equity shares and an offer-for-sale of up to 59.40 crore shares. The company has set a price band of Rs 25 to Rs 26 per equity share.

Over the last three decades, the company has played a significant role in supporting the capacity enhancement of the Indian Railways by financing a proportion of its annual plan outlay.

Most brokerages have advised subscribing to the issue keeping in mind the relatively low-risk business model, strategic role in financing growth of Indian Railways and long-term prospects considering electrification and network expansion.

They also said that the IPO is attractively priced and can be a good bet for conservative long-term investors as the company is seen reporting consistent growth numbers in the past.

Here's a look at what brokerages have to say:

Anand Rathi: The brokerage believes the company is reasonably valued at current valuation and enjoys high creditworthiness. However, it is highly dependent on Indian Railway’s capex plans, it noted.

"The Government has undertaken various policy interventions in order to liberalise the Railways including the development of freight corridors, high-speed railway and elevated corridors. The GoI has also permitted 100 percent FDI on automatic routes in a large number of railway infrastructure activities/areas. Considering the visibility of Capex plan by the Ministry of Railways, the company is likely to benefit further from it," observed the brokerage. It recommends a "Subscribe" rating to this IPO with a long-term view.

Dealmoney: IRFC has a monopoly in its segment of finance. The extensive expansion plans of the Indian Railways in the future will involve significant financing, and IRFC being the only player will benefit from it greatly, the brokerage said in a note. It has shown revenue growth of 20 percent CAGR over 5 years and zero risks of NPAs, it added. It recommends subscribing to the issue from a long-term perspective.

Geojit Financial Services: As per the brokerage, IRFC follows a low-risk business model with a margin determined by the Ministry of Railways at the end of each fiscal year. The firm enjoys the benefit of competitive cost of borrowings based on strong credit ratings and diversified sources of earning, it added. Considering the extensive expansion plans of the Indian Railways, monopoly in the business, a low-risk business model and stable RoE, it assigns a 'Subscribe' rating for the issue.

LKP Securities: As per the brokerage, the company’s primary business is financing the acquisition of Rolling Stock Assets and Project Assets of the Indian Railways and lending to other entities under the MoR. Over the last three decades, the company has played a significant role in supporting the capacity enhancement of the Indian Railways by financing a proportion of its annual plan outlay, it added.

Choice Broking: The brokerage said that the valuation at price to book value (P/BV) of 1 time looks attractive for long-term conservative investors, considering the company’s strong profitability growth of 26.3 percent during FY18-FY20, double-digit return on equity (RoE) of 12.2 percent in FY21 and low-risk profile of the business with zero gross non-performing assets (NPAs).

Hem Securities: Although valuations are looking reasonable and it likes the low risk & cost-plus business model of the company along with strong asset-liability management, the brokerage sees limited expansion both on margin front as well return on equity (ROE) front without any diversification & on zero risk portfolio basis, it noted.

"Therefore looking after strong business profile of the company with limited growth aspect, we give 'Subscribe' rating for the long term. However in short term also, we are not expecting any major negative movement in stock prices after listing," the brokerage added.

Thanks - MSN&CNBCTV18