Indian Railway Finance Corporation - Solid Performance
A consistent performer you may need in your portfolio
Company Overview
Indian Railway Finance Corporation is an Indian public sector undertaking engaged in raising financial resources for expansion and running through capital markets and other borrowings. The Government of India owns a majority stake in the company, while the Ministry of Railways has the administrative control.
Share Details
NSE:IRFC
Closing Price = 33.05 (19-Jun-23)
52 Week High = 37.4. Trading at 12% below 52 wk high
52 Week Low = 19.3. Trading at 71% above 52 wk low.
P/E = 6.8
Market Cap = 43,139 cr ( ~$ 5.3 billion)
Quality: Returns on capital employed in cash
IRFC is a consistent a solid performer. It performance remains steady over the years and its margin and ROE have improved over the years while its ROA is stable.
Growth
While high returns on capital are one sign we look another sign is a source of growth. High returns are not much use if the business is not able to grow and deploy more capital at these high rates. On the front of top-line growth the numbers are solid. Bottom line growth is also solid and has grown faster than the top line.
The growth momentum is showing signs of slowing down on account of low profit growth in FY22-23.
Compared to other more popular financial names IRFC is lagging behind in terms of ROE and ROA while comaring well with the growth metrics. While making the comparison we need to keep in mind that IRFC is available at a single digit PE multiple.
Source: Marcellus Investments
Outlook
ICRA expects the profitability indicators to remain stable, going forward since the company’s taxable income under normal assessment is nil, it would not be required to pay any tax on . IRFC would also not be required to pay the minimum alternate tax with effect from FY2020.
IRFC operates on a fixed lending spread model, whereby it on-lends to the Ministry of Railways (MoR) at a fixed margin (~30-50 bps) over its weighted average cost of borrowing plus all other costs incidental to borrowing. Though the fixed lending spread model limits the profitability to an extent, IRFC’s low operating expenses owing to the wholesale nature of the business as well as negligible credit costs due to the superior asset quality indicators provide support to the profitability profile
By virtue of its mandate, IRFC faces credit concentration risk as its entire exposure is to the MoR or its controlled entities. The company is highly dependent on the MoR’s expansion plans for growth.
So What????
If I own the stock, I will definitely hold on for the long term as a stock providing solidity to my proftfolio assuming the metrics stay as per the trend.
If I don’t own the stock, I would like to enter it if am looking for something solid in the portfolio at an attractive price. A company growing both the top line and bottom line at 18% CAGR for 8 financial years quoting at a PE of 6.8 is worth buying into. Given that its a PSU stock Railways as the main customer it is not looking like at an exceptional growth stock. It will be consistent perfromer in the portfolio
Disclaimer
It is an analysis of the company data and not a stock recommendation
My analysis can be completely wrong and can change the next minute based on changes in my understanding of the company
I look to own good companies at prices where there is a path to market beating returns over decades