Subsidiary of Indian Railways hits 52-week high; do you hold it?

Shares of the company jumped 6.67 per cent.

Shares of Indian Railway Finance Corporation, a wholly-owned subsidiary of the Indian Railways opened at Rs 29.45 and hit a high of 31.50. As of writing the stock is trading at Rs 31.20, up by 6.67 per cent. The 52-week high and low of the company are Rs 31.50 and Rs 19.30.

Indian Railway Finance Corporation Ltd (IRFC) is the financing arm of the Indian Railways, Government of India Enterprise, under the Ministry of Railways (MoR). The company’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.

The services of the company include:

Leasing Operations: The company follows a leasing model to finance the rolling stock assets and project assets of Indian Railways. The lease period is typically for 30 years, comprising a primary component of 15 years followed by a secondary period of 15 years. As part of the lease, recovery of the principal component and interest is affected during the primary lease period and at the end of the lease, assets are typically sold to the MoR for a nominal price.

Lending Operations: The company is also present in lending activities and has provided funds to various companies in the Railway sector like Rail Vikas Nigam Limited (RVNL), Konkan Railway Corporation Limited, Rail Land Development Authority, Railtel Corporation of India, and Pipavav Railway Corporation Limited.

Borrowing Operations: It borrows funds from sources like taxable and tax-free bond issuances, term loans from banks and financial institutions, commercial papers, external commercial borrowings, etc. The funding plan of IRFC is carried out with the prime objective to minimize its borrowing costs.

The company is exempted from the RBI’s asset classification norms, provisioning norms, and exposure norms to the extent of its exposure to MoR which restricts a NBFCs maximum exposure to a sector or an entity. As a result, the company has a history of NIL non-performing assets (NPAs) and tax liability. The FY23 Q2 top line of the company stands at Rs 5810 crore.