Indian Railway Finance Corp (IRFC): Top Railway Stock Hot To BUY, YTD Gains By 73%; Short Term TARGET?

Indian Railway Finance Corporation (IRFC) is the largest railway stock in India. The company has a market value of Rs 2.26 lakh crore. IRFC shares are undergoing a periodic consolidation. In 5 days, the stock is down by 2.4% on BSE, and lower by 3% on a month-on-month basis. But YTD, the stock gained by 72.40% as of now. As per BP Wealth, who selected IRFC among its super 7 picks for June 2024, the stock is consolidating at the back of a shorter term moving average offering immediate support.

In BP's technical view, the e ongoing price action connotes the assumption of technical analysis of history repeating itself. IRFC's price action on the daily outlook is currently replicating its previous price pattern. The stock is consolidating at the back of a shorter-term moving average offering immediate support. This shows lower volatility diminishing the probability of an unruly move.

On BSE, IRFC's share price is currently at Rs 173.25 apiece with a market cap of Rs 173.25 crore. The stock's 52-week high is at Rs 199.95 apiece, while despite the latest correction, IRFC is a multi-bagger as it surged by 440% from its 52-week low of Rs 32.10 apiece.

As per BSE data, IRFC stock has a PE ratio of 31.92x, and a return on equity of 13.07%.

"We recommend to BUY IRFC from CMP-173 for the target of 189 with a stop loss of 166 in the short term," BP added.

Giving rationale to its recommendation, BP highlighted two key factors. These are:

1. Strategic role and competitive borrowing costs of IRFC to support Indian Railways:

Over the years, the railways' capex has been increasing, focusing on infrastructure development, capacity enhancement, decongestion of high-density networks, improving passenger experience, and meeting safety requirements. In the FY25 interim budget, the gross budgetary support for railways' capital expenditure is set at Rs. 2,52,000 crores.

The company's mandate extends beyond just funding Indian Railways and includes financing projects with backward and forward linkages within the railway ecosystem. This involves exploring collaborative opportunities with other infrastructure lenders to fund relevant projects.

The company benefits from the highest credit rating for an Indian issuer from various credit rating agencies, allowing it to command a competitive cost of borrowing.

2. Healthy capitalisation levels along with superior asset quality:

IRFC reported a healthy CRAR of 616% and a net worth of Rs. 49,179 crores as of March 31, 2024, supported by the zero per cent risk weight associated with the MoR's exposures and stable internal capital generation. With the sovereign accounting for around 99% of IRFC's exposure, it maintains superior asset quality with nil gross non-performing advances (NPAs) as of March 31, 2024.

Indian Railway Finance Corporation (IRFC) was set up on 12th December 1986 as the dedicated financing arm of the Indian Railways for mobilizing funds from domestic as well as overseas Capital Markets. IRFC is a Schedule 'A' Public Sector Enterprise under the administrative control of the Ministry of Railways, Govt.

The primary objective of IRFC is to meet the predominant portion of the 'Extra Budgetary Resources' (EBR) requirement of the Indian Railways through market borrowings at the most competitive rates and terms. The Company's principal business therefore is to borrow funds from the financial markets to finance the acquisition/creation of assets which are then leased out to the Indian Railways.

In May 2024, --S&P Global Rating revised IRFC's rating outlook to "positive" from "stable''. The rating actions follow a similar action on the sovereign credit rating in India.

As per S&P, the ratings on lFRC reflect the company's critical role and Integral link with the government. Ongoing governmental support--in forms Including guarantees, budgetary support, and lease agreements--supports timely debt payment. S&P believes IRFC will continue to play a critical role in the Indian government's economic development plans and policies.