The Secret Behind IRFC 572% Stock Rally: Key Financial Metrics You Should Know

Indian Railway Finance Corporation (IRFC) shares have been on a roll lately, hitting a new 52-week high of Rs. 229 on the NSE. The stock has surged over 270% in the past year, outperforming the broader market by a wide margin.

What’s Driving IRFC’s Share Price Higher?

1. Strong Financial Performance: IRFC reported a robust set of numbers for FY22, with Profit After Tax (PAT) growing 38% to Rs. 6,090 crore. Revenue from operations increased by 28.7% to Rs. 20,298 crore.
2. Healthy Asset Quality: IRFC’s asset quality remains strong, with gross non-performing assets (NPAs) at just 0.15% as of March 2022. The company’s net worth stood at Rs. 40,996 crore, up 14.1% YoY.
3. Expanding Borrowing Mandate: The Ministry of Railways has increased IRFC’s borrowing mandate for FY23 to Rs. 66,500 crore, up from Rs. 50,000 crore in FY22. This signals the government’s confidence in the company’s ability to raise funds for railway infrastructure projects.
4. Diversified Borrowing Portfolio: Despite rising interest rates, IRFC managed to reduce its weighted average cost of borrowing by 10 basis points in FY22 compared to the previous year, thanks to its diversified borrowing portfolio.
5. Attractive Valuation: Despite the recent rally, IRFC still trades at a reasonable valuation, with a price-to-earnings (P/E) ratio of around 36.

Analysts Bullish on IRFC’s Growth Prospects

Analysts remain bullish on IRFC growth prospects, citing its strong market position, healthy financials, and the government’s focus on railway infrastructure development. IRFC is well-positioned to benefit from the government’s increased focus on railway infrastructure. The company’s strong balance sheet and diversified borrowing portfolio make it an attractive investment option, said Ravi Shenoy, Vice President – Institutional Equities at Motilal Oswal Financial Services. Shenoy has a “Buy” rating on the stock with a target price of Rs. 250, implying an upside of over 35% from current levels.

IRFC Dividend Track Record

IRFC has a consistent track record of paying dividends to its shareholders. The company declared a final dividend of Rs. 0.63 per share for FY22, taking the total dividend for the year to Rs. 1.30 per share. The stock’s dividend yield currently stands at around 0.7%, which is lower than some of its peers but still attractive considering the company’s growth prospects.

Risks and Challenges

While IRFC growth prospects remain bright, the company faces some risks and challenges:

1. Interest Rate Risk: As a non-banking financial company (NBFC), IRFC is exposed to interest rate risk. A sharp rise in interest rates could impact its profitability and asset quality.
2. Concentration Risk: A significant portion of IRFC’s loan book is concentrated in the railway sector. Any slowdown in railway infrastructure spending could impact the company’s growth.
3. Regulatory Changes: As an NBFC, IRFC is subject to various regulatory changes by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). Any adverse changes in regulations could impact the company’s operations and profitability.