Rs 4,500-cr IRFC IPO subscribed 65% on Day-1, retail portion by 1.24 times

Employee quota lapped up by over 13 times. HNI and institutional book saw only a few bids

State-owned Indian Railway Finance Corporation’s (IRFC) Rs 4,500 crore maiden offering garnered 65 per cent subscription on Monday, the first day of the issue. On Friday, the company responsible for financing the Indian Railways had allotted shares worth Rs 1,390 crore to anchor investors, which included HDFC, Nippon Life, Invesco, Monetary Authority of Singapore and Kuwait Investment Authority. The retail portion of the issue has been subscribed 1.24 times, while the employee quota has already been lapped up by more than 13 times. The high-networth individual and institutional investor book saw only a few bids on the first day. The IPO closes on Wednesday and bulk of the bids came on the last day.

IRFC has become the first company to launch an initial public offering (IPO) this calendar.  Through the issue, government—which currently holds 100 per cent stake--is divesting shares worth Rs 1,500 crore. IRFC is issuing fresh shares worth Rs 3,000 crore. At the top-end of the price band of Rs 26, IRFC will have a market capitalisation of nearly Rs 34,000 crore. The government’s holding in the company will decline to 86.4 per cent.

Market players said the grey market premium for the IRFC IPO has dropped below 10 per cent amid weakness in the secondary market.

Most retail-focused brokerages are advising their clients to subscribe to the IPO with a long-term view.

“IRFC has posted strong growth in operating income of 20.7 per cent CAGR between FY18-20 while net profits have grown at a CAGR of 26.3 per cent during the same period. Company is unlikely to face any asset quality issues given the fact that the company caters to the government of India. At the higher end of the price band the stock would be trading at P/BV of 1 times fully diluted post issue book value of Rs 26.6 per share. We expect the company to post strong growth driven by capex by Indian railways along with stable margins due to cost plus model. Given the growth prospects, we recommend a SUBSCRIBE rating on the issue,” said Angel Broking in a note.