IRFC extends rally with 32% jump in 1 week; hits new high on heavy volumes

The stock hit a new high of Rs 100.84, surging 9 per cent on the BSE in Friday's intra-day trade on the back of heavy volumes

Shares of Indian Railway Finance Corporation (IRFC) surged 9 per cent to hit a new high of Rs 100.84 on the BSE in Friday’s intra-day trade amid heavy volumes.

In the past one week, the stock of the state-owned financial institution company has zoomed 32 per cent. In comparison, the S&P BSE Sensex was up 1.4 per cent during the week.

At 10:14 AM; IRFC was quoting 5 per cent higher at Rs 97.11 as compared to a 0.65 per cent rise in the benchmark index. A combined 190 million equity shares had changed hands on the NSE and BSE.

IRFC was set up as a dedicated funding arm of Ministry of Railway (MoR), specifically to raise resources from the capital market to finance rolling stock (wagons and coaches).

IRFC leases rolling stock to Indian Railways (IR) and collects lease rentals from IR in advance, at half-yearly intervals.

An annual lease agreement, structured to ensure that IRFC's expenses (mainly cost of borrowing) are covered, backs this arrangement, and allows IRFC to earn adequate margin.

IRFC also provides funding for railway infrastructure assets for which lease agreements are signed after moratorium period of 5 years.

Indian Railways are now poised to take transformational leap and fulfill the vision of 'Viksit Bharat' which includes Modern, faster, available on demand passenger services and facilities, a substantial share in freight cargo with ancillary services in logistics parks and domestic industry driven rail infrastructure of highest standards, IRFC said.

A record capex target of Rs 2.60 trillion in 2023-24 is targeted to initiate the necessary changes for this vision, across the entire network. Achieving India's commitment of net zero carbon by 2070 will rest in part on more rail-bound passenger and cargo movement, it said.

IRFC will continue to receive timely funding from the government through favourable lease agreement, owing to its strategic role as a dedicated funding arm of IR, according to analysts.

The government as part of the Union Budget for 2023-24 has allocated negligible extra budgetary resources for IR, indicating it will not consider borrowing money to fund its capital expenditure. Due to this, IRFC’s disbursements stood nil till date in the current financial year.

IRFC also plans to diversify in infrastructure financing by funding entities, which has forward or backward linkage with IR or to projects which are backed by state/ central government guarantee. The company is currently in the process of establishing systems and processes for the same, said CARE Ratings in a rationale.

"Favourable lease agreements between IRFC and IR protect the former's net interest margin, as interest and foreign exchange risks on its borrowings are transferred to IR. IRFC also plans to diversify its business profile by lending outside IR; however, this will form a small part of the total portfolio and advances will be to entities having linkages with IR. IRFC is also exploring lending towards non railway infrastructure assets. However, this is still in evaluation stages, and they will only enter into such arrangements in a consortium with other lenders," said CRISIL Ratings.