IRFC OFS: Should you apply post muted institutional response? Experts weigh

IRFC OFS: IRFC has confirmed that the government will not exercise the oversubscription or greenshoe. The decision was likely influenced by the lukewarm response from institutional investors

IRFC OFS: The offer for sale (OFS) of state-run Indian Railway Finance Corporation (IRFC) opened for retail investors today. The share sale had received a subdued response from institutional investors on Wednesday, with the issue failing to get full subscription.

 

Initially, the government had decided to sell up to 4 per cent stake in IRFC via OFS at a floor price of Rs 104 apiece. IRFC in a filing said that the "government is selling over 261.3 million shares or a 2 per cent stake in the company with a green shoe option of an equal number".

 

In an exchange filing late on Wednesday, IRFC informed that the government has decided not to exercise the oversubscription or greenshoe. The decision was likely influenced by the lukewarm response from institutional investors.

 

IRFS OFS: 'Discount not attractive'

 

Rajesh Palviya, senior vice president (head of research) Axis Securities, said the muted institutional response to the IRFC OFS indicates a lack of strong investor confidence. He noted that the government’s move to trim its stake in IRFC is aimed at meeting regulatory compliance requirements, and not to raise funds for business expansion or new initiatives.

 

As per the data, IRFC's OFS received bids for just 223 million shares, against a total offer size of 522.7 million shares. Even the base issue size of 261 million shares was subscribed only 85 per cent, reflecting the muted demand.

 

According to Rajesh, the railway sector has been underperforming over the past few months, with IRFC remaining in a consistent downtrend. He pointed out that the discount offered under the OFS is around 5 per cent, which is not attractive in the current market volatility.

 

Meanwhile, IRFC shares today traded flat with bias at ₹104.5 on the National Stock Exchange (NSE) around 11 AM. The railway stock had settled 4.4 per cent lower at ₹104.56 in the previous trade.

 

"The institutional guys were not more aggressive on IRFC OFS, so I think there is nothing on table for retail participation. Looking at the market condition, 5 per cent is not a great discount. The price risk is already there because of volatility in the market," the analyst said.

 

"Those who are having a very long term view, and those who want to participate for a long term perspective then only participate, because short term though I do not think it will give any kind of benefit to retail investors," he added.

 

The government currently holds an 86.36 per cent stake in IRFC.

 

'IRFC not institutional favourite' 

From a fundamental perspective, market expert Ambareesh Baliga said that IRFC was never an institutional favourite with around 80 per cent of the floating stock with the public (Free Float is just about 13.6 per cent - balance being held by Govt).

 

"I expect the stock to settle at lower levels unless we see performance improving sharply, which I don’t expect. It will continue to be a steady performer with mid single digits of Y-o-Y growth. There is no arbitrage available nor discount to the current market price," he said. 

 

"The current OFS looks more like a liquidity-driven stake sale than a compelling valuation-led entry opportunity," Raj Gaikar, research analyst, SAMCO Securities, said, adding that valuations are no longer deeply discounted.

IRFC stock performance

 

IRFC had made its Dalal Street debut in January 2021 and the company had issued its shares at ₹26 in the primary market. The stock remained in a range for almost two years before a one way rally that took the counter to a high of ₹229, touched July 15, 2024. From the record high, the railway stock is currently down more than 50 per cent. The scrip has declined 15 per cent in the last one year and 31 per cent in two years.

 

IRFC, is a dedicated market borrowing and financing arm of the Indian Railways, enjoys the Navratna status. It falls under the administrative control of the Ministry of Railways.    ================================  Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers' discretion is advised.