Indian Railway Finance Corporation (NSE: IRFC) continues to rise again, gaining over 3% in intraday today. In the last three months, IRFC shares sore by over 165% reaching a high of ₹192.80 in January.
However, IRFC has continuously made lower lows on daily timeframe since the last few days. This was after Foreign Institutional Investors (FII) started profit booking in Indian Markets. In the last 4 weeks, Nifty displayed mixed sentiments, rising by 4.65% , IRFC on the other hand retraced to the downside by approximately -33%
When the stock price rises too quickly, fear in its investors rises. That is why, investor are likely to close their open positions leading to sharp selling aggressively. But as a smart investor, is this the right time to enter IRFC when the stock is trading at a 15% discount from its high price?
Government bullish on IRFC
Railway PSU stocks like IRFC have witnessed a strong bull run in the last 1 year. There are multiple factors contributing to this growth. Improved sectoral performance, not just for RAILWAY like IRFC but for the entire PSU sector has raised investors’ interest in PSUs.
Another reason is the Indian Government’s ambition to make India a $ 5 Trillion economy. Economic growth is only possible when infrastructure and transportation facilities are well developed. For this, the Indian government has announced multiple plans to invest more in infrastructure development.
This was also a key focus in the recent interim budget. Announcements for increased spending on the Indian Railways, more demand for Vande Bharat trains, and the establishment of more freight corridors will raise the demand for IRFC’s financial services.
IRFC’s Business Overview
Railway infrastructure and development is a very cost intensive business. Acquisition of land for tracks, couches, and wagons requires huge investments. If the Government decides to expand their railway infrastructure in one go, its fiscal budget will become unmanageable and raise fiscal deficit.
Here is where IRFC proves useful. IRFC raises funds from various sources to fund these railway projects. Later, the company leases these to Indian railways which earns IRFC rental income.
So basically, the company acts as a financial intermediary helping Indian Railways manage their finance in a better way.
Should you buy IRFC at the current price?
IRFC has outperformed Nifty 50 by multiple folds in the last one year. However, on paper, if we calculate IRFC’s valuation using the discounted cash flow model, its fair price is around ₹29. However, capex-intensive businesses like IRFC often tend to have high debts.
Looking at the cash flow situation for IRFC, an important factor for such businesses, their free cash flow went from -₹89,907 cr in March 2021 to -₹28,584 in March 2023. This means IRFC is able to generate more cash from operations compared to previous years. This is a healthy sign for the growth of the company, which will raise investor’s confidence.
Technically, IRFC still looks strong. Levels of ₹130 acted like a strong demand zone pushing prices further up. ₹130 to ₹135 level will be a strong support for IRFC in the coming time. Swing Traders can use these levels to make new entries. Long term investors can consider the accumulation of IRFC at current levels of ₹155 too. However, conservative traders and investors may wait for the retest of ₹110 to ₹120 price band.
IRFC's important support levels
| Support Area Level | Value in Rs |
|---|---|
| Support 1 | ₹135 |
| Support 2 | ₹120 |
| Support 3 | ₹114 |
IRFC's Returns generated over time
| Time Period | IRFC Return | Market Return |
|---|---|---|
| 7 Day | 1.1% | 0.8% |
| 30 Day | -3.0% | 4.2% |
| 90 Day | 104.3% | 18.2% |
| 1 Year | 451.3% | 46.0% |
| 3 Year | 583.0% | 85.2% |
IRFC Shareholding pattern
| Shareholder Type | Percentage |
|---|---|
| Institutions | 3.36% |
| General Public | 10.3% |
| State or Government | 86.4% |
Final Words
IRFC looks like a good opportunity for investors interested in benefiting from India’s focus on improving its railway infrastructure. Although the stock price has gone up and down a lot recently, the company’s role in funding railway projects and its improving financial health make it an attractive option.
For those willing to take a bit of risk, buying IRFC shares now could be smart, especially since the price is lower than its recent high. However, if you prefer to be cautious, you might want to wait and see if the price drops a bit more before investing.
