IRFC (Indian Railways Federation Corporation) is the Indian Railways funding arm. It is a megastar of the BSE and NSE’s railway basket. As an investor, the question arises: Is IRFC a smart investment in 2024?
IRFC Overview and Recent Performance
IRFC was set up in 1986 for the purpose of raising funds at competitive rates from domestic and overseas markets to meet the Indian Railways’ major portion of Extra Budgetary Resources requirement.
At present, IRFC is classified as a Schedule ‘A’ Miniratna Public Sector Enterprise.
Over the years, IRFC has performed well and gained a lot of investor interest. IRFC remains one of the best-performing railway stocks of 2024. It has delivered significant returns, becoming a multi-bagger in under four years.
Financial Performance and Valuation
IRFC has shown strong financial results with steady growth in revenue and profits:
1. Since its listing, IRFC has consistently paid dividends to its investors. The company has given seven dividends since February 2021. It currently has a dividend yield of 0.88%, one of the highest in the railway sector.
2. In the past year, IRFC share price rose by 258.67%, significantly outperforming its sector by 204.39%.
3. IRFC’s Return on Equity is 13.03%, which falls within the typical range of 10% to 20%.
4. The Price-to-Book ratio is 4.62. The Return on Capital Employed (ROCE) and ROE are 5.73% and 13.7%, respectively, both higher than industry averages.
5. Mutual fund holdings in IRFC also increased. There are no promoter pledges.
However, some issues remain:
1. The stock’s Price-to-Earnings (P/E) ratio is 36.2, which is higher than the sector average of 20.51. This suggests the stock might be too expensive for new investors.
2. IRFC also has a high debt-to-equity ratio of 8.38, meaning it relies heavily on debt to fund its operations.
Growth Prospects of IRFC
IRFC’s growth depends on the expansion of the Indian Railways. The government is working on modernizing railway infrastructure, electrifying tracks, and launching new trains like Vande Bharat.
These efforts are likely to boost IRFC’s growth in the coming years. IRFC helps fund these projects at competitive rates, making it an important player in the railway sector.
With a strong lineup of projects and ongoing support from the government, IRFC is expected to see revenue growth, making it attractive to long-term investors.
Risks and Market Cautions
Despite IRFC’s positive outlook, there are notable risks:
1. The most immediate concern is IRFC’s technical performance on the stock market. IRFC is approaching critical support levels at the 100-Day Moving Average of ₹170. Falling below this level could see the stock drop further to ₹150, aligning with the 200-Day Moving Average.
2. IRFC also depends heavily on the Indian Railways, which means any changes in railway funding or government policies could impact its business.
3. Fluctuating interest rates are another concern, as they could increase borrowing costs and affect profits.
Conclusion
IRFC has strong fundamentals and with the growth opportunities the railway sector has, IRFC is well positioned to benefit. However, it is important to keep in mind its current market volatility. Long-term investors with a moderate risk appetite may find value in IRFC. Before you plan to invest in shares, it is important to carefully monitor market trends and do fundamental and technical analysis.
IRFC remains a strong contender for investment in 2024, but like any investment, understanding the risks and market conditions is key to making a smart decision.
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