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🚆 IRFC (Indian Railway Finance Corporation) – A Long-Term Investment Analysis

Lesson 85/225 | Study Time: 15 Min

Course: Top Quality Companies

🚆 IRFC (Indian Railway Finance Corporation) – A Long-Term Investment Analysis

🏢 Company Overview

Indian Railway Finance Corporation (IRFC) is the dedicated financing arm of Indian Railways, responsible for raising funds for rolling stock, infrastructure expansion, and modernization. Incorporated in 1986, IRFC plays a crucial role in bridging the funding gap of the Indian Railways by offering leasing and financing solutions.

The company operates on a low-risk, cost-plus margin business model, ensuring stable profitability. Its revenues primarily come from lease rentals and interest income from assets financed for the Indian Railways.

📊 Historical Financial Performance

Advances, Sales & Profit Growth

AUM Growth: From ₹1.55 lakh Cr in FY18 to ₹4.60 lakh Cr in FY25 (3x in 7 years).
(But AUM has not grown during last 2 years due to budgetary allocation directly to Railways)
Revenue Growth: From ₹9,207 Cr (FY18) → ₹27,152 Cr (FY25).
Profit Growth: From ₹2,001 Cr (FY18) → ₹6,502 Cr (FY25).
Margins: Sustained at 24–30%, showing resilience despite cost fluctuations.

Year	AUM (₹ Cr)	Sales (₹ Cr)	Profit (₹ Cr)	Margin %
FY18	1,55,500	9,207	2,001	22%
FY20	2,70,500	13,421	3,192	24%
FY22	4,29,824	20,301	6,089	30%
FY24	4,64,641	26,655	6,412	24%
Tr.FY26E	4,60,047	27,302	6,670	25%

📉 Asset Quality & NPAs

GNPA consistently under 1%, showcasing IRFC’s strong asset quality.
Government backing ensures minimal default risk.

📈 Price Behaviour – Valuations

P/E Range:

IPO FY22: 4–6x
FY24: 6–39x
FY25: 22–46x
Tr.FY26E: 22–29x

P/BV Range:

IPO FY22: 0.7–0.9x
FY24: 0.7–5.1x
FY25: 2.7–5.7x
Tr.FY26E: 2.7–3.6x

🔎 Valuations have expanded sharply in the last 2 years post-IPO, reflecting rising investor interest in PSU financing companies.

📊 Q1 FY26 Performance Snapshot

Sales: ₹6,915 Cr (↑ 2% YoY)
Profit: ₹1,745 Cr (↑ 11% YoY)
EPS: ₹1.34 (↑ 11% YoY)
Margins: 25.2% (↑ 200 bps YoY)
Segment Mix:

Lease Income: ₹5,404 Cr (78% of total, ↑ 9%)
Interest Income: ₹1,497 Cr (22% of total, ↓ 18%)

📉 Cost Structure – Q1 FY26

Finance Cost: ₹5,124 Cr (99%)
Employee Cost: Negligible share
Impairment & Other Costs: <1%

👉 Cost efficiency and government-backed lease model ensure predictable spreads.

🔮 Future Growth Outlook

Near-Term (FY26): Revenue growth ~3%, Profit growth ~8%, Margins ~25%.
Long-Term (FY30–35):

AUM expected to touch ₹7.5 Lakh Cr by FY35.
Profits projected to reach ₹19,078 Cr by FY35.
Long-term growth CAGR: Sales 12%, Profit 12%.

Year	AUM (₹ Cr)	Sales (₹ Cr)	Profit (₹ Cr)	EPS	BV (₹)	Blended Fair Value (₹)
FY26E	4,60,047	27,967	7,048	5.4	44	111
FY30E	5,87,150	44,006	10,825	8.0	62	165
FY35E	7,49,368	77,553	19,078	15	96	276

⚖️ Peer Comparison (Finance PSUs)

IRFC: Pure-railway leasing model, predictable spreads, low risk.
PFC/REC: Power sector lenders, higher yields but higher asset risks.
HUDCO: Infrastructure finance, higher NPAs.

👉 IRFC enjoys the safest profile among PSU NBFCs with strong government backing.

📊 Portfolio Allocation

Price: ₹126
Strategic Weight: 0.75%
Tactical Weight: 0.5%
Suitable as a low-beta, dividend-yield PSU allocation in portfolios.

📝 Conclusion – Long Term Risk & Reward

✅ Strengths: Government backing, predictable lease model, low NPAs, stable margins.
⚠️ Risks: Dependence on Indian Railways, limited diversification, valuation re-rating already factored.
📌 Long-Term Investors: A steady compounder with low risk & moderate return potential.

📢 Disclosure

This report is for educational purposes only and not investment advice.

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