After a 200% run up, this railway stock’s mcap has hit ₹1 lakh crore

• IRFC’s marketcap has run up 3x since its listing to touch ₹1 lakh crore.
• It’s a dedicated funding arm of the Indian Railways which mobilises funds from domestic as well as overseas capital markets.
• The company can directly gain from Indian Railways’ spending plan, say analysts.

Public sector company Indian Railway Finance Corporation (IRFC), the dedicated funding arm of the Indian Railways, has become a multibagger in just one year. The multibagger stock has given a whopping 217% return in this period and has skyrocketed so much that its market capitalisation touched ₹1 lakh crore on Friday.

The company has seen a dramatic turnaround in valuation ever since it made its market debut in January 2021, at a 4% discount to issue price and a marketcap of ₹32,000 crore.

Apart from being the primary market borrowing arm of the Indian Railways, it also has a mandate to finance projects, which have a backward and forward linkage with railways, the company said in its annual report.

For the quarter ending June 30, 2023, its interest income stood at ₹2,131 crore, which rose 25% from ₹1,698 crore in the same quarter last year. Its net profit however went down by 6% during the same period to ₹1,556 crore in the first quarter.

Its improving fortunes are linked to the massive budget outlay of the Indian Railways which has provided its allied companies like Rail Vikas Nigam (RVNL) and Ircon International with multibagger returns as well. According to analysts, IRFC can also directly gain from Railways’ planned expansion.

“If we look into the Ministry of Railways update it says it had spent ₹78,670 crore— 33% of Gross Budgetary Support (GBS) outlay of ₹2.4 lakh crore for the financial year 2023-24. In this budgetary spending plan IRFC will play a pivotal role as it is a dedicated financing arm of the Indian Railways for mobilising funds from domestic as well as overseas capital markets,” Prashanth Tapse, research analyst and Sr VP of research at Mehta Equities told Business Insider India.

The railways sector is set to flourish at an impressive compound annual growth rate (CAGR) of 7.5% between 2022 and 2027, say analysts.

“Considering the industry rationale, we continue to remain optimistic on the sector for medium to long term growth prospects. We continue to advise investors to book profits gradually at higher levels,” Tapse said.

While a lot of railway stocks have been gaining the last one year, IRFC has outdone most others, and analysts believe its staggering run up is a good opportunity to book profits.