IRFC on a new high, is 10th most-valued PSU after m-cap crosses Rs 1 lakh crore

IRFC on a new high, is 10th most-valued PSU after m-cap crosses Rs 1 lakh crore

On September 11, the market capitalization of the state-run Indian Railway Finance Corp Ltd (IRFC) exceeded Rs 1 lakh crore as its stock reached a new high, marking a 100% increase in value so far this year. IRFC has now become the 10th most valuable state-run enterprise in India, surpassing the market capitalization of companies like Bharat Electronics Ltd, Bank of Baroda, and Gail India Ltd.

The stock reached an all-time high of Rs 84.50 on the Bombay Stock Exchange (BSE), representing an 8% increase from its previous closing price. This surge in value can be attributed to the government’s infrastructure development initiatives and the expansion of the railway network, which have boosted investor confidence.

Among state-run companies in India, the State Bank of India holds the top position in terms of market capitalization, with a value of Rs 5.21 lakh crore. It is followed by Life Insurance Corporation (LIC) at Rs 4.27 lakh crore and NTPC at Rs 2.33 lakh crore. Other valuable state-run enterprises include ONGC Ltd, Power Grid Corp Ltd, Coal India Ltd, Hindustan Aeronautics Ltd, SBI Life Insurance Co Ltd, and Indian Oil Corp Ltd.

In 2023, railway-related stocks in India have experienced a notable uptrend, not limited to IRFC (Indian Railway Finance Corp Ltd). Railtel Corp of India, IRCON International Ltd, Rail Vikas Nigam, Titagarh Rail System, and Texmaco Rail & Engineering Ltd have all seen substantial gains, with their stock values increasing by 87 percent, 140 percent, 148 percent, 270 percent, and 180 percent, respectively.

This positive performance reflects various factors, including government initiatives to expand and modernize the Indian Railways network, infrastructure development projects, and growing investor confidence in the railway sector.

Additionally, a recent cabinet decision to approve seven multi-tracking projects worth Rs 3,25,000 crore is poised to significantly expand the Indian Railways network, adding 2,339 km across 34 districts in nine states. These substantial investments and infrastructure projects are contributing to the overall optimism surrounding the railway industry in India.

Moreover, the G-20 summit yielded an important announcement involving India, the United States, the United Arab Emirates, and Saudi Arabia. They revealed plans to establish shipping and railway connections that would link Europe and the Middle East with India. This strategic move underscores India’s commitment to enhancing connectivity and trade routes, providing further momentum to the railway sector’s growth prospects.

The objective of this initiative is to establish an economic corridor connecting Middle Eastern nations via railways, subsequently linking them to India through maritime routes. The European Union is set to play a role in this ambitious project, further enhancing its scope and reach.

These significant developments have instilled confidence in railway-related stocks, with investors recognizing railways as a promising long-term growth opportunity, as observed by analysts. IRFC, which plays a crucial role in providing financial services and raising funds through bonds and offshore borrowings to finance railway plans and other developmental programs, has benefited from this renewed optimism.

Analysts also hold a positive outlook for the railway sector, citing improved revenue visibility, growth certainty, and a robust business model as key factors driving optimism. However, they caution that growth may experience a temporary slowdown in the near term, particularly in fiscal year 2024, due to factors such as limited new orders and the completion of existing orders.

Despite a lack of new orders in the June quarter, railway firms have managed to maintain strong operating margins, primarily due to a decrease in input costs. This resilience in operating margins comes at a time when many railway companies have experienced a moderation in revenue growth during the current fiscal year. Additionally, there has been a decline in the order book in the first quarter of fiscal year 2024 compared to the previous quarter, Q4FY23.

Nevertheless, the railway sector is anticipating a boost in orders from various projects, including those related to metro systems, high-speed trains, and other infrastructure developments. Analysts believe these projects will continue to be prominent and provide support to the sector in the coming months.

Prominent investors like Vijay Kedia have expressed optimism about the railway and defense stocks, considering them to be in the early stages of a significant upswing. They point to increasing government capital expenditure in the railway and defense sectors as a driving force behind this positive trend. Kedia noted that what was once a relatively under-the-radar story has now gained widespread attention, and new investors are likely to remain invested in these stocks, contributing to further price appreciation.

Previously, 16 state-run firms had achieved the milestone of crossing Rs 1 lakh crore in market capitalization, including well-known entities such as LIC, SBI, ONGC, Coal India, MMTC, NTPC, NMDC, Indian Oil Corp, SAIL, and BPCL.