Why IRFC Stock Is Up 50% This Year

Share price of IRFC, the Indian Railway Finance Corporation, has been surging in 2024, driven by the continued expansion of India's railway infrastructure, which has significantly strengthened the company's financials.

Backstory: IRFC is the dedicated financing arm of the Indian Railways, responsible for raising funds to support the expansion and modernization of the railway network. This includes financing rolling stock, infrastructure development, and other railway projects.

• IRFC was founded in 1986
• The corporation went public via an IPO in January 2021
• Currently, has a market cap of close to ₹2 lakh crores

Between the lines: much like IRCTC, the ticketing and catering division of Indian Railways, IRFC holds a dominant position in railway financing in India due to its strong backing from the Indian government.

• This makes the company appealing to investors seeking the stability of a PSU with the growth potential of private corporations.

Big opportunity: India's railway system is one of the busiest in the world, with over 8 billion passengers traveling by train annually. 

• Growing consumerism is fueling a boom in train logistics, with Indian Railways moving around 1.5 billion tons of freight annually.
• Freight generates the bulk of Indian Railways' revenue, contributing nearly 65-70% of its earnings.

The freight segment is expected to grow further with projects like the Dedicated Freight Corridors (DFCs), aiming to double freight capacity by 2030. IRFC has a critical role to play in financing this expansion.

IRFC Financial Performance:

• With annual sales of ₹26,645 crore and steady growth in sales at 7.39%, the stock has been under focus, going up 52% so far YTD.
• Despite the run up, IRFC still trades 30 times earning. However, this may be generally considered expensive for a financing company. EPS growth over the past 5 years stood at 15.3%.
• Despite a modest dividend yield of 0.98%, the stock's performance has been exceptional, with a 99% return over the past year.

Yes, but: Over the past 3 years, IRFC has added close to ₹90,000 crores in debt to its books. However, this is largely due to IRFC's role as the dedicated lender to Indian Railways, backed by government support. 

Big picture: as India accelerates its focus on becoming a $5 trillion economy, the modernization and expansion of its rail network will play a crucial role in reducing logistics costs, enhancing connectivity, and driving industrial growth.

Zoom out: IRFC's impressive performance isn’t an isolated event—it’s part of a broader trend where PSU stocks are gaining renewed attention in the Indian stock market, despite being viewed as slow-moving, dividend-heavy entities.