Introduction

In the year 2024, rail transportation is on the rise, grabbing attention with its ambitious plans for modernization and large-scale investments. Indian Railways, the world's eighth-largest employer, is all set to ride the investment bandwagon. The sector teases exciting government initiatives and opens up prospects in an often-overlooked stock - Indian Railway Finance Corporation (IRFC).

Indian Railways: The Big(ger) Picture

One cannot ignore the government's vision when talking about Indian Railways. Noteworthy are the government's plans to invest 7 trillion rupees over the decade. Their aim? To lay an impressive 50,000 kilometres of new train tracks focusing on the compatibility with the latest trains' requirements, effectively modernizing the network and boosting train speeds.

To understand the play here:

• The government is not solely investing in tracks; a chunk of the budget, about 1 trillion rupees, will enter the pool for new trains.
• The new trains' necessity arises from the forecasted rise in railway passengers from the existing 700 crore to a massive 1000 crore by 2030.
• The government’s budget provides for such expenditures - in their 2022-23 budget, Indian Railways had received a capital outlay of 2.41 lakh crores.

All About the Funds

Three major sources rise to the fore when funding the railways:

1. Budgetary support from the Ministry of Finance
2. Revenue generated from ticket sales, goods transportation, and railway land leases.
3. Financing

Significantly, financing comes in through borrowing from NBFCs (Non-Banking Financial Companies). That's where our spotlighted stock, Indian Railway Finance Corporation (IRFC) comes into action.

Indian Railway Finance Corporation: Borrowing, lending, and Profiting

Incepted in 1986, Indian Railway Finance Corporation (IRFC) is the financial backbone that borrows funds, builds or acquires assets, and then leases them to the Indian railways. The money raised by them primarily comes from issuing bonds in the financial markets. The profit model operates simply by adding a markup or a spread to the promised rate of return for the bonds. With a low risk of bad debts and a steady client in the government, this setup makes them uniquely positioned.

Growth and Future Plans

In a promising stride, IRFC's assets under management have seen a steady increase over the years (from Financial year 18 to financial year 23). IRFC also announced signing an MOU with rights and IIFCL for co-financing Railway Infrastructure projects in an attempt to construct multimodal Logistics Parks. This further broadens their horizon.

Financial Standing

A look at the financials reveals an appreciable growth in net profit and interest earned over the past few years with a significant spike in the past four. Also advantageous is the considerable promoter holding through the President of India through the Ministry of Railways.

However, fiscal caution flags come from the comparatively higher Price to Earnings ratio in relation to similar companies such as PFC and REC.

Technical Analysis

The steady consolidation and sharp rally of IRFC stocks are currently highlighting an upward flag pattern in technical analysis. This pattern generally signifies a potential upward trend in the value of a stock.

Conclusion

The promising efforts by the Indian Railways in the form of modernization and infrastructural advances surely make the sector, and thereby the IRFC stocks, an interesting one to keep an eye on. Capitalizing on growth opportunities with a large, secure client makes IRFC enticing for the investment magnets. However, it's crucial to stay heedful of the financial indications and market movements.