You have raised a very pertinent question. I will refrain from speaking on valuation. You have correctly pointed out that growth prospects are limited in near term but long term prospect is intact. IRFC AUM will not grow consistently, most of its growth will be concentrated in a few years (black swan type event throwing govenment fiances off). In a period of 10 years majority of growth will come in 2-3 years.
Indian railways will continue to remain the only affordable means of transport for large section of the population of the country and demand will only rise drastically in the future as disposible income of people rise. Moreover, in my view the goverment will not be able to generate surplus from indian railways operation in passenger segment; at most it will break even. Spending on rail infrastructure is planned at around INR 38 lakhs crores over coming decades. Funding sources have been identified for some (eg. dedicated freight corridors) but not for others. All these are detailed in the government’s national rail plan, relevant chapters being 20 and 21 (pdf link https://static.investindia.gov.in/s3fs-public/2024-08/national_rail_plan_2030.pdf). Now all these are projection and actuals can be substantially higher or lower. But one thing is clear that demand on indian railways is going to increase substantially and infrastructure needs to be upgraded significantly. And its going to cost a lot for the governement. And in my view as governement tries to rationalise GST/IT rates (can not earn substantially while keeping the rates high, there will be demand to lower rates) and achive its fiscal deficit target, it will have less room to fund the infrastructure projects from budgetory allocation. And one black swan event (like COVID) which through the finances off will result in substantial allocation to IRFC for funding requirements.
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