Why the worst is yet to come for IRFC investors

Indian Railway Finance Corporation (IRFC) investors have seen better days. After years of stonking gains that earned them multifold returns, the stock is in peril, down nearly 40 per cent from its July 2024 peak. And yet, there's a good chance that the worst might not be over yet. That's because the growth challenge that it's been facing for over a year now has no end in sight. The company, however, is not sitting idle. It's making moves to pull itself out of the slump. We assess whether these efforts will make a difference. But first, what is the growth challenge? The last few years have been extraordinary for IRFC. It saw its assets under management (AUM) grow at a healthy pace (five-year growth of 18 per cent) as it funded Indian Railways' rapid capex spending and also received a steady stream of income from lease rentals. Further, not having to pay any taxes (exempted as per a government mandate) and having zero bad loans on the balance sheet, owing to sovereign-backed lending (since it lends to the railways), made it a low-risk business and one which has been a favourite for dividend investors. However, the rapid growth is set to