Indian Railway Finance Corp Ltd (IRFC) Q4 FY22 Earnings Concall Transcript

Indian Railway Finance Corp Ltd (NSE: IRFC) Q4 FY22 Earnings Concall dated May. 24, 2022

Corporate Participants:

Amitabh Banerjee — Chairman and Managing Director

Unidentified Speaker —

Analysts:

Pritesh Bumb — DAM Capital Advisors — Analyst

Harsh Shah — L&T Mutual Funds — Analyst

Rucha Amdekar — IDFC Mutual Fund — Analyst

Shabbir Kayyumi — Systematix Group — Analyst

Priyank Chheda — Standard Chartered Securities — Analyst

Santosh Kesari — Kesari & Co — Analyst

Praneeth Rathi — — Analyst

Venil Shah — PL India — Analyst

Sriram Prasad — — Analyst

Ashish Shah — Business Match — Analyst

Nilesh Doshi — Prospero Investment — Analyst

Shrivala Kulkarni — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Indian Railway Finance Corporation Limited Q4 and FY ’22 Conference Call hosted by DAM Capital Advisors Limited. [Operator Instructions]

I now hand the conference over to Mr. Pritesh Bumb. Thank you, and over to you Mr. Pritesh Bumb.

Pritesh Bumb — DAM Capital Advisors — Analyst

Hi, good afternoon, everyone. We on behalf of DAM Capital, would like to welcome the management of Indian Railway Finance Corporation. Today we have with us Mr. Amitabh Banerjee, Chairman and MD along with Director, Finance and other members of the management team. We will have opening remarks from the CMD and then move on to the Q&A. Thank you and over to you, sir.

Amitabh Banerjee — Chairman and Managing Director

Good afternoon to all my dear friends. So we have come to the end of another year, this ’21-’22 and we have got a very robust financial performance this year too. I’ll just go through the presentation that has been already circulated to you. Hopefully, everybody has got it.

So going to the first slide, IRFC plays a very strategic role in the growth of Indian Railways, which has been the story since 1986 when we were formed as a special purpose vehicle of Indian Railways to be the sole borrowing arm to fund its capex requirements, the capital expenditure requirements of Indian Railways. This is the dedicated market borrowing arm and the AUM, the asset under management has grown very rapidly at a rate of 15.32% year-on-year and as on date it stands at INR4.15 lakh crore. That is INR4,15,238 crores approximately. It’s a business which is characterized by low risk and with an exit cost plus business model. All the cost incidental to lending and borrowing — and the borrowing are all passed through to Ministry of Railways including the cost of hedging and it’s a low risk business model for obvious reasons because no cost is being borne by us although the margin is not that substantial that we charge on the cost element.

We have got a strategic relationship with the Ministry of Railways and that enables us to have a low risk profile and also a very high credit rating from both the domestic and the international credit rating agencies. We enter into a cost plus standard lease agreement every year with Ministry of Railways and there is a consistent spread that we charge over the weighted average cost of borrowing on both the rolling stock assets as well as the project assets. The long-term ratings from ICRA, CRISIL and CARE are all AAA. That has been the trend all through its journey and we are rated at par with the sovereign as far as the overseas credit rating agencies like Moody’s, Standard & Poor’s, Fitch, and Japanese Credit Rating Agency are concerned.

We have a diversified funding source that we have which covers various maturities and currencies of loans and we also keep the cost of borrowing very, very low. That is the basic mandate of IRFC. You must all remember that the basic mandate of IRFC is to afford least cost funding to Ministry of Railways with a view to making the underlying projects and the underlying assets viable in the long run. IRFC borrows on a long-term basis to align with the long-term tenure of the assets financed. So we have ALM as our major focus. Asset liability management is the major focus of IRFC, this being an NBFC.

The net worth of the company has grown to about INR41,000 crores with a growth of — in fact, the revenue from operations has grown by about 29% year-on-year to end of this financial year and the profit has grown at 38% year-on-year in FY ’22. We are characterized by low overhead and administrative costs and have very high operational efficiency. Probably we are one of the least cost companies in the world, only 0.13% of our total revenue is the establishment cost of this company. And the returns are also pretty healthy, return on net worth at about 15%, return on assets at about 1.5% which compares well with the industry average. As on date, we are not paying any tax not because we are exempt from any tax, but because of the existence of unabsorbed depreciation balance, which helps me in keeping the taxable income at zero.

Now if you go to the next slide, it shows the coverage of Indian Railway network for million population, which is relatively low. At the end of FY 2017, it was about 50 route kilometer per million population. It was 600 in Russia or about more than 460 in USA. So there is a lot of scope for capex expansion of Indian Railways. IRFC has been funding at a very consistent level to Ministry of Railways. It went up from 36% in FY 2018. It has been moving up to about 48.2% in FY ’20. It went up to a peak level of 67.3% in FY 2021.

The next slide shows the breakup of the AUM, about 50% of the total AUM is accounted for by the project assets; 48% by the rolling stock asset mix and lease receivables from rolling stock is 48% and the lease receivables on account of the project is about 50%, its almost half and the rest of it is to the other SPVs that we have given money to that is the loans to that is RVNL and IRCON which accounts for only 2%. Last year, the disbursement were of the order of worth INR60,000 crore. We have been charging a uniform spread of about 40 bps on the weighted average cost as far as the rolling stock assets are concerned and 35 bps over the project assets. 35 bps over the weighted average cost while arriving at the lease charges for project assets.

Next slide, as I have already mentioned, shows the rating of IRFC which is AAA at the domestic level and the sovereign rating at the international level. If you look at the borrowing mix as on 31st of March 2022, term loan accounts for 33% of my total portfolio, bonds are maximum at about 44% of the total portfolio, which includes the 54EC capital gain exemption bonds also. National Savings Fund which is at about INR17,500 crore, that accounts for about 4% of our total borrowing portfolio and external commercial borrowing is at 17% of our total borrowing portfolio.

If you look at the other financial parameters, the net interest income and the PAT — so the profit after tax as I have already mentioned is about INR6,090 crores this year and as I’ve already told you, operating expenses is at 0.13%. Return on equity and return on assets, I have already mentioned earlier. The capital adequacy ratio is now at 440% as against 420% to end of last year and the net gearing ratio — the leveraging ratio now stands at 9.47.

Now the net interest margin is about 1.6%. Return on equity as I’ve mentioned already hovering around 15% and the earning per share today stands at INR4.66. Now I have already mentioned and the revenue from operations is at INR20,300 crores to end of March 31, 2022 and other recent developments that has come about in the journey of IRFC is that we have been ranked 96th in the Fortune 500 Indian companies. This 96th rank has been obtained on the basis of 2021 results. So we are awaiting the rank based on 2021-’22 results also in a short while and we are sure that we must have moved a few notches above — higher.

This year, we have raised a green loan. This is the first of its kind. We have raised a green loan of $1.1 billion in yen terms from a syndicate of banks and we have also issued $500 million green bonds again which has been exclusively listed in the GIFT City Stock Exchange in both India [Indecipherable].

This year, we have also finalized the lease agreement for funding of the railway project, both EBR-IF that is Extra Budgetary Resources Infrastructure Financing as well as the National Project. So the railway projects EBR-IF we have intend to be vigilant for the loans that we have given in the year 2015-’16 and national project, the loans which were given in ’18-’19. So we have entered into — as year before, previous to this, we were entering into lease agreements only for rolling stock. From this year onwards, we have entered into a lease agreement for the project assets also with Indian Railways.

I think that brings us to the end of the presentation. If you can look at the financial, the P&L statement and the balance sheet, we have now — we all got to know that we have now become a INR4.5 lakh crore balance sheet company and this is all thanks to your support.

Now, I’m open to any questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Harsh Shah from L&T Mutual Funds. Please go ahead.

Harsh Shah — L&T Mutual Funds — Analyst

Thank you very much. Hi, sir. I hope everything is good at your end.

Amitabh Banerjee — Chairman and Managing Director

Hi, yes, thank you.

Harsh Shah — L&T Mutual Funds — Analyst

Sir congratulations for a very strong financial year ’22. Our performance has been very strong, but I have a few questions pertaining to this particular quarter. Sir, ideally our Q4 is comparatively the strongest quarter in terms of disbursements, but that has not been the case this time. So has there been any spillovers?

Amitabh Banerjee — Chairman and Managing Director

No, actually what has happened is that last year — this 2021 was a one-off year, it was a COVID year. The entire economy was — for the major part of the year was under lockdown, so there was a lot of fiscal constraint and therefore the course of Indian Railways to IRFC funding was quite that much more as compared to other years. So that was a one-off year. That is why the Q4 figures in last year was quite high, but if you see the financials of Q4, that has not been majorly impacted by the disbursements because the total turnover in Q4 has increased year-on-year by 33% right, but the expenditure has risen by 49%. So that accounts for a lower growth in PAT. That is your area of concern probably because it has only the 0.7%.

Harsh Shah — L&T Mutual Funds — Analyst

So PAT is not the concern. If you like, for example, I was going through the Slide 4 of the presentation. If you look at FY ’20, total disbursement was around INR71,000 crores; FY ’21 was INR1,00,000 crore. This year, you’ve closed at less than INR60,000 crores. So even on a quarter-on-quarter basis comparing Q4 versus Q3, the disbursement is somewhere around 5%.

Amitabh Banerjee — Chairman and Managing Director

Yes. So as I mentioned in my opening statement that this year the GST collections were much better the revenue position, the fiscal position of government was much better and therefore the GBS portion, the Government Budgetary Support which funds major part of the capex requirement of Indian Railways that was higher and that was comparatively much higher as compared to say FY 2021. As a result of which the disbursements in Q4 proportionately was low as compared to Q4 of the last year. That is all.

I mean that is the only reason why — it was not because of any kind of a systemic change or any kind of different policy of the government, nothing of this sort. It was only because of the better fiscal position of Government of India because everybody would like to have a lower loan portfolio for obvious reasons. I mean if I can afford to fund your capex requirements from out of your own revenues, why should you go to market to raise loans and unnecessarily increase your [Technical Issues]. So that is the only improvement.

Harsh Shah — L&T Mutual Funds — Analyst

So, sir, of the total government capex, that was there in FY ’21 and FY ’22, how has been our market share shift on a Y-o-Y basis for the full year?

Amitabh Banerjee — Chairman and Managing Director

No, we funded about 67% of the total capex of Indian Railways in 2021, right? It was about INR1,04,257 crores out of INR1,55,000 crores of capex. Now here in ’21-’22, the total capex of Indian Railways was around INR1,90,000 crores, out of which we funded about INR60,000 crores, which is about 32%.

Harsh Shah — L&T Mutual Funds — Analyst

Okay, as you rightly said, the share has gone down, but again, is there a possibility that it can again go up this year or how do you emphasize this?

Amitabh Banerjee — Chairman and Managing Director

Again, I mean these things are very volatile especially I mean, you never know that — the only thing that I will be able to tell you is that the expansion growth of Indian Railways as far as the infra expansion of Indian Railways is concerned that is on an even key [Phonetic] and that has been growing organically over the year and as per the National Rail plan, which is a part of the NIP, there is a — I’ve told this already, but at the risk of repetition I’ll again tell you that there is a huge capex plan of Indian Railways within the offering up to 2030 and even up to 2050. So there will be a capex plan of about north of INR10,00,000 crore to end of 2030, starting from 2020. IRFC would definitely be contributing at least one-third of the total as it has been doing over the years. From 1986 to end of 2022, we have been funding about 33% to 34% of the total capex requirements of Indian Rail, that has been the growth. That has been the proportion of the funding that we have been doing on an average. So this is the least that we will contribute and depending on the requirements of the government, we can contribute more also. So this year also it can go up because the initial mandate — you see, the initial mandate of last year was INR65,200 crores. Finally, it ended at INR60,000 crores, that is a different mandate. But this year, the initial mandate has also been increased to INR66,500 crores.

In 2021, the initial mandate was INR58,000 crores but it ended up somewhere at INR1,04,000 crores. So I mean it all depends, how it pans out in the course of the year. But one important point that I would like to mention here is that the growth of infrastructure in Indian Railways that could go unabated as per the National Rail Plan and that would be absolutely — that pace would not be disturbed or that pace could not be impacted. It’s only a matter of how much of the total proportion would be funded through the government revenues and how much would the government require by way of a loan from IRFC.

Harsh Shah — L&T Mutual Funds — Analyst

Understood sir. Sir, my second question is regarding again Q4 financials only. Sir on a quarter-on-quarter basis and in fact also on a Y-on-Y basis, our cost of fund and incremental NIM has shot up significantly, which has led to a dent in our net interest margin. So what is the reason for that?

Amitabh Banerjee — Chairman and Managing Director

I don’t think that is borne out by the facts. Our cost of funds as a matter of fact despite the fact that we 10 years asset yield has gone up in this financial year 2021-2022 as compared 2021 by 66 basis points from 6.18% to 6.84%. Our weighted average cost of borrowing has gone down by about 9 bps from 6.51% in 2021 to 6.42%. So we have actually decreased our average cost of…

Harsh Shah — L&T Mutual Funds — Analyst

No sir, I was asking from quarter-on-quarter. So the exercise that I’m doing is a…

Amitabh Banerjee — Chairman and Managing Director

As I told you, quarter-on-quarter, if you see, the turnover has grown by 33%, expenditure has grown by 49%. This is only accounted for by the CSR expenditure that has been booked in Q4. That is the only reason, not because of…

Harsh Shah — L&T Mutual Funds — Analyst

Sir, 49% interest expenditure increase is even if you exclude CSR expenditure.

Amitabh Banerjee — Chairman and Managing Director

It is not interest expenditure, it is not interest expenditure.

Harsh Shah — L&T Mutual Funds — Analyst

Yes, sir. I’m talking about pure interest expenditure. Your income has increased by 33%, your interest expenditure only excluding all the other expenditure, employee, CSR, etc has also increased by 49%.

Amitabh Banerjee — Chairman and Managing Director

Okay. No, it is not like that. I mean Sunil would you like to come in here. Sunil please explain this fact.

Unidentified Speaker —

Sir, because this year quarter-to-quarter, my revenue has increased by around INR1,475 crores and in same proportion, my expenditure has also grown up and in expenditure side, our CSR expenditure has gone up and establishment expenditure has gone up by INR50 crore. That is why our quarterly profit are at the same level. In Q3, our profit at INR1,500 crores level and in Q4 also we have the profit at same level.

Amitabh Banerjee — Chairman and Managing Director

Yes, thank you.

Harsh Shah — L&T Mutual Funds — Analyst

Okay, I’ll take this question offline but very helpful.

Amitabh Banerjee — Chairman and Managing Director

Yes, you can always connect offline for any kind of clarification.

Harsh Shah — L&T Mutual Funds — Analyst

Sure, sure sir, thank you, sir and all the best. Thank you.

Amitabh Banerjee — Chairman and Managing Director

Thank you so much. Thank you.

Operator

Next question is from the line of Rucha Amdekar from IDFC Mutual Fund. Please go ahead.

Rucha Amdekar — IDFC Mutual Fund — Analyst

Hello, am I audible?

Amitabh Banerjee — Chairman and Managing Director

Yes. Please tell me.

Rucha Amdekar — IDFC Mutual Fund — Analyst

I have two questions, first one is, can you please guide on your incremental borrowing mix for the next couple of quarters? You can answer this, then I’ll ask you the next question.

Amitabh Banerjee — Chairman and Managing Director

Yes, incremental borrowing mix, it’s very difficult to — I mean we’ve never — you see the point is, we go to the market while raising money, you see — I’ll tell you the whole procedure. The government gives us a mandate, the Ministry of Railways gives us a mandate for the entire year. Right? And then meanwhile we go ahead and try to get into various kinds of contracts with the banks and financial institutions for various tranches of loans. We do the drawdown of those loans or we go to the market for issuance of bonds when we receive the indents from the Railways from time to time so that we don’t — we are not required to retain this amount in our bank. Otherwise, there will be a negative carry. So what we do is absolutely back to back kind of borrowing and lending.

So at that point of time, when we require the money to be given to Indian Railways, we gauge the market and we try to find out which is the cheapest source of financing at that point of time whether a rupee term loan would be a cheaper source or we should get the money through issuance of domestic bonds or we should be going for any other instrument. It all depends on or we should go for some short-term loans to keep the cost low, but again, short-term loans are generally a bridging arrangement, you can’t take a short-term loan for financing the requirements of Indian Railways that is just to bridge the time gap between the receipt from these rentals from Ministry of Railways and the requirement from the Ministry of Railways. So these are some arrangement. So it all depends on that particular — at that particular point of time, which is the cheapest source and accordingly we do that. So we don’t pre-plan anything as far as how much to be taken through bonds and how much to be taken through loans.

Rucha Amdekar — IDFC Mutual Fund — Analyst

Understood. Okay. So, let me put it this way. So in the last call you had given the guidance the borrowing from banks were in favorable terms as compared to bonds, like directional guidance you had given. So similar guidance you would like to share right now?

Amitabh Banerjee — Chairman and Managing Director

No, I mean you see, I’ll tell you, I’ll give you a simple instance. In 2021 for instance or I’ll just tell you, just a minute, I don’t have the figures in a source-wise borrowing that I have taken but if you see, just a minute. Do you have certain figures — we can just show some of the — you know this year for instance, we have since the bond yields have gone up quite a bit as you are aware in this financial year, so we have taken recourse to more of structured loans from the banks which we got at a rate and we did not take recourse to bonds to that extent to which we had gone in 2021.

So that depends on the market scenario. Therefore, I think this year we have just gone for about INR20,000 crores. Only one-third we have taken by way of bond. So that really — I mean it all depends. So last year, we have taken more of rupee term loans because we got very competitive rate of interest. I mean it all depends how the market pans out this financial year. Of course, it will be quite challenging with the repo rate having gone up and there is an expectation of further increase in the repo rate in the June quarter — in the June in 2Q. So we are all waiting with bated breath that how the market behaves and the bond yields have also gone up pretty considerably. The international markets have also gone up because of the Fed rate having been increased and further guidance on increase in Fed rates going ahead in this calendar year. So there is the market is going to be quite challenging for us and we would have to take a very informed call, an extremely cautious call. We will have to keep the cost of our borrowing to the minimum from the available sources of funding.

And our basic aim is to actually diversify our borrowing portfolio. We are now trying to open other agencies also. We are in talks with various multi agencies with whom we are not transacted with so far like the big bank, the new development bank as well as ABB we are getting — we are also in talks with World Bank for giving us a guarantee for green loans. So they have already offered us a guarantee of $1 billion for raising green loans from international markets, which will help us in reducing not only reducing the cost of borrowing because we will have a greater gamut of lenders but also the tenure of those loans can also be increased that would go a long way towards balancing my ALM position and so on and so forth. So it’s a very dynamic call that we take from time to time.

Rucha Amdekar — IDFC Mutual Fund — Analyst

Okay, understood. For my second question, actually it’s a clarification I wanted. So I happen to notice that in the latest budget document, in the expenditure profile section, this INR66,500 crores, which is our mandate for FY ’23. It is shown under the internal resources column for IRFC unlike the other PSUs like HUDCO or you compare with IOCL, there the bifurcation is given as internal resources and whatever are the market borrowings are shown under the heads of whatever the respective source of borrowing. So can you please explain — I mean, what does this imply, is it like this for IRFC?

Amitabh Banerjee — Chairman and Managing Director

This is something which is in the arena of the Ministry. Actually, we are not — we don’t have a focus on that kind of a thing — why it is under — because I mean you can connect offline to our people and then we can get a clarification from Ministry that why is it categorized [Technical Issues] sources unlike other PSUs. That can be — I mean this question can be addressed offline.

Rucha Amdekar — IDFC Mutual Fund — Analyst

All right, okay, I’ll connect with you offline. Thank you.

Amitabh Banerjee — Chairman and Managing Director

Yes, thank you.

Operator

Thank you. Next question is from the line of Shabbir Kayyumi from Systematix Group. Please go ahead.

Amitabh Banerjee — Chairman and Managing Director

Can we have the question please?

Operator

Mr. Shabbir Kayyumi, can you please go ahead with your question.

Shabbir Kayyumi — Systematix Group — Analyst

Hello, can you hear me?

Amitabh Banerjee — Chairman and Managing Director

Yes, please go ahead.

Shabbir Kayyumi — Systematix Group — Analyst

About the margins spread, IRFC has kept this margin spread consistent from last four years. So is there a possibility of incremental by some bps in rolling stock or a project assets going forward as the borrowings from — in the Ministry of Railways is incrementing?

Amitabh Banerjee — Chairman and Managing Director

We have placed our request with Ministry of Railways for increasing the margin. They are considering that request. So it’s up to Ministry of Railways to actually — because one thing that you must remember is that this will — if there is a increase in margin, of course, I mean we have asked for an increase in margin, but keeping in view the present state of the fiscals, it will be a tough call from the Ministry’s side, but be that as it may, we have already placed our request for increase in margin from the present level and it is under consideration of the Ministry.

Shabbir Kayyumi — Systematix Group — Analyst

Okay, thank you.

Amitabh Banerjee — Chairman and Managing Director

As and when we get any information, we will keep you updated.

Shabbir Kayyumi — Systematix Group — Analyst

Understanding the National Railway Plan of 2030 as they are saying, infrastructural growth, so possibility of giving more spread margins to IRFC?

Amitabh Banerjee — Chairman and Managing Director

Yes.

Shabbir Kayyumi — Systematix Group — Analyst

Thank you so much, sir.

Amitabh Banerjee — Chairman and Managing Director

Thank you so much.

Operator

Thank you. Next question is from the line of Priyank Chheda from Standard Chartered Securities. Please go ahead.

Priyank Chheda — Standard Chartered Securities — Analyst

Yes, hi this is Priyank Chheda from Standard Chartered Securities. Sir, I just have one question. On the dividend policy, I reckon that we are governed by DIPAM guidelines of 30% PAT or 5% net worth. So just wanted to understand whether this is minimum dividend or there is no cap to the maximum or this is the maximum dividend?

Amitabh Banerjee — Chairman and Managing Director

Yes, this is the minimum dividend that we should give. That is the DIPAM guideline that it is either 30% of PAT or 5% of net worth whichever is higher. So this is minimum dividend. You can give any amount of dividend that you require, I mean as per the guideline.

Priyank Chheda — Standard Chartered Securities — Analyst

Yes, thanks. So, sir, we have declared INR1.4 dividend for FY ’22 which is exact 30% of the FY ’22 EPS. This is in line with guidelines with the minimum requirement as you mentioned. So what stops us declaring more or higher dividends from here even that we do not have any equity funds requirement going ahead?

Amitabh Banerjee — Chairman and Managing Director

Yes, that is not true that we don’t require any equity funds going ahead. You see, it’s an NBFC. So we have to work on it certain leverage ratio. Now we have been working on a leverage ratio of 10 right from inception and that is the industry average also. Generally people limit their borrowings to 10 times their net worth. Now, I am already at 9.47 to end of FY ’22. Now if I want to take more loans, since I am mandated to raise loans from the market at a very substantial level, I have to ensure that my accretion to net worth, the net worth is augmented on a year-to-year basis at a rapid pace otherwise, the occasion for further infusion of equity would be required.

So we want to avoid that particular auction of augmenting my net worth through equity so that my EPS does not suffer and that is why we try to keep a balance between the dividend payment and the accumulation of reserves in surplus. So I must have a good reserve in surplus also with me, especially because I am an NBFC and I have to raise loans based on the size of my net worth. I can’t go beyond a point. So that is why we have to keep a balance. Having said that, we are distributing dividend as per industry practice. Almost all the companies, they are paying 30% of their PAT. I mean, all the companies under the public sector, they are paying 30% of PAT as their dividend and we are also following the same path.

Priyank Chheda — Standard Chartered Securities — Analyst

All right, thanks for the detailed answer. Thank you, sir.

Amitabh Banerjee — Chairman and Managing Director

Thank you.

Operator

Thank you. Next question is from the line of Santosh Kesari from Kesari & Co. Please go ahead.

Santosh Kesari — Kesari & Co — Analyst

Hi, good evening.

Amitabh Banerjee — Chairman and Managing Director

Good evening.

Santosh Kesari — Kesari & Co — Analyst

Can you hear me?

Amitabh Banerjee — Chairman and Managing Director

Yes, go ahead.

Santosh Kesari — Kesari & Co — Analyst

So, just one question I have. Looking at your balance sheet of March 31, ’22, I can see the equity and total equity funds of INR41,000 crore as of March 31, ’22. Now I understand that this also — the fund here — the assets representing this total equity has also been lent to the Ministry of Railways. So the yield on — can you tell me the yield on the equity funds. On INR40,000 crore, are we earning as much as 8%? And if that is so, that can we say that on a steady state basis INR3,200 crore will be my profit every year, at least, the yield on the equity funds?

Amitabh Banerjee — Chairman and Managing Director

Yes it is. Sunil may like to answer that.

Unidentified Speaker —

Our yield on equity is around 15% as CMD sir has already pointed out and we are hopeful we will continue the same in future years also.

Santosh Kesari — Kesari & Co — Analyst

Sorry, sir, what did you say, 15%?

Unidentified Speaker —

It is around 15%.

Amitabh Banerjee — Chairman and Managing Director

Yes, 14.87% to be precise or 15%.

Santosh Kesari — Kesari & Co — Analyst

Okay. So that means that only by on equity you should be earning something like INR6,000 crores every year and we are earning a profit after tax of INR6,090 crores for FY ’22.

Unidentified Speaker —

Yes, sir. So your expenses are minimal and on this equity, you are not paying any interest because this is your own fund.

Amitabh Banerjee — Chairman and Managing Director

Yes.

Unidentified Speaker —

This only brings up to something like INR6,000 crore profit.

Santosh Kesari — Kesari & Co — Analyst

Pardon?

Unidentified Speaker —

Because I’m multiplying 15% with INR40,000 crore and I’m getting INR6,000 crore, that’s a straight mathematics.

Santosh Kesari — Kesari & Co — Analyst

You are just multiplying the margin over the INR41,000 crores but that is not the case. On my own fund. I’m recovering the entire cost.

Unidentified Speaker —

You see, we can take this offline.

Amitabh Banerjee — Chairman and Managing Director

We will explain everything to you. I mean we will give them the entire calculation.

Santosh Kesari — Kesari & Co — Analyst

Sure, sir. That will be very helpful. Thank you so much.

Amitabh Banerjee — Chairman and Managing Director

Thank you so much.

Operator

Thank you. Next question is from the line of Praneeth Rathi, Individual Investor. Please go ahead.

Praneeth Rathi — — Analyst

Hello. Yes, Amitabh, sir. Congratulations for a wonderful quarter.

Amitabh Banerjee — Chairman and Managing Director

Thank you.

Praneeth Rathi — — Analyst

Yes, sir. I have one question like you said starting with quarter or this year, we are going to lend to some railway projects like right now, over 98% of our books is to Ministry of Railways. So what other than the rolling effect, what other work we have started and what is our view how big it can grow or how it can add to our profitability in the next coming quarters?

Amitabh Banerjee — Chairman and Managing Director

You see, we are basically funding the Railways on two accounts. One is the funding of rolling stock. The rolling stock constitutes the train sets, the passenger train sets as well as the freight train sets, the locomotives, coaches and wagons and so on and so forth, track machines and so on and so forth. This is what we call as the rolling stock technically. The other portion is the project assets, what we categorize under EBR-IF in Government of India. It is called Extra Budgetary Resources – Infrastructure Financing. Now this comprises of many elements, principal of them being, say gauge conversion from meter gauge to broad gauge. So conversion of these tracks from meter gauge to broad gauge because there is uniform gauge policy which obtains on Indian Railways. So we have to have a uniform gauge throughout the country. So that is one project — major project.

Then there is multi-tracking. So whenever there is only single line operating, we have to double it. So it’s called doubling. When two lines are there to augment the carrying capacity of Indian Railways, we can do triple tracking. So either it is doubling or tripling or quadrupling of lines which can be station development, station redevelopment, it can be upgradation of signal and telecom equipment, it can be IT development of Indian Railways, construction of service buildings and institutional buildings and so on and so forth. There are umpteen number of projects which you have which comes under the project assets portfolio.

So going ahead, this capex expansion program for Indian Railway covers all these assets, besides augmentation of the rolling stock requirement. So there is a huge scope for IRFC to fund these requirements, to fund the capex requirements of Indian Railways going forward as a part of the National Rail Plan of 2030. So this is the guidance for the same in the next decade also.

Praneeth Rathi — — Analyst

Okay, thanks, sir. Sir. In your last call as well, you said our net gearing ratio you said something about like we can go above 10 or…

Amitabh Banerjee — Chairman and Managing Director

Yes, that still remains. Incidentally, we are at 9.47 right now. We have not had the occasion to breach that 10, but we are absolutely okay with going beyond 10 with our capital adequacy ratio at 440%. We are comfortably placed because most of the loans are to this program, so we don’t place any kind of — that kind of a risk of going of our net gearing ratio going beyond — I have maintained that earlier, I maintain that even now also if the occasion demands. If the requirements from Indian Railway goes past that level that we are supposed to go beyond 10 because we don’t want to infuse equity at this point of time. So therefore additional liquidity at this point of time and if the reserves and surplus is not adequate to raise my net worth level to that extent that I can borrow the liquidity amount from the market, then I am absolutely okay going beyond 10 as far as the net gearing ratio is concerned. I still maintain what I said earlier as and when the occasional arises.

Praneeth Rathi — — Analyst

Okay, sir. My last question, any idea by when Government of India would be selling there or maybe OSS would come which would cause right now, sir, individual investor we are thinking like maybe OSS will come and then the government will sell to stop that discount. Is that the reason like OSS people are thinking OSS would come and the share price would fall, because our stock performance is not doing up to the profits that we are doing? So your views on that?

Amitabh Banerjee — Chairman and Managing Director

So that call would be taken by the Government of India. That is for DIPAM to take a call. We don’t take a call on it, it all depends, I mean what call the government takes. On that, we will not be a able to give any prognosis. But as of now, we are okay with the equity portfolio that you have and we don’t want to see as of now, but as and when the government comes out with the requisite instructions to for the remaining 11%, we will definitely intimate you.

Praneeth Rathi — — Analyst

Yes, sure, sir. Thanks a lot and I wish you all the best.

Amitabh Banerjee — Chairman and Managing Director

Thank you so much. Thank you. Thank you very much.

Operator

Thank you. Next question is from the line of when Venil Shah from PL India. Please go ahead.

Venil Shah — PL India — Analyst

Thank you so much for the opportunity. Couple of questions have already been answered. I will just post two more questions. The spreads that we operate on which is 0.4% for rolling stock and 0.35% for the project assets is there any scope for revision to this number for FY ’23 or do you this for FY ’24 for that number to change and B) my question is till when do we envisage the zero tax status to continue for us. Those are two questions. Thank you.

Amitabh Banerjee — Chairman and Managing Director

Okay, as far as the first part is concerned, I have already given a detailed answer to that. We have already presented to Ministry of Railways and it is under active consideration of Ministry of Railways and number two, the zero tax thing is going to go for quite some time because of the availability of the unabsorbed depreciation balance that we have and going forward would be acquisition of more assets the balance of this particular fund would increase and that would keep the taxable income at a zero level or below for quite a few years to come.

Venil Shah — PL India — Analyst

Thank you so much, sir.

Operator

Thank you. Next question is from the line of Sriram Prasad, an individual investor. Please go ahead.

Sriram Prasad — — Analyst

Hi, sir. Can you hear me?

Amitabh Banerjee — Chairman and Managing Director

Yes, please.

Sriram Prasad — — Analyst

Hi, sir, good evening, and congratulations on a good set of results. Sir, my question is a lot to do with the share price performance. I mean we are at the net worth of INR40,000 crore with a market cap of [Indecipherable], which is about 70% of book value, but we are still generating 15% ROE.

Amitabh Banerjee — Chairman and Managing Director

Would you repeat the question. I’m sorry.

Sriram Prasad — — Analyst

No, sir, I am saying we are at a net of INR40,000 crore and ROE of 15%, but still the market price trades at a book value of about 70% or 75% of what the book value is. This to me seems like a very heavy undervaluation of the share. I know the team is doing well on operating metrics and all, but I think everybody on this call has an interest in seeing the share price appreciate and I think the only way to do it is to increase dividend. For that, the reason I keep hearing from you on multiple calls is that we have a gearing ratio limit of 10% because that is where NBFCs are trading at. That is what NBFCs do, but frankly, no NBFC has CRAR of 430%. So that’s a unique advantage that we have that our risk-weighted assets is so low.

So my question is why the fascination with respect to that gearing ratio keeping it at 10% and not increasing the dividends and helping the share price and supporting the share price because I think the government is also interested to increase the share price to offload its stake and if you still believe that the 10 gearing limit is what we have to be at for some reason why is it that the company is not actively looking at securitization so as to — as another means of financing to actually include this price, because on every call we keep hearing this thing the dividend and we are always hitting that 10 limit of gearing ratio.

Amitabh Banerjee — Chairman and Managing Director

You have already made your point, so let me respond to it. You see all your points are extremely right and they are very, very relevant and very, very pertinent. Now I’ll give you one by one. As far as this dividend is concerned, as far as this share price is concerned, we are interacting with the investors on a regular basis. I am interacting with various fund managers, I am interacting with major investors, I am interacting with other potential investors also who have not subscribed to our equity portfolio and on a weekly basis I am having calls with them and physically meeting them and I’m traveling to Mumbai on a regular basis and meeting various investors and everybody has the same story to tell that there are certain issues which has got nothing to do with dividend payout.

Now I have got a contrarian view that you should not be paying out so much dividend, that you should be more efficient to reserves and surplus balance, but I mean but if you look at the history of our share prices, if you look at the profit and loss statement, you will see that even after declaration of dividend and maybe even after whether it is interim or final, I have not seen a perceptible change in the share prices. So saying that the share price would increase automatically with the raising of the dividend, I don’t think that is borne out by the facts or that is borne out by historical data. So that is a mute question.

I mean you can have an opinion. That opinion I respect, but there is a contrarian view also that you should not be doing, but only point is that I’m not paying dividend which is below par or which is not in keeping with the market standard or not keeping with the market tradition. 30% of PAT is a pretty good dividend and most of the investors who are already invested in our stock, they have actually commended us for giving a good dividend yield. In today’s it is about round about 6.7% or 6.8% which is pretty good dividend yield, Now my point is the yes, we have got a huge equity base which accounts for almost 30% of the total, more than 30% of the total net worth. So that is a bit on the heavier side, but of course, I mean there was no alternative to that. We have to raise a lot of funds initially and with this kind of a margin prior to listing obviously the equity route was the only way in which we could raise money from the market so that we are able have that leveraging ratio up to 10.

Now yes, just to breach the 10 and in the bargain, I dole out dividends, more dividends, I think that would not be the right course of action. That is what the company feels. So we are going as per the DIPAM guidelines and dividend payout ratio is pretty good as well as we are also open to the idea of going beyond 10 as for the dividend ratio is concerned going forward. Now as far as your securitization issue is concerned, this is our priority area this year and we are in the process of floating an RFP for securitization. Very shortly we’ll be coming out with an RFP and we will securitize considerable chunk of our receivables in near future and we shall do it in tranches and given earlier also and we’ve taken a view on this and we will be going ahead with securitization.

Sriram Prasad — — Analyst

I just like to end with a clarification, sir. I am not saying that the dividend payout will necessarily increase the share price but the fact that the dividend is high is way of rewarding the shareholders who have not been rewarded with the share price. There is a difference is what I’m trying to bring out and maybe the share price is languishing at wherever it is because the dividend is not deemed enough. I mean if the investors are happy with the dividend payout, the share price should be higher is my personal opinion, you might disagree, but I would leave it at that sir. Thank you.

Amitabh Banerjee — Chairman and Managing Director

Thank you very much. I mean we respect your view also.

Sriram Prasad — — Analyst

Thank you.

Amitabh Banerjee — Chairman and Managing Director

Thank you.

Operator

Thank you. Next question comes from the line of Ashish Shah from Business Match. Please go ahead.

Ashish Shah — Business Match — Analyst

Hello, good evening, sir. I’m slightly new to the company. So please pardon my ignorance on the company and its understanding. I have one question from your presentation on Slide 3 where we have shown our share funding to Ministry of Railways. Sir, can you help me understand that in FY ’18 or ’19, when the share was 36% and 39%, where was the balanced funding coming from. Was it Government of India or who was the other, I mean where was the other share going to?

Amitabh Banerjee — Chairman and Managing Director

I mean, at least, we look at Slide 3, you are saying that yes, it was 36% in FY ’18. Yeah prior to that, it was still less this year so the balance was coming from GBS.

Ashish Shah — Business Match — Analyst

Sorry, the balance was coming from?

Amitabh Banerjee — Chairman and Managing Director

The government budgetary support that was coming from the government revenue.

Ashish Shah — Business Match — Analyst

Okay sir. Sir, the other way to look at it, which would mean that whatever will be the debt borrowing of Ministry of Railways, we would remain the sole agency or the sole arranges for debt for the company for Ministry of Railways?

Amitabh Banerjee — Chairman and Managing Director

Precisely.

Ashish Shah — Business Match — Analyst

Okay sir, that’s very helpful sir. Thank you, sir.

Amitabh Banerjee — Chairman and Managing Director

Thank you so much.

Operator

Thank you. Next question is from the line of Nilesh Doshi from Prospero Investment. Please go ahead.

Nilesh Doshi — Prospero Investment — Analyst

Hello.

Amitabh Banerjee — Chairman and Managing Director

Yes please.

Nilesh Doshi — Prospero Investment — Analyst

Hello guys, can you hear me sir?

Amitabh Banerjee — Chairman and Managing Director

Yes, we can hear you, please go ahead.

Nilesh Doshi — Prospero Investment — Analyst

Thank you, sir. Sir, my question is related to incremental borrowing, disbursement and AUM growth because I’ve gone through the result, quarter four result, there was mentioned that incremental borrowing for the year FY ’22 was INR63,908 crores whereas the disbursement is only INR59,899 crore and AUM growth is only INR55,159 crore. Why the disbursement is lower than the incremental borrowing and AUM growth is lower than the disbursement? Can you guide something on that?

Amitabh Banerjee — Chairman and Managing Director

You see, I would like Sunil to come in, but before that, I would just like to mention here that the borrowing might be more than the disbursement primarily because we also borrow money to redeem our other loans for the purpose of refinancing of the costly loans. We sometimes refinance the costly loans by substituting it by a low cost loan and there are other redemption requirements also, so we have to redeem the bonds, we have redeem the loans that fall for redemption in due course of time. So that is why the amount that we raise would not tally with the amount that we disburse…

Nilesh Doshi — Prospero Investment — Analyst

But sir, is it a incremental borrowing — only the borrowing because I consider the incremental means once you are redeem, that is not your borrowings and you are replacing the one low cost borrowing…

Amitabh Banerjee — Chairman and Managing Director

Yes, yes.

Nilesh Doshi — Prospero Investment — Analyst

So, therefore, I am asking the incremental means a net increase in the borrowings.

Amitabh Banerjee — Chairman and Managing Director

I get the point, I mean if we are refinancing then it is not incremental. That point is well taken. So incremental borrowings.

Unidentified Speaker —

Sir, basically as CMD sir has explained, we are following a leasing model and on a half yearly basis we are receiving the lease rental from MOR. These lease rental consist of two portion, one is the revenue portion and other portion towards the recovery of capital. This is basically treated as repayment of the loan. So whatever lease rentals we receive from the MOR, It contains a capital portion also and that is deducted from the fee receivable. So that is why my AUM — my borrowing is for the disbursement and whatever capital portion we receive through the lease rental, that gets deducted from my borrowing. That is why these figures are coming that way.

Nilesh Doshi — Prospero Investment — Analyst

But that is about the AUM.

Unidentified Speaker —

AUM is net different…

Nilesh Doshi — Prospero Investment — Analyst

My question is, sir, incremental borrowing is — suppose our incremental borrowing is around INR64,000 crore and disbursement is INR60,000 crore. Does it mean we have kept the INR4,000 crore which is not, which we could not lend it to the MOR or anything. I don’t understand that discrepancies.

Amitabh Banerjee — Chairman and Managing Director

Okay. So you have already understood the discrepancy between the increase in AUM and the disbursement that is well taken.

Nilesh Doshi — Prospero Investment — Analyst

That I understand, sir.

Amitabh Banerjee — Chairman and Managing Director

So Sunil I think probably this just like to intervene this 4,000 extra which has been utilized for which purpose?

Unidentified Speaker —

Sir, actually this was utilized for the purpose of financing our green loan we have taken. So that we used to liquidate at the end of the year.

Amitabh Banerjee — Chairman and Managing Director

That’s what I was saying that we have to sometimes substitute this high cost thing with a low cost one or short-term loans we have to substitute through — by rupee term loan. Now that short-term loan would not be coming as a part of our disbursement. So that is why this extra that you are seeing INR4,000 odd crores that is to substitute these short-term borrowings that we do often. At the end of the year, we try to replace it with the proper other rupee term loan or bonds as the case may be. So in this particular case, it was through a rupee term loan that we had to retire the short term loans. To keep the short-term loans at the end of the year to the bare minimum.

Nilesh Doshi — Prospero Investment — Analyst

Okay, sir. Sir, my next question is related to quarter four net interest income. See in quarter four, our operating income has grown on a quarter-on-quarter reduced from INR5,095 crore to INR5,931 crore. At the same time, our net interest income has fallen from INR1,604 crore to INR1,578 crore. Our operating income is growing by 18% and net interest income is falling, does it meant that we could not charge or because we are the peaks in margin with there where we are, we have a margin of 40 basis point or 35 basis points, so our net interest income should grow, whenever there is a growth in the operating income that is our understanding, please explain.

Amitabh Banerjee — Chairman and Managing Director

Yes, Sunil?

Unidentified Speaker —

Sir, basically, we are financing two types of assets. The rolling stock assets and the project assets. So for the project assets, we have a moratorium of five years, During the moratorium period, we recognize as a pre-disbursement lease income. So then that is the pre-disbursement interest income. It is the reason of increase in the less increase in the Q4 is mainly because as CMD sir has explained we have signed the lease agreement for EBR-IF 15-16 and National Project ’18, ’19 on these assets earlier we were recognizing the pre-lease interest income that also now the agreement has been signed. Now these assets have been shifted to the lease assets and on these assets now we are recognizing the lease income not the interest income. This is the main reason of the difference in the variation in this interesting.

Nilesh Doshi — Prospero Investment — Analyst

Sir first of does it does it went earlier we were earning the 40 basis point net margin and now it is under the 35 basis and that is the difference.

Unidentified Speaker —

No we continue to earn 35 bps on this project asset, now it has been shifted from the pre-disbursements interest income to lease income.

Amitabh Banerjee — Chairman and Managing Director

No, I would request — no I mean you’ve got a very good question. I mean so if you can just connect offline because the other analysts are there.

Nilesh Doshi — Prospero Investment — Analyst

Yes, sir. Okay.

Amitabh Banerjee — Chairman and Managing Director

We will give you full clarification on your issues. The issue is well taken and we will give a full clarification. Please connect offline.

Nilesh Doshi — Prospero Investment — Analyst

Okay, sir. My last question, sir in FY ’22 our disbursement…

Operator

Mr. Doshi, can you please fall back into the queue because we…

Nilesh Doshi — Prospero Investment — Analyst

Yes. Okay. Thank you.

Operator

Thank you.

Amitabh Banerjee — Chairman and Managing Director

I think it’s already 5:05. So we can just take the final question, if we can?

Operator

[Operator Instructions] Our next question is from the line of Shrivala Kulkarni an Individual Investor. Please go ahead.

Shrivala Kulkarni — — Analyst

Hello?

Amitabh Banerjee — Chairman and Managing Director

Can you speak a little bit louder please?

Shrivala Kulkarni — — Analyst

Can you hear me properly now?

Amitabh Banerjee — Chairman and Managing Director

Now it is okay.

Shrivala Kulkarni — — Analyst

So you might be used of delivering good results, which I can see and congratulation for the same. I have two questions, one is related to MOA whichever you changed two, three month back, I can see you have added the point like you can finance to any infrastructure project now on. Does that mean you’re going to finance part road projects or any of the infrastructure projects other than railway project. If so, then, have you got any traction in that segment because I can see some of the comments are from that.

Amitabh Banerjee — Chairman and Managing Director

We are in the process of widening the scope of activity of IRFC. As of now the mandate states, while the object clause of the Memorandum of Association, we can lend to any sector. It can be public sector, it can be private sector which has a backward and forward linkage. Now we have definitely we have placed this proposal for widening the object clause from this to any infrastructure. Any infrastructure means any infrastructure sector in the country we can finance to and this has already been approved by our Board of Directors and it is presently under active consideration of Ministry of Railways and we have already given a presentation to Ministry of Railways and they are actively considering it. As and when there is a traction in this particular regard, we will definitely keep the investor community informed.

Shrivala Kulkarni — — Analyst

And the second question, I do feel IRFC is not like a dividend income company. It is growth company, Ideally, we don’t have a good dividend that much. I believe I would be like recommending something, then I would be recommending buyback because if you see the — if you are trying to put dividend and the dividend down the line in 10 years will be much higher than the interest whichever you are going to raise to from the market. So if I will be recommending something I would definitely recommend that go for buybacks, aggressive buyback for each and every quarter that will reduce the equity number of shares which are floating into the market, because if you see, IRFC will definitely grow over 10 to 15 years, there is no doubt about it. You can envision easily about that. So rather than spending dividend income, why can’t you buy back. If you can see, it’s a cheap price and if you see down the line in 10 years, whichever the dividend you are going to give, it might be the same price which is current share price or more than that. So, ideally, if you’ve taken same 10 years interest or the borrowing from to market rather than invest in the dividend income.

Amitabh Banerjee — Chairman and Managing Director

We get your point. So we take note of your opinion, we value your opinion and we shall definitely take this into consideration. Yes, I mean this is one of the ways and we have discussed with other people also. There have been varying reasons, which I mean they have come out with lots of suggestions and we will keep this suggestion also in our mind when we take a call on this.

Shrivala Kulkarni — — Analyst

I appreciate it. Thank you.

Amitabh Banerjee — Chairman and Managing Director

I think we can call it a day if the organizer permits.

Operator

Thank you. As there are no further questions and due to time constraints, I would now like to hand the call over to Mr. Amitabh Banerjee for closing comments.

Amitabh Banerjee — Chairman and Managing Director

Well, thank you dear investors for being cooperative through the year and we would definitely thank with all sincerity the kind of support which you have given to the company and I would like to and I mentioned my special thanks to the Government of India with special reference to Ministry of Railways, DIPAM, Department of Public Enterprises and other major stakeholders who have helped us in our endeavor to make this company vibrant and to keep it as a niche company, as a niche NBFC company in the public sector and I thank you all for having spared your time — valuable time to be in this investor call and we look forward to a very robust performance of your company IRFC in future also. We value your suggestions. We will take note of all your suggestions that you’ve given in this conference call and we would definitely take cognizance of all the suggestions. Thank you very much and god bless you all.

Operator

[Operator Closing Remarks]