Indian Railway Finance Corp Q4 FY24 Earnings Conference Call Insights

Key highlights from Indian Railway Finance Corp (IRFC) Q4 FY24 Earnings Concall

• Railways CapEx
  • Increasing focus on infrastructure, capacity enhancement, decongestion, passenger experience, safety.
  • Major part of planned CapEx directed towards implementation of economic corridors (energy, mineral, cement, port connectivity, high-density traffic).
  • About 40,000 km of new track likely to be laid over next 6-8 years.
  • Plans to convert rail bogies to Vande Bharat standards and deploy automated train safety technology.
• IRFC Mandate
  • Sole market-borrowing arm of Indian Railways.
  • Consistently supporting Railways CAPEX funding for rolling stock and infrastructure projects.
  • Financing through lease model – low-risk, cost-plus with margins of 40 bps for rolling stock, 35 bps for projects.
  • Mandate also covers financing projects with backward/forward linkages to Railways.
• Financial Performance
  • Total AUM of INR4.64 lakh crore as of 31st March 2024.
  • Revenue of INR26,644.58 crore, profit of INR6,412.10 crore for FY24.
  • Borrowings of INR4.12 lakh crore from various sources with strong ALM.
  • Low operating expenses at 0.09% of total income.
  • Strong return ratios – RoE 13.66%, RoA 1.31%, NIM 1.38%.
• Future Growth Plans
  • Actively exploring funding opportunities in railway ecosystem.
  • Formulated board-approved credit policy to manage credit risk.
  • Setting up internal credit committees, onboarding agencies for appraisals.
  • Exploring funding for projects like rolling stock leasing, railway infrastructure, DFCs, logistics parks, renewable energy.
• Growth Opportunities and Diversification Plans
  • Actively exploring opportunities in forward/backward linkages with Railways.
  • Opportunities in areas like rolling stock leasing, railway infrastructure, DFCs, logistics parks, renewable energy.
  • Using interim 2-year period to strengthen internal mechanisms for diversification.
  • In discussions with other companies for potential collaborations.
  • Building team and onboarding agencies for appraisals, due diligence.
• Lending Spreads
  • Spreads over cost of funds have been stable at 40 bps for rolling stock, 35 bps for projects.
  • No requirement seen for changing spreads as risks like currency, interest rate passed through.
  • Spreads expected to continue at same levels going forward.
• Earnings Outlook
  • No sharp jump, but no sharp decline expected in near-term earnings.
  • Exploring diversification opportunities to sustain growth trajectory.
  • Earnings in FY25-26 contingent on executing existing pipeline of lending.
• Moratorium Period Impact
  • 5-year moratorium before Railways start paying back after disbursement.
  • Earnings impact of recent healthy lending yet to be realized due to moratorium.
  • Moratorium periods ending now, allowing these investments to start yielding returns.
• AUM and NII Growth
  • AUM growth needed for meaningful NII uplift over current about INR6,400 cr levels.
  • Executing pending INR2 tn of project assets to increase AUM over next few years.
  • Capital recovery from executed leases to offset, NII accretion only from redeployed funds.
• New Ventures
  • New ventures would be aligned to railway sector as per current mandate.
  • Can fund renewable projects but only those with backward/forward linkages to railways.
  • Not allowed to fund renewable projects without railway linkages as of now.
• Expanding Charter/MoU
  • Possibility of pursuing expansion of charter/MoU with ministry.
  • To enable funding opportunities beyond just railway-linked projects.
  • However, even current mandate provides significant infrastructure opportunities.
• Spread Expectations
  • Spreads for new non-railway ventures not governed by regulated framework.
  • Spreads to be based on project profile and industry standards.
  • Potential for higher spreads compared to capped railway funding spreads.
  • Too premature to provide any ballpark spread numbers currently.
• FY25 Borrowing Plan
  • IRFC has taken board approval for borrowing INR50,000 crore in FY25.
  • Plan based on interim budget assessments.
  • Final budget yet to be approved, which could impact borrowing requirements.
• Refinancing Opportunities
  • Part of the INR50,000 crore borrowing planned for refinancing.
  • Aimed at taking advantage of potential refinancing opportunities.
  • To optimize borrowing costs and liabilities management.