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.