Indian Railway Finance Corporation Limited (IRFC.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day. And welcome to the Indian Railway Finance Corporation Q3 FY '25 and 9 Months Earnings Conference Call, hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Parth Jariwala from DAM Capital Advisors Limited. Please go ahead.

Thank you, Ryan. Good morning, everyone. Welcome to the Indian Railway Finance Corporation Limited Q3 FY '25 Earnings Call to discuss the business update. From the management, we have Shri Manoj Kumar Dubey, Chairman and Managing Director and CEO; Ms. Shelly Verma, Director, Finance; and Shri Sunil Kumar Goel, GGM, Finance, and CFO. Without further ado, I would like to hand over the call to management for their opening remarks, post which we can open the floor for Q&A. Over to you, sir.

Thank you, Parth. Good morning, friends. So I'm delighted to meet you all today to discuss IRFC's quarter 3 results and our future outlook. Before we dive into the numbers, I want to acknowledge the hard work and dedication of my entire team. Their commitment to excellence is what makes our growth story possible. So let's take a moment to appreciate where we are and where we are headed to. So here I'm with Q3 results in hand, which are stable, steady and consistently moving upward. Company's asset under management and balance sheet has grown phenomenally in recent past, with the debt-equity mix and -- or gearing ratio, as you say, crossing 9 a couple of years back. The same is cooling down, and we are recalibrating our growth plans with active actions for steady AUM numbers with plan to harness better yields and margins in coming quarters. We proudly maintain an extraordinarily high CRAR of more than 700%, as you know, and also a clean 0 NPA record in the history of the company. After a brief period of consolidation, we now stand at the threshold of our next growth phase, eager to confront new challenges, looking for the new business areas other than Indian Railways per se and capitalize on fresh opportunities. With a perennial revenue stream from earlier funded projects, including 5-year moratorium projects until FY '27, company has been rigorously working on cost optimization. And anything coming out of that is adding directly to my PAT. Our leading model continues to benefit us, adding 25% extra to our PAT. As you know, we are 0 tax company due to our tax-free status under the government of India's IT rules. In the last con call, I've spoken about our intent to diversify beyond our direct leasing model to Indian Railways, and I'm thrilled to share that we are walking the talk, and that too as briskly and quickly as possible. You must be aware that company, for the first time, participated in an open bid for a coal mining development project, having forward linkage with Indian Railways, and emerged as the lowest bidder, outsmarting almost all the banks and NBFC industry. Friends, this is the first confirmation of our intent and motto to provide cheapest funding to any railway-related infra projects of excellent asset quality. It is a milestone that showcases our strategic vision and demonstrate our competitive edge and the fact that we are walking the talk. As I say, actions speaks louder than words, and we at IRFC live by this mantra. Our growth story, driven by higher-margin businesses in our product mix, will continue to unfold every quarter through tangible actions and results. We are extremely aggressive in tapping cheapest fund resources, which are our raw materials, for actively mobilizing more and more funds under 54EC bond market, zero-coupon bond market and domestic bond markets, apart from keeping an eye on any opportunity from various currencies in ECB market. In fact, in the last 2 months, we have done most of the domestic market bond tapping which earlier was not that frequent. In the end, I thank you all for joining us for this important occasion, and for being part of this extraordinary period of stability, growth and excitement in IRFC's business journey. We are committed to continuing our upward trajectory, driven by our strategic initiative and financial prudence. Together with this very focused and energized team, we are sure that we are going to reach new heights and strengthen our position in the railway infrastructure industry as a leader. Thank you so much. And let's start the question-and-answer session.

[Operator Instructions] The first question comes from the line of Naman Kumar, an individual investor.

So my question is more with respect to debt-equity ratio. So what I understand from earlier calls is that debt-equity ratio of 10 is the self-imposed limit. There is no statutory or regulatory requirement to maintain debt-equity ratio for IRFC to be 10 or something like that because, as you know -- as you already mentioned, CRAR is very high. So is there any concrete policy which IRFC has already taken that, if needed, that debt-equity ratio can be freezed above 10? Or will it be time dependent? As and when the opportunity comes, the decision will be taken.

So Naman, as you know, it's not that there is no regulatory aspects. There is a regulatory aspect from RBI, which is for 7 to all the NBFCs. Yes, because we are funding to sovereign, so our limit is a little relaxed. So we have set our limit to 10. And going forward, since we are looking forward to business outside railways also. So we would like to be hovering around somewhere 8 to 9. This is the target right now. Let see how our product mix goes ahead every year because, year by year, now we are focusing more on more lucrative businesses where we do more of the margin in the railway infrastructure itself. So having those product mix in our baggage, we wish to maintain something around 8 to 9, not crossing that, in the future.

The next question comes from the line of Dr. Akshay Patel, an individual investor.

From the past 3 quarters, the results have been -- the top line and bottom line have been in one, the same stagnant, so what are the -- what is the forward-looking statements for the next financial year?

So Dr. Akshay, many companies are slipping down also. So happy for you that your company is not slipping down. We are at least maintaining where we are. So in the business, that also is not a very easy thing to do. So what we are doing is we are maintaining or a little -- doing incremental in where we were in the past. Rest be assured, going ahead, we are working very actively on ensuring that our bottom line grows bigger than what we have right now quarter by quarter. The reason is, if you are following us, we have already ventured out into the other than railway businesses. And my margin is fixed to INR 0.40 and INR 0.35. Once we quote out, the margins are quite higher. I'm not quoting a number, but it hovers around somewhere between 3x to 5x of what I'm getting in the railways. So once more and more of those businesses will come to my kitty, rest be assured that PAT will be growing steeply in -- quarter by quarter. So that's the guidance I want to give you without giving any numbers.

Okay. It means that, even though top line remains stable, the bottom line is about...

Top line, yes, top line, as you see, right now my top line comes from railways. So where numbers may be bigger, but yield is lesser, right? So what we plan is -- we plan to maintain the asset under management, but within that, the mix has to be towards lucrative assets where I earn, say, 150 bps, 200 bps, and still be cheaper than any of my peers. So if you understand the mathematics, you will come to know that, even if my AUM is not growing in that steep level, my PAT will be growing. And for the investors, PAT is more important than the top line.

Yes, yes, yes. I got to know. And one more thing, when we can see this converting into the results, from the next quarter?

I think you are following the -- if you are following our news, we keep on informing the exchanges. And from exchanges, very rapidly, it's becoming the news also. We have already been selected the lowest bidder in one project of more than INR 3,000 crores. One INR 700 crores ticket, we have already done with NTPC, we have many more in pipeline. As and when it materializes, we'll be informing you through the exchanges.

The next question comes from the line of Mohit Jain from Tara Capital Partners.

So in the last two budgets, there has been no...

Your voice is booming.

Your voice is booming.

Mohit sir. Your audio is not audible.

Can you hear me right, now?

Better.

Yes. So I'm saying, since the last 2 budgets, there has been no allocation on the railways side. What are your expectations from this budget? And should we expect no allocations, or do you expect things to change in this budget?

You see, as -- if you followed my conference call in the last quarter, we made it very clear that our bags are full with what we needed from the government side. It's more than INR 4.5 lakh crores. And whatever I get from the extra budgetary resource allocation from the Indian Railways is coming at INR 0.35 and INR 0.40 only, so that is not a very lucrative business for me. So anything coming from the budget will be now icing on the cake, but we are actually now looking for the whole railway ecosystem, where we want to finance everything, like PPP or any other thing which comes to the railway system, at a better margin. So let's look forward to those kind of businesses more. Government of India, it's in their hand. If they need money from extra budgetary resources, they will surely come to us. Whether they are coming this year or not, it will be clear only after the budget.

Okay. So as of now there has been no communication from the government's side.

Budgets, if you know, budget is a very secret document. So there is no communication to anybody about what is coming on the 1st February. Only the people who recall the budget, they know about it, right? What indication I can give you, that -- as a management, that we have transformed from those era as a company. Today, we are looking forward to the businesses which are giving us better margin to me. So I'm giving you a flavor. If I'm doing INR 3,000 crores business with anybody else than railways, it is akin to INR 10,000 crores business of the railways. If I'm doing INR 10,000 crores business outside railways, it is akin to nearly INR 35,000 or INR 40,000 crores business with the railways. So friend, we are looking for those kinds of assets now which gives me more [indiscernible] rather than that. What comes from the government, if they need it, it will surely come to me only for the railways.

And as of now, the ex of railway business would be less than 1% of the AUM. Would that be correct at this point in time?

Less than 1%?

Of the AUM, the overall business mix.

As such, there is no threshold on us. We may tap the market as per the opportunity available to us. There is no...

No, no. I'm asking, at this point in time, the AUM mix, the non-railway business will be less than 1%.

Yes. Yes. Correct.

Right now, yes. You are very right. It is just the beginning. For the first time in the history of the company, we are doing business outside railway as a client.

The next question comes from the line of Ritika Dua from Bandhan AMC.

Yes. Sir, a question on the similar lines. On this project that you said is obviously the coal block project which you were mentioning, how does the spread work here? That's the first question.

So Ritika, we can't tell you the numbers that we have quoted, but you understand. We have participated into an open bid. Where, all our peers from NBFC, you know their name, they all participated. And banks also participated, and we became lowest. So you may be having a flavor of what NBFCs quote and what banks quote. So we quote it very competitive. And I'm very happy to share that we became lowest because we have access to very cheap funds. And as I mentioned in one of the questions and just to give a flavor, what I get from the railways is INR 0.40 margin. So we'll be getting anything between 3x to 5x from any of the biddings. So you can put your numbers like that.

Okay. So sir, this 3x to 5x is even applicable to this project as well.

I mean, obviously. You can -- tell me a flavor of what rates my peers quote in the market if you know. Tell me.

So sir, they are clearly, obviously much higher than -- so maybe -- okay, fine. And sir...

I mean, they are much, much higher. I'm at 40 bps. There are more bids. Tell me. 250 bps, 300 bps.

Right, sir. Right.

So we are beating them in competition. So if you followed my last con call, what I said, that we are striving to be the cheapest in the market for railway ecosystem. And despite being the cheapest, my legroom is such that I'll be getting much more of margins than what I'm getting from the railway business. That is the beauty and cushion of this company today. And that is why we are very excited into mopping up everything which is a good asset in the railway. And to give you one more flavor. When I talk about railways, it is backward, forward linkage. You'll see that our coal block which is being developed, coal will be evacuated and taken by the railways to the power station. It comes to my ambit. Tomorrow, a port is getting developed. Port will be connected to the railway line. It comes to my ambit. So it's a very huge parcel of the business that is on the platter. And we have to pick and choose and quote a very competitive rate and still earn very handsome than what I'm earning from the railways. That's the future guideline.

Sure, sir. And sir, just second question. So this obviously does not require any MOU change because this is largely in the ambit of what is -- in the ambit of IRFC because this is railway and railway aligned. What about maybe the non-railway business which required us to get some permission maybe or regulatory or maybe from the ministry? Where are we progressing there?

So Ritika, right now, as you rightly mentioned, the memorandum of understanding -- article is so huge. As I have mentioned to -- anything which is backward and forward linked with the railways business is already in my ambit. Now we have ventured for the first time in the 40 years of the company. And we are looking forward to very lucrative businesses in the hand, including many refinancing opportunities also. Let us first mop up them. If -- going down maybe a couple of years, if our hands are full, then we'll look forward to going and funding anything and everything in the infrastructure. Right now we believe that, a couple of years, our hands will be full with the kind of business that we have on the platter.

So sir, just to -- on the comment that you just made, sir, two follow-up on that. One is what is the refinancing that you mentioned? And secondly, when you think that now that, obviously the disbursement haven't had picked up for us because of the way the EBR progresses. So going forward, any guidance that you would like to give on how should the disbursements shape up from here? So two questions...

So I'll give you the indications. I can't give you -- I can't share right now with the projects that we are thinking of refinancing, but just a flavor. We never funded anything outside IR, but there are many aligned projects which are already running and they are being funded at a very high rate. So being now positioning ourselves as the main financing arm of the railway ecosystem, we want to look at every business which is there on the platter. If they are at a higher rate, we wish to refinance it at the competitive rate. Now as and when those agreements will be done, we'll be informing you through the exchanges. But I can only tell you that now, since we have started looking at those businesses, we are finding them as many. What was your second question? Second question was the guidance. Guidance. We don't give the number guidance. I can give you one guidance that I'm repeating in every answer. Suppose if I do INR 10,000 crores business outside railways. It is akin to INR 30,000 crores to INR 40,000 crores of business that we do for the railways. Incidentally, when the last EBR we did, that was INR 33,000 crores. So you can do the backward calculation, if we want to exceed that, how much I could do outside railways. And that is the minimum target that we are putting to ourselves.

The next question comes from the line of Kamal Mulchandani from Investec Capital Services.

I had a couple of questions. Firstly, if you could just help us understand that what is the proportion of the AUM for which moratorium is going to end, like, over the next few years. And what would be the impact on our AUM because of that?

So my CFO, Mr. Sunil, will take up this question.

I mean currently it is around 35% of my total AUM. And going forward, since we follow -- we fund two types of assets. One is the rolling stock, and other is the project assets. Then in case of a project asset, we have a moratorium period of 5 year. And for whatever -- during this moratorium period, we have the complete moratorium for interest as well as principal repayment. And during this moratorium period, whatever interest servicing we do, that is also considered as a fresh disbursement. That will be considered as a fresh business for me. And going forward till '26, '27, I don't see any impact on my AUM. My AUM would be more or less at the same line because of our business model. Whatever capital recovery I'm getting through lease rental, that will be offset by the interest servicing, whatever I'll do in future years for these project assets. I think I have answered your question.

So just wanted to understand that, if the interest, you said you consider it as a disbursement. And so -- but we have some 0 disbursements during the last 7-odd quarters, so how does it work out, like...

No, no fresh disbursement haven't been made during last 2 year. But whatever debt servicing I have done during these 2 years, that is a fresh accretion to my AUM. And that is -- it should be actually offset by whatever capital recovery I do through the rental. Just to give you a flavor of the number, during this current financial year, I will be getting around INR 20,000 crore as capital recovery and same quantum of the money being done through debt servicing over this -- for this project asset. And these two items will offset each other. That is why there will not be any major impact on my AUM.

So can you guide, what would happen post FY '27 if there is no further allocation in EBR? So like I assume that the capital recovery would be much higher than INR 20,000 crores post FY '27. And if no interest is being capitalized because of the end of the moratorium period, the rundown in the AUM would be much higher. So can you explain that?

So Kamal, if you focused on my answers and also my opening remarks, I mentioned that we have the cushion of this moratorium till FY '27. And while we are working proactively on developing our business outside railways in FY '24/'25 itself, we have got 2 years in hand to create a business ecosystem where my AUM is coming from other than railways also. Now railways has not said that they will not be coming to us. They can come anytime. They can come this year. They can come next year. Whenever there is a change in allocation system of the GBS, that is government budgeted support, they will surely come to us. But as a business, with this 7-quarter lull as you have mentioned, the management has taken a call that let us not depend only on the railway funding, EBR funding. Since our balance sheet is extremely strong now and we have got a good network in hand. And our mandate also says that we can fund anything and everything in the railway ecosystem, let us venture out. So to -- pointed answer to your question is, rest be assured that, when FY '28 starts, this company will have a sizable business mix coming out other than the railways. So in '28, even if the railway is not asking for a single penny, rest be assured that our top line and bottom line also will be growing because of our expertise and our handle in the whole railway ecosystem of the infra, right. So this is what towards that we are working. I hope I have clarified you. Just to answer your one more concern, as you mentioned that AUM, after '28, will be coming down drastically. What I answered in other questions also, that the kind of business that I'm going to handle in the future, those businesses, yield will be more. So I have mentioned that INR 10,000 crores business, if I do outside, it will be akin to INR 30,000 crores to INR 40,000 crores business that I'm doing for the railways. So in the future, maybe after FY '28, you will be requested to look more on the bottom line than the top line.

Okay, okay, okay, got it, but like, anyways -- like the overall AUM is like more than INR 4.5 lakh crore. So will it move a needle much because of this because the majority of the NIMs would be still from -- like the NIMs -- average NIMs, would be like moving from 1.4% currently to, what, like, 1.6%, 1.7%, not more than that, I assume.

We will put the numbers. Let us see what is going to be a mix in the future, if it is 10:90, some number you can put. If it is 20:80, some number you can put. Let us see as the story unfolds.

[Operator Instructions] The next question comes from the line of Dr. Akshay Patel, an individual investor.

Sir, as you have just now mentioned about the backward and forward linkages. So talking about the backward and forward linkages, can you benefit from the national -- Gati Shakti program for multi-modal connectivity projects?

You have asked a very pertinent question, Akshay. Yes. That is a very exciting proposition which is coming on the platter. This direct freight -- dedicated freight corridor of Eastern and Western, they have covered only two lines. This country has got a quadrilateral. So four next lines of Gati Shakti are still on the pipeline. And CapEx will be huge. Let us see what portion of CapEx is funded by GBS and what portion of the CapEx they want us to fund. So maybe budget will give more clarification on this, but yes, you are right. Company as -- country as a whole is gearing up to have this route decongestion. And railways is a mainstay and main connectivity line for the country, so the Gati Shakti will surely benefit us also. And it will have a very long-term effect on our AUM. It may be giving us businesses for next decade or more.

The next question comes from the line of Paramjit Singh, an individual investor.

Sir, my question is now, with the Gaza ceasefire, will there be any progress on the India-Middle East-Europe Economic Corridor? And what kind of impact will it have on IRFC?

So you are very right. So with the ceasefire coming up, and NCRTC line that we're mentioning. Those lines are already in the pipeline. And I'm sure that, with the global things setting up, cooling down, peace coming to the picture, maybe Ukraine and Russia war also gets cooled down with the new [ disposal act ] in the U.S. These things are very exciting propositions. And Indian companies are very much into the scheme of things because it will be diminishing the total route kilometers by nearly 1/3. And cost of logistics also will come down by nearly 40%, so it's a very, very important project for the world per se. And anything which is coming to the Indian counterparts, we are very much into the system. As you know, we are sister company to Container Corporation, IRCON, RITES, RVNL, who all are having very hard look on these projects. So if anything coming in those lines, we are very much...

[Operator Instructions] The next question comes from the line of [ Manish from Middleton Capital ].

Sir, by doing more business outside the railways, will it change the tax status by any means?

I'll let my CFO answer it.

As of now, I have a cushion of more than INR 6,000 crores in my balance sheet as unabsorbed depreciation. I think, going forward, for next 4, 5 year, I don't foresee any tax liability on my balance sheet.

Okay. I was just talking about that -- you said that you're a 0 tax status company, but by doing that portion of business which is outside the railways.

Still, whatever unabsorbed depreciation currently I have in my balance sheet, that will be sufficient to avoid any tax liability under MAT provision. And I don't foresee any tax liability on me over next 5 years.

[Operator Instructions] The next question comes from the line of [ Parthvi from Sapna Investment ].

Yes. Sir, my question is like do you see any improvement in the net interest margin in upcoming financial year?

I'll let my CFO answer.

Definitely. As my CMD has already told you, the mix of the business would definitely get changed. And the non-railway business will give me a higher return, so definitely my NIM will improve, but putting a number to it would be difficult at this stage. But definitely my NIM will improve.

Okay, could you justify any ballpark number for the NIM, margins?

So in the last question, I answered, if you put a number, the mix is going to be 10:90. And for 10, the margin is, say, 3x to 4x. You can calculate it here. If it is going to be 20:80, you can again calculate. What I -- what we are saying to our investors is that stories is going to -- stories are going to unfold quarter by quarter. In fact, in the last quarter itself, we promised that we are going outside. And in 1 quarter itself, the company has not only participated in the bidding but also has become lowest in a sizable -- ticket size of the loan. This is what we are saying that we are walking the talk. And as my CFO mentioned, more and more businesses that are coming from outside railways, it is going to help improve my NIM as well as my PAT. So improvement will be regular. Every quarter, we expect that we'll be doing better than the last quarter. And obviously that gives a very steady and very perennial kind of business that I promised right in the beginning of my opening remarks.

[Operator Instructions] As there are no further questions, I now hand the conference over to the management for their closing comments.

So thank you very much, DAM. And thank you very much, everybody who participated in the con call. I think we were very loud and clear in our guidances for the future. What we did in the last quarter is very much there to see. And as I discussed in detail, that there is change in the strategy of business of the company. And the product mix and the benefits out of that will be visible quarter by quarter. We are not putting any numbers on anything. But yes, one assurance is there, that this mix will be skewed towards more and more business from non-railways, things in the railway ecosystem itself. What EBR thing I get from the railways, it only can come from the budget. Let us wait for the budget, but surely the company will not be only dependent upon what we get from the railways side. Company is now thriving and company is now looking forward to all kinds of business in the ecosystem. And we believe that, going forward, there is huge opportunity which is on our platter. We are working towards that. And we believe that FY '25, '26 will be very, very exciting for the company. Thank you so much.

Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.