Indian Railway Finance Corporation Limited (IRFC.NS) Q2 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to IRFC Q2 FY 2025-'26 and half year results earnings call hosted by DAM Capital Advisors Limited. [Operator Instructions] I now hand the conference over to Parth Jariwala from DAM Capital Advisors Limited. Thank you, and over to you, sir.

[Audio Gap] Indian Railway Finance Corporation Limited. From the management, we have with us Shri Manoj Kumar Dubey, Chairman, Managing Director and CEO; and Shri Randhir Sahay, Director-Finance and CFO. Without further ado, I shall hand over the call to Shri Manoj Kumar Dubey for his opening remarks, post which we can open the floor for the Q&A. Over to you, sir. Thank you.

A very good morning, Parth and a very good morning to all of our friends, who are there on con call. We are here once again to celebrate the remarkable path IRFC charted, a journey that grows deeper every day, in connecting the lives of wide base of India, having more than 55 lakh shareholders also because in every project that we finance, every rupee that we mobilize, it is the pulse of India's people that moves, and we are humble to fuel their aspirations also. So friends, a warm and hearty welcome to the IRFC con call after publishing our quarter 2 results for FY '25-'26. I'm joined today with my colleagues, as already told, my CFO and Director Finance, Mr. Randhir, also my Head of Accounts, Head of Business Development and few more HODs, who are there into the Apex team. In quarter 2 FY '25-'26, as you all know, we delivered a PAT of nearly INR 1,780 crores, marking more than 10% growth while H1 profit touched INR 3,523 crores, again, a double-digit lead vis-a-vis last H1, highest ever -- which is highest ever in the IRFC journey. Our net worth has touched a record, more than INR 56,000 crores with the EPS of INR 5.39. Our AUM has shown the reverse trend now that is upward trend from this quarter onwards. And we hope that this upward trend remains steady and grows further and further. IRFC has really showcased the power of strategic diversification that we embarked upon even without new allocations from Indian Railways for the third consecutive year. What makes this growth remarkable is a ninefold increase in our new business agreements that we signed. In fact, INR 36,000-odd crores of agreements were signed within 3 days of the last 4 days of this H1, that is between 26th to 29th of September, touching nearly more than INR 45,000 crores in H1 for the sectors like renewable energy, transmission, coal mining and industrial infrastructure, et cetera. It gives me immense pride to share that IRFC continues to script new chapters of financial excellence. Our NIM, which was in last FY standing at 1.42%, has now improved to 1.55% by the end of H1. This shows that our planning of going for diversified -- diversification and for the assets where there are better margins are already reflecting in our NIM. Alongside this achievement, as we grow in our PAT and we do good, we need to reward our shareholders also. So the Board has declared a record-breaking interim dividend of INR 1.05 per share, further enforcing the trust and confidence of our shareholders. Though all of this, IRFC maintains a zero NPA record, rare hallmark and the kind of business that we're picking up in diversification also, we intend to maintain our unblemished record of zero NPA. This stands as a testimony of our resilience, risk discipline and the trust that we command across the ecosystem. In the coming quarters, IRFC will continue to expand its footprint in renewable energy, logistics, port, any metro transportations on rail and allied sectors. As India accelerated towards an infrastructure in our turf, IRFC is future-ready with clear ambition to deepen our diversification not just for the railway directly, but for the India's developmental vision at large, keeping railway at the center. Thank you all, and we are ready for the question-and-answer session. Over to you, Parth.

[Operator Instructions] Thank you, sir. Ladies and gentlemen, we'll begin with a question-and-answer session. [Operator Instructions] Our first question is from the line of [ Vikas Kasturi ] from Focus Capital.

Wish you a very happy Diwali, and congratulations on a fantastic quarter. Sir, my question is, historically, we have been, say, giving loans to the Indian Railways, right? And there, we did not require much human capital in the form of to do things like sales, underwriting, collections, et cetera, right? So how are you approaching this challenge, sir, with respect to building this human capital when you're going outside the realm of Indian Railways. That is my only question, sir.

That's a very good question that you put up and it shows that you are very happy on the part of the leverage of the company and you're worried -- rightly worried like me for the human resource that has to propel this growth. So as you know, the sweet spot for me as the CMD is the fact that since the team was stronger, we have to choose right kind of people. So we are choosing the right kind of people. The best of the talents that are available in the ecosystem. We have added a few experts from the railways on deputation. We've also taken lateral entry from various sister CPSEs. And of course, when we're choosing now and the kind of buzz that my company has created -- your company has created, we are attracting best of talents. And your question is bang on for the fact that borrowing side of this consumer is very strong. We never did business development outside railways. So now my business development team is headed by a very seasoned senior guy from NTPC background. We have got other verticals also in place. And we have got mentors and risk management officers from the ecosystem, people who have done more than 35 years of service in NBFC parlays (sic) [ parlance ]. I don't want to name the companies, but yes, we have roped in veterans as consultants on a long-term basis as well as our [indiscernible] team has grown by 50% now from 40 odd, we are nearly 60, and we want to grow by attracting depth of the talents. And in normal parlays (sic) [ parlance ] as a common understanding goes that only the private sector picks up the best of talent. So we are kind of setting up a system where we should excel and should be at par, if not better than any of the private or public player in the ecosystem. And that is what we are striving for going forward. I hope I've answered you.

Our next question is from the line of [ Hardip Jain ] from Investec.

And first of all, very much congratulations for your results. I have a few questions for you, like on PPT, and PPT -- I want to understand what is the difference between in sanction limit and agreement limit as you have returned for NTPC BOBR rakes that you have sanctioned INR 700 crores, but signed the agreement of INR 250 crores. So I wanted to understand that what's the difference between that?

So my BD Head, Mr. Sunil will answer your question.

Generally we follow a process, where we take approval -- credit approval from my Board [Technical Difficulty].

Actually I am setting 35 line to you.

Am I audible ma'am?

Yes, now you are audible.

Ma'am, generally we follow a process, where we take approval -- credit approval from my Board and my Board gives me a sanction for that particular lending. And after that, we have to execute a transaction document. So we are saying -- with NTPC with -- my board has given a sanction for INR 700 crores and we have executed the transaction document of INR 250 crores and for remaining amount, it's yet to be executed and for other things, as CMD sir has apprised you regarding this INR 45,000 crores, this is what we have already sanctioned and transaction document has been executed for the same. And there are certain transactions that we have got the sanction from our Board and their document is yet to be executed. I hope I have answered you.

So just to summarize this for your understanding, out of INR 700 crores, INR 200 crores agreement we signed [indiscernible] another INR 45,000 crores also agreement has been signed.

Okay. Understood. So I have another question also if -- like I want to understand that what is the financing opportunities for railways. What you are expecting?

Client or railway ecosystem.

No, actually, I'm expecting that I want to understand your TAM of the financing opportunity, whether it is going to be upstream or downstream for railways.

No. For the ecosystem, it has to be upstream only. We have already -- we have got a good pipeline. So going ahead, it will be upstream.

Understood. And wanted to know that what is your planning for human resources for infrastructure transactions in future?

I think you heard the first question I answered or I have to repeat it again.

No. Actually, I missed a few points. That's why.

So we are looking for the best human resource in -- all of the areas, except borrowing where we are very strong. We have already added around 20-odd very good teammates from the railways on deputation as well as the other companies on lateral basis. We have added many consultants also. And going forward also, as the need arises, we'll be looking for the best of the clients executed into [indiscernible].

Okay. Understood. And may I know what is the motive?

While doing everything, we still want to be having our overheads at the minimum.

Okay. Understood. And may I know that what are your expectations for the disbursement and AUM growth for next quarter?

I think if you know my guidance, if you are following us, we have given a guidance of INR 30,000 crores disbursement in this FY. Now the pipeline is there. We have already done INR 7,000 crores. Q3, we'll be doing additional maybe INR 10,000 crores to INR 15,000 crores. And whatever rest is there, we are very confident that we'll be doing it in fourth quarter. So INR 30,000 crore disbursement guidance is pretty much intact.

Okay. Understood. And one last question from my side.

So many [indiscernible] yes.

Sir, like I want to understand that whether you guys are doing project financing on a milestone basis. And if you are doing on a milestone basis, I wanted to understand that what are the time lines for such projects completion of such projects.

Sunil?

Yes, ma'am. We are doing based on the milestone and whenever credit -- we are from the [indiscernible].

So any update is there?

I think you have asked many. So let's move to new question. Parth? Parth, some noise was coming. Was it coming from that girl side or from where?

It's coming from your end, sir.

No, my end, it's absolutely quiet. The first question went off fine. But after that, in the second question, there was a lot of noise.

Yes. Now it's not -- I can see the loud and clear. Maybe it's from the girl side -- from Hardip.

Go ahead.

[Operator Instructions] The next question is from Rishi Maheshwari from AKSA Capital.

Congratulations on a good set of numbers. Just to understand, given the cost of deposit would be coming lower for you, is that the rate processing has already been done? Or do you think there is further scope of rates, which will come down and therefore, give -- any higher boost towards our NII?

You see, since we are not directly linked with the repo system, so repo is a benchmark, we generally land with a benchmark of AAA+ PSU lending rates. So typically, we used to do business with 40 bps margin with the railways on cost-plus model. The new diversification model that we are working on, despite being very competitive, what our experience in the last H1 with around 10 clients where we booked around INR 45,000 crores, more than INR 50,000 crores in fact, you take the 3 quarters. So our rates are 2x to 3x in terms of margins, which is reflecting in our NIM also. So NIM is continuously growing from last FY, it was 1.4%. Now it is 1.55%. And going forward, we believe that with the diversification and the outside Indian Railways asset that we are coming to a kitty, despite the fact that we are competing with the banks also for the quality assets right now, going forward, our NIMs will be showing a better margin.

Sir, given that -- I'm trying to understand the risk elements over here outside the railway business, given that a large part of it is wholesale business that you're doing outside railways also. And there, the competition will be pretty stiff. Now with that in mind, so far, there have been no delinquencies, and that's a remarkable thing. But given the future, given that you are moving into unchartered territory, how do you perceive delinquency stages coming about a year later or 2 years later? What is your opinion on that?

Rishi, that -- I mean, you really nailed the question what we discuss almost every week in our boardroom. So just to give a flavor and confidence to all my shareholders. We have embarked on a whole of government approach. So the only difference right now in my clientele is I'm not only limiting myself to Indian Railways, but there are many ministries and the state governments who are doing business, including CPSE. I'll give a flavor. My first 4 assets came from NTPC. Now I don't have to speak about NTPC. They are AAA-rated asset and their subsidiaries are also that well rated. So if I'm funding to NTPC, you and I both know that what kind of risk I'm going to have. Second flavor, maybe we funded one joint venture promoted by GAIL, Coal India and Rashtriya Chemicals. Now to our Maharatnas having such strong balance sheet, you can perceive the kind of risk that we can think about them, almost nil risk. Similarly, we are funding to those Gencos who are having a link with railways, and they are very strong. So we have right now with our very low overhead cost and very competitive rate, spoil choices to pick up which asset within government I want to pick up. So going forward, since we are only lending to the entities who are in the whole of government ecosystem, we don't perceive any kind of risk so far as our lending is concerned. Yes, it is not directly sovereign as it used to be in Indian Railways. But the kind of clientele that I mentioned to you, we have lended to an entity, which is promoted by my siblings, CONCOR and RVNL and government of Orissa. So you can think about their solvency also. So with cherry picking off the best of the CPSEs, best of the government -- state governments where balance sheet and their entities are having a very robust kind of cash flow, we believe that within the whole of government approach concept, we have almost zero risk of having any NPA. And that is what is driving us to work within the government ecosystem itself.

Right, sir. So sir, my fundamental question to understand that was that given that 6.5%, 7% is the cost of funds, the rates at which you are rolling out will give you a fairly thin spread in terms of going ahead. Now that would obviously mean that you've got to keep your overheads at a very, very stringent numbers. It's difficult to expand from that perspective, if at all, you have to -- unless you want to move into some of the riskier elements. Is the business model continuing in the future, the business model continuing to remain the same way that you will only disburse to such entities, which are quasi-government owners. Therefore, the risk will be extremely low and the idea will be to lower the cost of funds as much as possible.

So you understand the business model. We started with a margin of 40 bps that we used to have with the railway as a single client. My NIM stood at 1.4% for so many years. The peers that you are talking about, they were working in the arena of 2.5% to 3% of NIM. And of course, they were having risky assets also in the kitty. The kind of thin margin that you mentioned to us, for us, getting a margin of 100 bps or 120 bps is coming out to be 3x of margins that I used to have for donkey number of years. So you may feel that 100 bps margin or 120 bps margin is a small margin compared to the peers. But for us, going for a very quality asset in the government with absolutely zero risk quotient, getting a margin from 40 bps to 120 bps, we are very pretty happy with the kind of impact it will have a positive impact it will have on our PAT. I think that will be a great thing for shareholders also when they see their PAT growing steadily without any risk. So the thin margin concept that you are mentioning, we are finding very happy getting a margin of 2x to 3x from what we used to get from the railways. And that is where we are differentiating ourselves as a product compared to other peers and the banks.

Fair enough, sir. I completely get your line of thoughts, and I think...

Rishi, I'll add one more thing, through you to all the people who are going to read my con call. When we started venturing out outside railways, Railways, we were used to around 40 bps. And obviously, it is a zero NPA risk kind of thing. None of the government entities have faulted any day, best of the entities, including the state government in the last 70 years. But while funding to them, lending to them, we found that every private or public entity were adding premium to their lending with kind of more percentage. So the funding to government entities also in this country used to be very high. Putting numbers, you are more aware than me. Nobody was getting a loan less than 9% in the ecosystem we found. We are very happy, as you mentioned, our cost of capital 6.5% to 7%. We are very happy lending them with a margin of 100 bps, 120 bps as it's a very good margin when you're finding that the risk is nearly zero for these kind of assets. What we are doing right now and why businesses are running and coming to our office without ourselves going and marketing ourselves is the fact that there is a lot of appetite in the CapEx for the government parlay (sic) [ parlance ]. 70% of the India's CapEx is coming from the government parlays (sic) [ parlance ]. They never had thought that somebody will be lending to them in and around 8% or 8.2% kind of thing. So we are playing in our turf and our competitors, including the banks are coming to our turf. And in result, we believe that we are doing a good thing for the nation by bringing out quality kind of funding at a very competitive rates to the government sector also. And that is perhaps what is the need of ours.

Sure. So then this is largely a volume game where you will be actually based on your growth. Therefore, the absolute number of NII will keep on growing and risk-free that we will more or less see. So sir, what is this -- you've already spoken about the disbursement. What about next year? How do you perceive the growth for next year?

The kind of queries and the response we are getting recently, in fact, I have to double or triple the size of my BD team because we are yet to go every nook and corner of this country. We are flooded with requests from almost all states of the country. And because they now know that through all of you that we are lending to the railway ecosystem, and there's hardly anybody in the government system who are not having any linkage with the railways. So looking forward for -- I think I'm finally there for the next 5 years or so or maybe a decade, we will be really flooded with the kind of businesses. What we need to do is for the confidence of all my shareholders, we need to do the cherry picking for the asset quality within government also. And that is why we are putting a system in place with a very seasoned team with new professionals also. So this mix of team will have a job to see through the government proposals also as we are very, very conscious of maintaining our zero NPA with a philosophy of making 2x to 3x margin of what we used to get from the railways. I think this mixture is going to give a very good result and return for our shareholders because there won't be anything cyclical. I can only perceive with my experience and tell you that next year and year next to that, we'll be having an upward trend in terms of our asset also, in terms of our PAT also.

Wish you great luck. I think with this kind of rigor and discipline, I'm sure the growth will be phenomenal. And the last question, sir, is that in this model, I do not see a risk for dilution in the business because the current equity, the current profit itself will fuel the growth. Am I right? Or at some point in time, you see that...

You are absolutely right. You're absolutely right. After paying highest ever dividend, interim dividend of INR 1.05, we are still pretty happy with our CRAR, we are Tier 1 capital. So that is a duty Rishi that we are having with the grace and best wishes of more than 55 lakh shareholders of this company. That's the ingredients that has been given to this management is top class. Based on that ingredients, what this management will deliver is a top-class result to the shareholders without having any kind of risk appetite. And the business is there. As I mentioned to you, 70% -- I mean, this misnomer is there that the growth is being fueled by the private sector. CapEx of this country, not only in this year, looking at national infrastructure pipeline for decades and more, the CapEx [Technical Difficulty]

Ladies and gentlemen, the management line has been disconnected. Please stay connected while I connect them again.

Hello?

Please go ahead, sir. You were speaking about [indiscernible].

We have summarized to Rishi, we can go ahead to other...

Our next question is from the line of [ Shrivasa Raghu Garimella ] from Travis Capital.

Continuing on the previous question, most of my questions have been answered, but one risk I foresee is we presently do not pay any MAT on our profits because we have got an exemption in 2020. Do you -- is that one of the risk where maybe it can come back in the future?

So let my BD answer this question.

As of now, around INR 3,000 crores of unabsorbed depreciation is still with me, for which I can take benefit in future years. And apart from that, because of our business model, we have a project asset funding of INR 2.5 lakh crores for which a lease agreement yet to be executed. And these assets would get capitalized in coming years and against which I'll have a good amount of depreciation in my P&L in coming years. So we don't foresee in the next 5 to 7 years, there would be any MAT liability on us. There is a good reasonable assurance from -- for next 5 to 7 years that this liability would not come because of the business model and because of the unabsorbed depreciation level we have as of now.

Okay. The second question is because now you have said we are flooded with opportunity. I just want to know with the present framework what we have, is it ever possible that we can grow our loan book by something like 20% or something like that? Is it possible?

You're talking about AUM or year-to-year loan book growth?

Year-to-year loan book growth.

Obviously, obviously. Now you see when I was speaking in the beginning of the quarter with all coercing from the TV channels, I came out with numbers. Generally, we should not come out with numbers. So we gave a number of INR 60,000 crores asset to be taken by signing agreements and disburse INR 30,000 crores that we wanted to disburse. But going forward, with the kind of -- as you rightly mentioned, we are actually flooded with the requests. We feel that looking at the prospect of the government and government has come out with the papers about the GDP growth and everything, next 5 to 10 years, I mean, we'll have upward trajectory not only in AUM, but in the PAT also. So these 2 numbers which really matter for the investors and the shareholders, this company, we perceive and we feel that there is absolute clarity that assets will be growing. 20% number that you are giving, I'm not putting a number of CAGR. But I can assure you that the kind of queries we are getting. And as I mentioned in the last con call also that we are the single financier for the Indian Railways, and their appetite is more than INR 2.5 lakh crores every year. Right now, for the last 3 years, they are getting everything from government budgetary support. But in the government, when the budget comes, there are more than 30 ministries who are competing for the budgetary support from the government. Today, railways is getting; tomorrow, they may not get the full thing. So what we have planned and perceived that the diversified loan book that we are creating, that will be our real cake, real cake because here, the margins and the NIM is 2 to 3x of what I'm getting from the railways. And the cherry on the cake will be the business that will be coming from the railways. The beauty of this cherry is whatever business I get, it is disbursed in the same year. And this is risk-free. So in RBI parlays (sic) [ parlance ] also while calculating CRAR, the railways disbursement will have zero risk. So that will further strengthen my already industry best CRAR and business will be growing. I don't put any number on that of CAGR. But yes, I'm very confident along with the whole team that going forward, every year, our AUM should grow. Every year, every quarter, my PAT should grow. And the growth of PAT, I've already spoken in the morning on the TV channel that we have given as a target that our PAT annually and quarterly should grow in double digit. That is what we are striving for.

The next question is from the line of Rama Krishna Neti from ZEN Wealth Management Services Limited.

I just had a couple of questions. Now that IRFC is starting on the journey to diversify aggressively outside of the railways, I mean, to the sectors linked to the railways, do you have any caps within the non-railway segment like of the total disbursement for the AUM, like what would be the percentage caps that you would have beyond which you would not lend to this segment? When you mentioned state government and also some of the state governments where there are some fiscal health concerns. So if you can just share some light on this. And the second point is, I'm sorry, I have missed your initial comments. I mean I just wanted to understand the current AUM breakup between railway and non-railway segment. And in the future, where do you intend to keep it?

Yes, yes. I'm just -- one very long question. So I forgot what you asked in the beginning. It was such a long question. So...

No you want me to repeat?

No, just a flavor of that. What did you want to...

Do you have any internal caps with respect to percentage?

Got it. Got it. So the sweet spot for this company is there is no cap for any segments. So per se, theoretically, I can have 100% of my AUM from the railway ecosystem on diversification. Now where is the limitation? Limitation comes from the RBI guidelines. Answer to your question specific is, RBI has made a mandate for everybody that 30%.

30% for a single entity.

30% of my net worth.

For a single entity.

For a single entity. So today, my net worth is nearly INR 55,000 crores. So you can put 30% number. So one client or one state, I cannot do more than that. So that is a cap from RBI. And for a group of the company, it is 50%. So if you take NTPC and take all the subsidiaries together, I can fund them up to 50% of my net worth, which should be around typically INR 25,000-plus crores for one entity. I think that is a huge number. And now that our muscle is growing every year, our net worth is growing every year in terms of more than INR 4,000 crores. So going forward, I don't find any problem. Our debt equity ratio has also cooled down to near to 7. So overall, we are sitting in a very sweet spot. We can look to -- that is the thing that we have no exposure to anybody except railways. So next 5 years of time, we are in a very good position that anybody with a good asset is coming to us, we are there to cater to them. And second thing, as you mentioned, the bifurcation. So right now, you can add total AUM is INR 4.6 lakh crores. Out of that disbursement has started. So slowly, but surely, the target is that in next 5 years, we should have a mix of 75%-25%. That is 75% should be from the railways and 25% should come from the diversified thing. And let us see how things unfold in coming year.

[Operator Instructions] Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for the closing comments.

So thank you, Parth. This is a pre-Diwali con call that we are finishing. We were extremely busy for, say, last 1 week after closing the quarter 2 with the preparation of results and doing it. As we discussed with the people who came on the con call, we are all driven by the fact that we are going in the right direction. And future ahead, we'll continue doing the good work that we're doing. And thank you to DAM for organizing this con call. 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.