Indian Railway Finance Corporation Limited (IRFC.NS) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Indian Railway Finance Corporation Limited Q3 FY '26 Earnings Conference Call hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Manish Agarwalla from PhillipCapital India Private Limited for opening remarks. Thank you, and over to you, Manish.

Good morning, ladies and gentlemen, and welcome to Q3 FY '26 earnings call of IRFC Limited. We have with us Mr. Manoj Kumar Dubey, Chairman and MD and CEO; Mr. Randhir Sahay, Director Finance and CFO. Now I request Mr. Dubey to take us through highlights of Q3 performance and outlook going forward, post which we will open the floor for Q&A. Over to you, Mr. Dubey.

Very good morning, Mr. Manish, and good morning to all participants. A very good morning from the team of IRFC. I'm accompanied with my Director Finance as well as my principal HOD, and HOD here. We are very happy to talk to you today post our Q3 results yesterday. Numbers must be already with you. As we started this FY 3 quarters back, it was a new era for IRFC being entering into a diversification mode from single client system that we had for nearly 38 years to multi-client mode in the railway ecosystem. It was a little unchartered territory. We have given ourselves a tall guidance of sanctioning assets up to INR 60,000 crores for the whole year as well as without having any pipelines -- prior pipelines disbursement targets of INR 30,000 crores. We worked really hard as a team for the first half. And based on those hard work and testing ourselves into the market through open bid procedures, quarter 3 has really been something where we got the fruits of our hard work. When we ended on 31st of December this calendar year ending our quarter 3, the numbers that came out is we have already surpassed our guidance given for sanction of assets. Our disbursement picked up in quarter 3, and we have almost done 3/4 of what we set for ourselves for INR 30,000 crores. As we envisaged in the beginning that whatever assets we'll be getting, the margins would be quite better than what we used to get from Indian Railways in the line of 2x to 3x. Precisely the same is happening despite having very steep competitions with lowering of repo rates from the banks also. But our inherent strength of having low overhead cost as well as our positioning in the borrowing market being zero NPA company, garnering cheaper rates are helping us in passing out these benefits to our customers. The highlights were -- of Q3, we were raising our ECB loan for the first time after a break of nearly 3 years. That was a very, very attractive rate, perhaps best in the market that anybody got in yen currency. We also tested zero coupon bond and perhaps we are the only company in the country who successfully did it in the calendar year 2025. We got a good rate also. Overall, the company is well positioned now with a very healthy pipeline going forward, living to the expectations and the guidance that we have given that our PAT should grow every quarter, our NIM should grow every quarter, our asset under management should also grow every quarter. These are the 3 indicators of efficiency and the yield, which we are focusing on. Going forward, the revenue of the company also will be looking up from next FY onward as the agreement will be signed with Indian Railways. And the new assets that we are sanctioning, disbursement will speed up and all these will be adding to our top lines also. So overall, here we are after the end of the 3 quarters on a very solid ground of our IRFC 2.0 version, where we are remaining as the sole financing arm of Indian Railways, but also we are catering to the whole railway ecosystem at a very attractive rate. Thank you very much.

[Operator Instructions] we take the first question from the line of Mohit Jain from Tara Capital Partners.

Sir, just wanted to have your explanation for the amount which is appearing in provisions written off as a line item there. It has increased significantly in the current quarter. What is the reason behind it? Because I guess we still don't have any NPA in our books.

No, you must be aware about the RBI guidelines. 1st October onward, whatever assets that we are entering into agreement, there has to be some -- mandatorily some provisioning has to be done. So it is those provisions, which are just simply a provision. It is not NPA.

Right.

So this is for everybody now. Yes. Your voice is not coming clearly. Please go ahead.

Yes. I'm saying that these are standard asset provisions basically.

Yes, yes, it is a standard asset. Absolutely, absolutely. So otherwise, you can add this INR 50 crores into our profit -- and you can safely say that our profit is INR 1,850 crores or nearly 13%, north 10%, 2 years. right.

And sir, as regards to AUM, I got the view that that's going to increase on a quarter-on-quarter basis. Any sort of a number or any sort of growth rate that we can look forward for, let's say, for FY '27 right now?

Mohit, you see, when we started the year, we were really under hard-pressed conditions because for the last 2 years, nearly 3 years, in fact, there was no disbursement to the railways, which used to be our single client. Now you see how quantum jump is taking place. So in 1 quarter itself, we jumped from INR 4.6 lakh crores to INR 4.75 lakh crores. There are 2 things. One, our base is very big. So we are not a small NBFC. It is already -- I mean, INR 4.75 lakh crores. There are not many of the NBFCs which are running this balance sheet size. So yes, what I said that we'll be growing positively for the fact that whatever reimbursement will be coming from the railways for the old loans that we've given, we will surely be disbursing more than that. Now how much more is a question which -- I mean, we are also looking for an answer for the fact that there are 2 good things about us. We are not looking for any small ticket kind of business. So we are strictly into B2B. And our efforts are that we should look for the clients which are having potential of raising around INR 10,000 crores to INR 15,000 crores from us. And one ticket is not less than INR 5,000 crores. This is the kind of B2B system we are looking forward to. So if, say, 3 or 4 more assets we garner in the Q4, so you will put the numbers. I mean, disbursement norm typically for a greenfield project, it takes 3 to 4 years, you disburse everything. So numbers we won't be putting, but I can tell you one ballpark figure that this company's AUM will be hovering around INR 5 lakh crores, which is not a small thing, a. B, this INR 5 lakh crore plus/minus whatever we'll be having for next 3 to 5 years, more and more assets with bigger margins will be added up. The morning at CNBC and other TVs also I spoke about that in the next 5-year plan, 2030 plan that we have made, in this 2030 plan, we are looking forward to a mix of 60-40, 60% coming from the Indian Railways and 40% of the mix coming from the railway ecosystem, where the margins are nearly 3x of what we get from the railways. So better you put a number on our NIM, better you put a number on our PAT. AUM, I can only tell you that it is going to grow. And it should be somewhere INR 5 lakh crores plus going ahead. This is what we envision here in the company.

And sir, sorry, on the time lines for the INR 5 lakh crores, is it like a 2030 target or in the near future only?

No. I mean what we have set forth is a 5-year target where we are looking forward to 20 new entities for us for whom we are doing cherry picking and appraisal. On these 20 entities, we intend to fund around INR 15,000 crores each. So INR 3 lakh crores, we wish to add through 15 entities only in the next 5 years. So we are sitting over at INR 4.75 lakh crores, INR 3 lakh crores, we want to add in next 5-year time through these 20 clients, it comes out to be nearly INR 8 lakh crores. So there will be some reimbursement from the railways also. So that is why I'm not putting a specific number. What I answered to you is that we believe that going forward, AUM of this company will be INR 5 lakh crores plus.

Understood. Understood. Got your point, sir. And sir, just one clarification on the 40%, the non-railway ecosystem that we are looking forward to. Are we facing any kind of a competition because the other players, the PSU players in the private -- in the space, basically, they are having a slower growth rate right now, and they have become -- they are trying to becoming more competitive. So are we facing any competition out there, in the 40% piece?

Mohit, we are here for competition. In fact, we are inducing competition. We are strictly not in favor of any across the table discussions. We are a government company. In fact, anybody who is coming to us for across the table lending also, we are advising them to come out with an open RFP, right? And yes, the answer to your question is there is a very healthy competition for us for the fact that we are looking only for pristine best kind of assets. So the moment you look for those kind of assets, which are A-rated, AAA-rated, obviously, there is competition, but it suits us. It suits us on 2 counts. One, it endorses our view for zero NPA kind of assets. Two, we were working all the way for 40 bps margin. So we are getting 100 bps margin, 120 bps margin despite the competition. So our NIM is going ahead. So the answer to your question is, competition, we are inducing competition in the market, and we are very happy doing it. We are getting good competition with banks also. NBFCs are, by and large, not very competitive with us because of the fact that our overhead is low and our cost of borrowing is cheaper. But a few kind of assets at times, banks are really competitive with us, and we are very happy competing with both the kind of entities.

We take the next question from the line of Amit Agicha from HG Hawa & Company.

Congratulations on a good set of numbers. So what is the expected execution time line for INR 17,000 crore exposure where IRFC has emerged as L1? And how much of this can realistically flow into FY '27 AUM?

It is pretty much online. And if you have information from somewhere, it is on the line. And agreements will be signed very quickly. There's no issue on that. All due diligence is in place. Legal things are being done. And as I mentioned in the first question that generally for a greenfield project, normally 2 to 3 years, we disburse everything in the agreement.

And is there a long-term dividend payout policy that investors can anchor to like especially given the company's stable cash flow and [indiscernible] credit costs?

Please say it again.

Yes. Is there a long term -- dividend policy?

Dividend policy is already in place. So I mean, if you look at our dividend in the last 5 years, it will give us a very -- because we are a government company on the lighter end, you know how it -- how it pans out. So if I understand correctly, we have been very steady in giving our dividends. This year, interim dividend was quite higher than what we paid last FY. Rest be assured, if the PAT is growing, so dividends should also grow. This is my understanding. But the final call is taken by the Board.

And sir, last question from my side. Like how does management internally benchmark the company's valuation as a sovereign proxy and infrastructure NBFC or a utility like annuity business?

So let us hear from our BDI.

Currently, we are focusing on the good quality assets and then we are following the whole of the Government of India approach. And in near future, we are envisaging that we would be funding only to the government entities and the entities which have a strong linkage with the government. I mean going forward, we will intend to fund only those infra projects, which has a backward and forward linkage by following the whole of government India approach.

Thank you for the detailed response and all the best for the future. Thank you.

[Operator Instructions] We take the next question from the line of Deep Vakil from Bandhan AMC.

Sir, my -- I mean I've been tracking IRFC since a couple of quarters on con call. So what I understand is that our cost of funds is the lowest in the industry, which is approximately sub 5%. And earlier, we used to make margin of 40 bps on railway projects, which is now 100 bps on -- I mean, in the diversification plan 2.0 apart from railways. And -- but you have been -- I mean, earlier, there was no need of credit underwriting or something on those lines because it was -- I mean, Indian Railways is sovereign, so there was no risk of default. But considering now we are moving into 60 is to 40 trajectory with around, I mean, 20-odd new exposures being added of around INR 15,000 crores each in next 5 years. So I mean the -- I mean, I heard that you mentioned it's all those entities will be linked to GOI backwardly or forwardly. But do we have some benchmark that it will be all AAA-rated. I think you gave loan to NTPC. So I mean, there still risk of NPA remains nil in this IRFC 2.0 approach as well or because the competition is pretty healthy, as you mentioned. But I mean, the only benefit what we have is the lowest cost of funds. So can you just throw some light why we have that benefit? And what is the cost of funds as of -- I mean, the recent weighted average cost of borrowing?

So you understand the fact that you mentioned in the beginning that whatever low overhead cost that we had, earlier it was all being passed on to Indian Railways as a single client. Now that we are giving loans to the entities who are having many linkages with the railways, of course, this 70 to 80 bps benefit that we had with lower cost of overhead, that is being now divided as between the customer as well as ourselves. So nearly, I believe, 40 to 50 bps is coming out of that low overhead cost to our [indiscernible] profit. [indiscernible], you want to know about our risk factor that going ahead with 40% of the loan. So you see we funded one for DFC, dedicated freight rail corridor. We funded for NTPC. All our assets are all in public domain. You can see their ratings. Ratings, as I mentioned, we are obviously going for all A-rated assets. We are cherry-picking even the Gencos. We are not going for any Gencos and Transcos who are not rated A generally in the system. So our cherry picking in all the ecosystem that we are doing, it is up for -- to be seen by the investors or the potential investors. We believe that those government entities, which are having very strong balance sheet, strong cash flows, and the kind of new venture that they are going in, there is absolutely negligible chance of NPA, a. B, yes, as per the RBI guidelines, even for entity like DFCCIL, where the payments will be coming directly from GOI to us, still provisioning norms are there for capital adequacy as well as for the assets. So yes, those things will be there. But our capital adequacy or CRAR today also is nearly 160% against the norm of -- required norm of nearly 25%. So we have a lot of legroom still to go for these kind of assets, a. B, as you said, provisioning has to be done and it is being done by everybody in the line of RBI guidelines. So those provisions are just provisions. They are not any actual cash hit on the balance sheet. So yes, we are entering into the ecosystem other than railways, but our appraisal team is very, very particular about the fact that what kind of assets we are cherry picking. And that will remain our mainstay. And we believe that by having this kind of scenario within the whole of government approach, we believe that we'll be able to maintain our pristine zero NPA system going ahead also.

Sir, and what is the cost of funds, weighted average cost of funds as on date?

You see cost of fund is sub 7%. So we can't give you the numbers. But if you look at our numbers, we raised our deep discount 0 coupon bond at 6.80% for 10-year bullet payment. We raise 5-year bond sometime 6 months back at 6.5%. We raised our ECB loans in the Japanese yen at a very, very attractive rate. And even if we add a 5-year hedging cost on that, it is coming somewhere around 6.2%, 6.3%. So if you add all together with the repo rate coming down, our [ RTL ] also is quite attractive nowadays. So it keeps varying every year depending upon the mix and the kind of rate that is being offered in the market. But overall, as you rightly mentioned, and you're tracking us that we are nearly 20 to 30 bps cheaper than anybody in the ecosystem as our peers. And overall cost is always remaining less than 7%. This is what -- now at times, it may be quite attractive even to 6.5%, 6.6% levels. If you ask for the target, we are looking forward to borrowing mix, which is cheaper than the GSIC rate. This is what, at IRFC, we are aiming for. I hope I answered your question.

Sir, last question broadly. I mean it's all floating rate linked, right? External benchmark or EBLR, I mean, eventually...

Not necessarily. When we are going for the -- I mean, we have got all kind of mix. Bond, of course, bond is a fixed rate. So if you are buying any 5-year, 10-year bond or 15 10-year bond, rates are fixed. Banks, of course, it is linked to either [indiscernible] or repo rate, whatever you have. In ECB market, it is linked to the currency fluctuation mainly. And of course, the hedging costs if we are going to hedge.

Still after adding 100 to 120 bps to this, still, I mean, our rates are still competitive as compared to competition, right, which is primarily banks.

So that is why we are winning the bids, but we are losing a few also. It's not that we are winning everything we are bidding. That is the best part. And one of the good things that we take out of participating into RFP, whatever asset we have participated, participations were as large as 7 to even 15 participants from the financial sector. That is a re-endorsement of the fact that we are entering into the area where 10 to 15 companies are doing their due diligence and they are finding the assets as pristine. So whether we win the bid or we lose the bid, we are clear on one thing, that the jury is out on that asset that it is a good quality asset. And that is something which is very, very important for IRFC.

Right, sir. Sir, one last thing. I mean, as you mentioned, that 40% asset will be majorly A-rated. So I just want to understand, I mean, is it only AA or AAA-rated or do we have some benchmark that we will cater?

Let us not go into -- let us not go into those details. The overall thing as an investor, you know that we are going for A-rated. Rest Board has its own powers and they look at every asset in a different manner. And finally, everything is sanctioned by the Board. And Board of IRFC is very, very particular about ensuring that the asset quality should be very, very good.

[Operator Instructions] we take the next question from the line of Vikas from Focus Capital.

Hearty congratulations to you on the fantastic performance last quarter. So just one question. In your answer to the previous participant, you said we don't win all the bids. Some of the bids, we don't win. So what's the reason for us to not win. So given that we would be among the lowest based competitors.

It's a competitive bid. Every company gives the bid, and we also gave our bid, which is the best suited to us. So in the market, you do not know that which company will give what rate. So it is just a healthy competition, nothing else.

So to add to my Director Finance, banks today with deep cut in repo rates for a few of the assets where they don't have exposures, at times, one of the banks get very, I mean, aggressive in quoting. So that's fair enough. That's fair enough. So that is why we are very open to talk about it. It's not that every bid despite having the strength of low overhead cost and low cost of borrowing, it's not that every bid we are winning. And that's very good about it. Banks mainly and not every bank, I mean there are -- more than 10 banks are participating. So one of the banks at one time, they become very aggressive for one of the assets, and they are winning it. But yes, our strike rate is more than 60% in whatever bids we have participated.

Got it. And one request, sir. If you could just -- earlier we used to share in the investor presentation, if you could just share the same thing and also give us a sense of your -- how your liability mix is? And some of the questions that the earlier participants also asked, the cost of borrowing or some of the -- what do you say, your liability mix and so on, it would be very helpful, sir.

Noted. Noted.

Sir, I wish you all the best.

We take the next question from the line of Gaurav Bansal from PVC Consultancy.

My question is that there has been a dip in NIM and a substantial increase in the lease income. Any particular reason for that?

Did you find dip in NIM vis-a-vis last quarter or general corresponding year.

Quarter to quarter.

No, no, you understand this. This disbursement of a larger amount took place right at the fag end of Q3. So -- but if you compare with last year NIM of Q3, that was 1.4%, and we have landed at 1.51% -- so just here and there in the quarter-to-quarter, you may not have the right comparison. But going forward, last year in total FY, we clocked around 1.4% but this year will lock in more than 1.5%. So that dip is mainly because of the fact that disbursement took place only in the fag end of Q3.

And how about the quantum jump in the lease income, quarter-to-quarter again?

Quantum jump in lease income?

Yes. So there is a jump in the lease income.

We have on our accounts head, he'll be talking about.

Yes. Basically, the lease income operates based on the lease agreement what we entered with the Ministry of Railways. So in current -- in last year, we didn't execute any lease agreement with the Ministry of Railways. So it got deferred. So in the current year, we are going to execute the lease agreement, what was due last year as well as in the current year. So the impact of those lease income will accrue in the future periods. That's why there is a minor dip in the lease income in the current period as compared to the previous period.

Okay. Got it. And is there any plans for any buyback? I mean looking at the share price dipping and is the company planning to buy back to shore up the prices?

I mean we are the Board of the company. We don't decide for buyback or selling the shares. It is the domain of Department of Ministry of Finance, DIPAM, so they are the real owners sitting on 86% of shares. So if they take a call, they'll be telling the market about that.

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

Thank you, Manish. We had a good outing in quarter 3, and we believe that going forward, also, the stellar show in terms of the numbers will continue. And we are sitting in a pretty good condition now having a good pipeline with us. Yield also is looking up. So going forward, the diversification plans that we have launched in the beginning of the FY, now we have the time to consolidate on that, and going forward, we believe that all the kind of guidances that we have given will continue to achieve those things. Thank you.

On behalf of PhillipCapital India Private Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.