Indian Railway Finance Corporation Limited (IRFC) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to Indian Railway Finance Corporation Ltd. Q2 and H1FI27 on a conference call hosted by Philip Capital India Private Limited. As a reminder, all participants will win the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Puneet Chaturwiti from Philip Capital. Thank you and over to you, Puneet.

Hi, thank you.

Good morning, everyone, and welcome to the Earnings Conference Call of Indian Railway Finance Corporation Limited for the second quarter and half-year-end in September 23.6. We are privileged to have with us today the Senior Management Team of IRST, represented by Sree Manoj Kumar Dubey, Chairman and Managing Director and CEO, Dr. Ramjay Chaudhry, Director of Finance, and Ms. Deepa Kutnets, Institute of Director of Finance and Chief Financial Officer, along with other distinguished members of the Senior Management Team. With that, I would like to invite Sri Manoj Kumar Dubey to share his remarks on the company's financial and operational performance for the quarter and half-year ended September 26th, followed by the management's outlook on the business going forward. Over to you, sir.

Good morning, Koneet, and good morning, friends, who are attending this call. So, as CEO, this is one of the heartening mornings for me. When numbers of the companies are beating the guidance and as well as expectations, the job of CEO becomes easier. So today is one of the immediate days for me, after a lot of difficult times and difficult days to reach these numbers. As I was talking in the morning with one of the TVs, numbers are not manufactured. They are earned. So IRF3, on embarking on its 2.0 journey, that is diversification journey, If you look at the last six quarters of the company, out of six, five quarters, the profit after tax has grown in double digits, except the Q4 of last FY, where provisions were made for new businesses, where 1% for greenfield and 0.4% for brownfield provisions are to be made as for ugly and wrong. So, it's a very satisfying day talking in the call that consistently for the last six quarters in our diversification mode, this company is growing. And as I always say that when you talk about all the ratios, every ratio eliminates from profit after tax. If a company is not making healthy profit, healthy growth in profit, none of the ratios will show positive rates. So, if I give a picture that in the last six quarters, five quarters, the company's profit after tax has grown in double digits, you can see at the numbers that all the ratios and everything will be having a positive trend, including net interest margin. Apart from the good numbers, that is, for H1, more than 20% rise in revenue and more than 10% rise in fact, I would like to also talk about and share my other views to the shareholders at large, where in the past, when we embarked on the journey of diversification, a few questions were really coming to the mind of the investors, that for the first time, we are going on diversification apart from single client models. What is the team that you are having for appraisal? So, I want to inform all of you that in last one year, the number of employees in IRC has grown almost double. So, you can think of the kind of manpower required that we have added, and, you know, in my company, I always say the way we cherry pick the assets, we cherry pick the talent. So, every talent that we have added to our system, they are all best in class that we could get in the country. Top of it, I also want to share a very unique model that I call a CEO here. That is a model of mentoring and mentorship. To put on record, my chief risk officer is a veteran from the MDFC business. He has been director finance of REC, and after that, we are a chief risk officer, and he is also donning the hat of mentoring all the young guys, making them very, very alert about the kind of compliances that is required. We have got our advisor chief. She was our director, Sanand, earlier, and she comes from the active role of PhD, working there for the last 30 years. She brings all the knowledge that is required for the growing side, and she is not only mentoring, she is giving very active advice to the company on those lines also. My chief compliance officer is a veteran from the industry, coming from the P&B side. We have got our advisor, one more advisor from RGC side, who is retired, and they are advising us on the appraisal side. So we have created a grid of mentors who are shaping, writing, the young minds who are doing the appraisal, borrowing, everything. So, this is something that I wanted to share, and let my investors be assured that the kind of team that IRC has created now is one of the most robust that one can think of. The other thing I wanted to share with you, that with the training of the railways, we are very, very particular about oversight and compliance. So whatever RBI wanted us to do, whatever CNAG wanted us to do, whatever internal auditing wanted to be done, in fact, I forgot to mention you that our head of internal auditing is a veteran from government with all the experience of more than 35 years. So, we have put all the compliance things right in the place, and we are trying to be best in the class, in the country, in relation to any of the bank or NBAC system. We have gotten the positive feedback from RBI as well as TNAG, where consecutive third-time real comment has come. So, oversight, compliance, ERP, all go hand-in-hand with robust results. And top of it, we also have to look for a long pipeline, and during the call, I will be talking about the exciting times that we are going to have with all the announcements on the railway also, and apart from that, the good business that we are doing in non-railways, entities in the railway ecosystem, where we are garnering higher margins. So, taking two together, we will be talking about the exciting time going ahead and maintaining and sustaining the growth that we have done in the six quarters, 12 six quarters, including this particular one. So, with this, I invite you all to have a discussion. Thank you.

Thank you so much, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants will request to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

Our first question comes on the line of Sukriti Deepakal from ISAT Printed Private Limited.

Please go ahead.

I have two questions. The first question to Mr. Dubey is, beyond the regular outlook, I just want to understand what are the top 2-3 execution priorities you are focusing on in the next few quarters, and alongside that, what do you see as the biggest risk in terms of railway capex, asset growth opportunities, or funding, and how are you preparing to manage them whilst rendering IRF's role in the finance space? That's the first question, and I'll have a second question after this. Thank you.

So, you talked about risk of the railway funding or what? I didn't get that. Can I repeat again the second part of the question?

Yeah, I just want to understand the key strategic actions you are focusing on, you know, such as maybe expanding the asset base, Do you see diversifying the finance opportunities, you know, along those lines, can you give some titles?

No, I got your question. So, yes, immediate, first part of the question was, what are our immediate disbursement targets? So, yes, last year when we started diversifying, all 35,000 crores that we dispersed, that were non-IR disbursements. This train will continue for this FY. Next, H2, you'll find that we'll be lending to Metro, we'll be lending to ports, we'll be lending to renewable energy, we'll be lending to thermal power genports who are having links with the railways, we'll be lending to maybe a few road linkages also. These are all in pipeline, almost ready to be dispersed in Q3 or early Q4. And to answer your question in a very clear manner, the guidance that we have given in FY27 also, really surpassing our disbursement that we did last FYI, and that guidance in fact. Now, the second part of the question that you ask is more exciting, because this funding that we are doing right now, Now it is, that will be finishing. It won't be continuing for long because ticket size is not more than 20,000 crores or 10,000 crores like this. But the second part that we mentioned were railways. It was following our Honorable Minister Railways and also the Honorable Prime Minister of what he announced. There is a sanction of dedicated freight corridor from Tancuni in Eastern Park to Surat in Western Park. This costs around, this 2,000 km plus, this costs around more than 3 lakh crores. There are 7 high-speed rail corridors that are already sanctioned, and very actively being pursued because country is moving towards a Bikersheep-Barre kind of thing. Railways have also announced 8 freight lines where they will be going on JV joint venture model or PPP model. So overall, 5 that comes out to be in more than 20 lakh crores. Now, once we have our hand on these PIEs, these are going to continue for next minimum 10 years. And precisely, the first half of this FYE, we are actively engaging with all the stakeholders within the railways as well as the bilaterals because, you see, the PIE is so big that IFC alone also won't be able to fund all everything. So, what is happening is that we are kind of being the sole financing arm of Indian Railway, they are acting as aggregators. We are only talking to, my team is only talking to World Bank, to other multilaterals, as well as domestic players, and we believe that by end of this FOIA, this whole model will be in place and the way you follow the government, because our disbursement is completely aligning to the aspirations of Government of India. So, if you believe that, yes, Government of India is going to have these dedicated rail corridors, if you believe that Government of India is going to have these high-speed rail corridors, if you believe that Government is really going to have four learning of the tracks, then you believe that our hands are completely full with the kind of business coming in next 10 years. So that is what I am talking to you. Maybe Q3, when we come out to you, we will be giving you clear numbers and guidances, what model is going to be followed. But right now, what is available in the public domain, I am only respecting that, that we are completely in sync with the ministry, both ministry, Ministry of Finance, as well as other multilaterals, bilaterals, trying to get a solution where IRC will have the first right on the pike. And that's why I can give you a flavor. That's why we'll be going for maybe from FI28 onwards for next decade, minimum 50,000 crore every year coming from the Indian railways. But also to mention you, now that we have started as a certification, we are not going to stop funding to non-railway entities in the railway ecosystem. So you will see, hand by hand, looking at us funding the metros, looking at us to funding government ports, looking at us to fund the renewable requirement of the Indian Railways. So, it is, now that we have started our journey, maybe 20, FY28 onwards, for non-stop 10 years, you will find that this kind of disbursement, maybe in June of 50,000 crores, plus, minus, will be continuous growth for Indian Railways Finance Corporation.

Thank you. My second question to Mrs. Deepa Kotlis is, from a financial point of view, what key risks or challenges do you anticipate in the coming quarters, and what specific measures are being taken to manage less interest margins, borrowing costs, asset quality, and balance sheet strength, especially in an environment of changing interest rates and large funding needs? Thank you.

So, your questions are, I came to ask a question for her that she will take over as CEO of the company, on the lighter than.

Thank you, Mr. Patel, for your question. IRSC has already got a very diverse borrowing portfolio. We are very actively looking at reducing our WACC by, you know, increasing the share of 54 EC bonds and also ECB, So that borrowing cost, we already are least cost amongst other NDFCs, and we hope to continue the same thing. We hope to continue in the same way because we are, like, at the moment, we are 6.55% of our WICC compared to other NDFCs, which is much higher, so 50 with lower. So we hope to continue the same way.

Thank you, and best wishes.

I mean, you can ask me again, because I think I noted down boring course and then, the question went a little fast, so you can repeat perhaps.

No, if you have any guidance on that, please share. Otherwise, my questions are being answered.

Okay, okay. Okay, fine.

Good, good.

Thank you. Ladies and gentlemen, anyone who wishes to ask a question, my pleasure to have an one. Next question comes from the line of Priyam Shah with Trini's Detset Managers. Please do it.

Hi, sir. I just wanted to understand what is our internal

3-4-year target in terms of EUM rules and how aggressive we will be in terms of disbursements. Because I think the 5-4-year target for this was supposed to be for this year, but I think we missed it once or twice. So, I just wanted to understand the internal vision and our growth targets.

So, as I mentioned to you, we stand by the target of reaching near about 5 lakh crores, maybe more than that, maybe 1,000 or 2,000 missing on that is fully intact. If you look at our journey of IRSP 2.0, we started at 4.60 lakh crores. I mean, 4,60,000 crores on the beginning of FY26. We ended up the year at 4.85 lakh crores. So, that upward journey was there, and this is also taking into account of whatever payment capital recovery that we are getting from the railways. We are completely comfortable, hopeful. We know what assets we are going to disperse in next S2. So, I can assure you that the way we have written the guidance for our revenue, the way we have written the guidance for our path in not one quarter, but consistent two quarters at H1, rest we have showed that assets on the management also will be reaching year 5.0 or maybe crossing it. By end of, maybe by the end of Q3 only, you'll get the flavor that we are almost there. But end of the year, for sure, the way we did last year, because bulk of our dispersions are done in X2, we have already things in place to disperse. Now, I'm again repeating very clearly for all the investors, we are not changing growth of AEM just for it. There is a reason behind that. You see, all my assets in the management, nearly 90% plus today also, stands with the railways, where the name is only 1.3%, or in absolute terms, 35% margin on cost plus. You look at the beautiful and sweet spot for this company, whatever non-IR business that we are garnering, here the margin is minimum 2 times, and at times it is 3 times, or 3.5 times also. So, what will happen that even if my A1 growth is not very robust, it won't be growing in double digits. That's fine. But my pad will always be growing near to double digits for the fact that whatever assets we are replacing were your 35 bits. Whatever assets I am adding is more than 100 bits. So, the yield will be nearly three times of what we were doing with the India's yield. So, understand very carefully that even if I am maintaining the AUM size of 5 lakh crore, you rest be assured that my path will be growing nearly to 10%, not for a year or two, but if we continue with this mode and the way we have forecasted that by 2030, our mix will be 60% pure railway and 40% will be diversification. Yes, we have told that. Till 2030, there is no look back. Part of this company will be keep going year to year on that line. So, I hope I have answered your question.

Sure, sir. Thank you. Thank you.

Ladies and gentlemen, anyone who wishes to ask a question, may press star and one. Our next question comes from the line of money.

Shadarwal, let's fill it capital. Please go ahead.

Yeah, hi. Good morning, sir, and congratulations. Just want to understand, how is our loan price in the non-range businesses? Like, how frequently are the interest rates revised there? The context was, you know, in the rising interest rate scenario, how fast can we pass on if there is an incremental increase in the cost of funds?

Thank you very much. We are one of the aggressive consumers of Yen. But I tell you the numbers. In terms of last year, we did nearly 2 billion worth of dollars. So we started with 1.8%. With Kona increase, also we are landing somewhere at 2.25%. The things which are passed on cost-plus model, there is good for it. It's a win-win scenario for both because nobody gets a loan less than 3% in the country. Even where we are taking our books, when we are doing a very conservative hedging, my cost of hedging has not crossed 6.3%. There are hedging at 5.9% also, there are hedging at 6% also, and the latest that we did, due to the turmoil of hormones also, it is 6.3%. So, you see, our overhead cost is nearly 15 paisa only. So, we don't add much to the cost of borrowing that we get. So, on Yen side, I want to confirm to you that despite the fact that Sonar has gone 50 bits ahead in only 3-4 months, maybe one more revision comes. We are extremely comfortable with those kind of rates that Yen is offering to us. Now, coming to domestic markets, and answer to your question, They are reset of three months. They are reset of one month. They are also reset of one year. So it acts both ways. It at times helps us also. At times helps the borrower also. But let's be sure that it doesn't impact negatively to us much for the fact that our total borrowing portfolio, as my chief of mention, is very, we are not only having the return loan from the bank only. It is only around 25% of my total mix. So, overall, we always have discussion of 20-30 dips of any kind of such happenings. But the beauty is, on the both sides, when we were funding the Indian Railways, all these, the Indian Railways. So, we remained insulated, either for positive or negative, my margin of 35% only was there. It was on the light of a not very exciting business that you know that your profit is fixed, whatever happens in the world, it doesn't affect your profit as a company. Now, when we have started diversification, we have taken into account all these fluctuations that can take place, and you know, in every scenario, what strategy we have followed is that we must make at least a margin of 90 paisa, 85 paisa minimum, and my ALM team is very, very particular. They are monitoring it on a real-time basis, maybe on a weekly basis, reporting to the top management. So, not much of an impact, as I told you. Yes, we also have the flexibility of switching away from the term loans when they are getting posterior to other instruments, and if RTL becomes cheaper, we have the flexibility to go back to them and use that also. That is what the borrowing team does in a very smart manner. As my CFO mentioned to you, we are maintaining country best WSEC, Wetted Average Cost of Capital, that is 6.55% that we did last year. This is also we hope to maintain that despite the hardening of the rates. So, if we are able to garner 30 or 40 with cheaper resources and the peers, you can understand what a wonders it can do to us in terms of ensuring our markets as well as competing for RST for the best process and winning it. And sadly, that is the foundation from where IRC is doing consistently excellent results in terms of PAC for last six quarters, and I believe, leading the management team here, that this success story will continue in a similar manner as you have seen in the last six quarters. Thank you.

That was helpful, sir. One more question I had was on prepayment rates. So, two of your, you know, competitions, I won't say competitions, maybe government lenders, have been facing prepayment pressure in the last one and a half year. Is there any kind of prepayment pressure for us visible right now? Yes, sir. Am I audible?

Yes, yes, you are audible.

Yeah, so my question was on the prepayment rates. So some of the, you know, government lenders were facing prepayment pressure in last one year. Is there any prepayment risk for us in our business, especially in the non-railway business? Sir, was you able to listen to my question?

Yes, please go ahead.

Yeah, so, my question was on the free payment risk. So, some of the, you know, state lenders are facing free payment risk like RHC, THC of the world. Are you also looking at any pressure on the free payment?

Yes, this is the only pressure that I am not having. I am having all the other pressures with me, but thank you for asking this question and making me feel good about it. So, I am perhaps the only NBHC in the country who is not having this pressure. And there is a reason behind it. The reason is, you know, my unique selling point, wherever I have gone for the last two years, I have given three comforts to my borrowers. Number one, there is no prepayment penalty. Listen to it very carefully. I have given first proposition to all my prospective borrowers that, listen, we are not putting any pre-payment penalty, while others, you know better than me, what kind of penalty is being put on that, number one. Number two, we are saying that there is no flow price. If the benchmark is having a decrease, I will pass on the benefit to you. If the benchmark is going up, I will pass on the risk to you. So, these two things have really gone up well with my customers, my borrowers, and they have got tremendous confidence and rapport with us, and answer to the question, why we are not finding the pressure of prepayment for the fact that we are cheapest in the market? We sell ourselves like this. If we are cheapest in the market, why somebody will prepay my loan? And you know, our money was thinking about it. You know, the basic thing that we're taught in the management school is that liberating the business is always a profitable business. Obviously, everybody would not like to put all their equity in the business. And when you want to leverage, if you are getting a best-in-class kind of lending raise, why somebody will free pay? So, on the lighter van, asking the questions, I get the feedback that for the last few years, we are disruptors in the market. But we call, we say that we are positive disruptors in the market. So, the fact that we are a government company, and if we are bringing in our efficiency of low cost, small team, taking bigger responsibilities, and serving the government entities, it is always good to pass on the money on a winning scenario where I am making a handsome profit, and I am passing on the loan at a very cheap rate. So, in fact, if you see my last year portfolio, the other prepayment majority, we are refinancing it. So, that's a business proposition for us. Now, we have proven in the country that anybody wishes to have a lower rate, proving to us that they are best in class assets, their ratings are A, then we are looking for them and we are arranging cheaper loan. Thank you, sir.

Thank you very much. That was helpful, sir.

Thank you. My next question comes from the line of Sinead Kumar, an individual investor. Please, go ahead.

Hi, thanks for giving me the benefit of the question, and I was following the company and the performance quarterly basis, and felt good. Every time I saw the results and the kind of improvement in the margin and everything happened, and this concern isn't just what happened in the last two years in terms of So, what are your suggestions to government or even for care providers to understand how we can have better value in the near future? or even a longer term in terms of share price and dividend distribution.

Sunilji, do you want to listen in Hindi or in Hindi? You are comfortable with me. No, I am asking you. I am in your service, your company, your shareholder. You will be able to speak with your language, I will speak with you. Tell me.

You are in Hindi.

Yes, I will listen to you. Thank you. Good morning, everyone, and welcome to the call. Good morning, everyone, and welcome to the call. Good morning, everyone, and welcome to the call. Thank you. Good morning, everyone, and welcome to the call. Good morning, everyone, and welcome to the call. Thank you. Good morning, everyone, and welcome to the call. Thank you. Thank you.

Thank you, sir, and Ashley. I want to hear a long-term suggestion what is going to be in next 10 years or 20 years, kind of, so that if there is a chance to build a wealth, I can be there.

I think we have given enough labor to you. I think we have given enough labor to you. Reps, I request and advise you that you keep following us. We keep communicating very proactively, and we are very transparent in sharing what all we are doing, and what railway is doing also. You kindly follow what railway is doing also.

Thank you.

Thank you.

Thank you so much. Ladies and gentlemen, anyone who wishes to ask a question, members Sahar and Landa. Reminder to all the participants, if anyone wishes to ask a question, my press star and one. Thank you. As there are no further questions from the participants, I now hand the consent over to the management for the closing demand. Thank you. I know what are you doing?

Thank you. Yes, we will be, we are all geared up that we will be doing better than what we did last year, and all ratios that people follow, we believe that the way ROC of this company in this S1 to S1 has grown in double digits, nearly 14%. So, even Rota has also grown near 5%. So, we believe that return on equity is also positive. It's all ratios. As I always say that, if you follow the profit numbers, fat numbers, every ratio comes out of that. So, we believe that the diversification story that RST has started on will continue in a positive manner, and when we meet after two-three results, we come out with the same number or even better number. Thank you so much.

Thank you so much, sir. Thank you so much.