I R F C — Q1 FY26 earnings call

Call held 23 Jul 2025

Management summary

IRFC is executing its IRFC 2.0 diversification strategy, expanding beyond Indian Railways to fund railway ecosystem entities including NTPC, metro railways, renewable energy projects, and CPSEs. The company leverages its ultra-low overhead cost (0.1% vs 0.8-2.5% for peers) to offer rates 100-150 bps below competitors while earning 2-3x the margins from new business compared to Indian Railways. Management targets AUM crossing Rs 5 lakh crores by FY27.

Highlights

  • PAT grew ~11% YoY; NIM improved to 1.51% from 1.31% in prior quarter

  • Loan book (AUM) at Rs 4.59 lakh crores, nearly flat vs prior quarter but stabilizing after decline

  • Sanctions of Rs 23,000-25,000 crores in pipeline; annual target of Rs 60,000 crores

  • Disbursements of ~Rs 3,000 crores in Q1; expects Rs 10,000+ crores in Q2 from refinancing deals

  • Annual disbursement guidance of Rs 30,000 crores maintained; expects 50% by H1 end

  • Zero NPA maintained; lending only to government and railway-linked entities

  • No corporate tax liability expected for next 5-7 years due to unabsorbed depreciation

  • New business spreads of 70-150 bps vs 35-40 bps from Indian Railways historically

Key financials

2 periods

Headline

  • AUM
    ₹4.59L Cr
    QoQ -0.1%
  • NIM
    1.5%
  • Cost of Borrowing
    7%
  • Overhead Cost Ratio
    10%
  • Employee Count
    60
    YoY +50%

Q1

  • Disbursements
    ₹3,000 Cr

What they filed

Q1 FY27: revenue up 19.5%, net profit up 10.4% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue6,900 6,763 6,723 6,915 6,372 −8%6,661 −2%7,336 +9%8,261 +19%
EBITDA6,862 6,724 6,679 6,869 6,323 −8%— — —
Net profit1,613 1,631 1,682 1,746 1,777 +10%1,802 +10%1,684 +0%1,927 +10%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Spread
105 bps Total
  • New Business (IRFC 2.0) 70 bps 66.7%
  • Indian Railways (Legacy) 35 bps 33.3%

Guidance & targets

Growth

  • Annual Disbursements Growth · FY26 · High confidence Rs 30,000 crores
    We have targeted around INR30,000 crores for disbursement and around INR60,000 crores for sanction of the assets.

    — Manoj Kumar Dubey

  • Annual Sanctions Growth · FY26 · High confidence Rs 60,000 crores
    Around INR60,000 crores for sanction of the assets.

    — Manoj Kumar Dubey

  • AUM Target Growth · FY27 · Medium confidence Rs 5 lakh crores+
    Sometime in FY '27, we should cross INR5 lakh mark of our asset under management.

    — Manoj Kumar Dubey

Margins

  • New Business NIM Margins · FY26 · High confidence >2%

    From 0.35-0.40% today

    For the additional asset that we are entering into our system, the NIM will be more than 2%.

    — Manoj Kumar Dubey

Efficiency

  • Overhead Cost Ratio Efficiency · FY28 · High confidence <0.15-0.2%

    From 0.1% today

    We don't foresee our overhead cost going even 0.2% in next 2 to 3 years.

    — Manoj Kumar Dubey

Risks & concerns

  • AUM nearly flat/declining as old Railway book runs down Rs 10,000 cr/year

    medium

    AUM at Rs 4.59 lakh crores, down Rs 400 crores QoQ. Annual rundown of Rs 10,000 crores from legacy book needs to be offset by new disbursements. Management confident of growth resumption.

    Analyst acknowledged

  • Concentration risk shifting from single client (IR) to still narrow railway ecosystem

    medium

    While diversifying beyond IR, all new business still railway-linked. No plans for private lending or non-railway infrastructure currently.

    Analyst downplayed

  • Margin pressure from repo rate cuts in competitive lending environment

    medium

    100 bps repo cut being passed through to borrowers. IRFC competing with banks, not just NBFCs. Low overhead cost (0.1%) provides buffer but new business spreads may compress.

    Management acknowledged

  • Forex borrowing partially unhedged for longer tenures

    low

    Only borrowings within 5-year tenure are hedged. Longer tenure ECBs left unhedged, creating currency risk exposure. Management declined to share exact numbers.

    Analyst acknowledged

Areas of evasion (2)

  • Forex hedge ratio not disclosed
  • Customer-specific spreads not shared

Q&A highlights

3 direct
New Business Margins and Competitive Positioning Direct
My margins are 2 to 3x of what I used to get from Indian Railways... INR30,000 crores, if we are able to disburse, it will be akin to something of the highest that we used to do for Indian Railways in terms of the margin.

New diversified business delivers 2-3x margins vs IR's 35-40 bps, structurally improving NIM. Rs 30,000 cr new disbursement equivalent to Rs 75,000-90,000 cr of IR lending in margin terms.

Asked by Jeet (Pinpoint)

Zero NPA Strategy and Risk Framework Direct
We have not funded anything private, nor we are looking right now to fund anything private... we are doing cherry picking because we are not into the high risk, high margin business.

IRFC limiting to government entities only, with AAA-rated assets, government guarantees for metros, and railway-linked projects. Private exposure only through govt JV/concession structures.

Asked by Vikas Kasturi (Focus Capital)

Tax-Free Status Duration and Mechanism Direct
We have a lot of unabsorbed depreciation... in the next 5 to 7 years, we don't expect any tax liability on the company.

Zero tax shield from leasing model's unabsorbed depreciation under Section 115BAA. Significant profit uplift vs peers who pay full corporate tax.

Asked by Raghu (Travest Capital)

1 min read 4 chapters

Detailed narrative

IRFC 2.0 Diversification Strategy Taking Shape

After two years of zero disbursements beyond Indian Railways, IRFC has built a Rs 25,000 crore sanction pipeline in 6 months. Key clients include NTPC (Rs 700 crore wagon leasing), metro railways, and renewable energy companies supplying power to railways via PPAs. The company targets Rs 60,000 crores in annual sanctions and Rs 30,000 crores in disbursements, with significant refinancing deals expected in Q2.

Ultra-Low Cost Structure as Competitive Moat

IRFC operates with just 60 employees and 0.1% overhead cost ratio vs 0.8-2.5% for peers (REC, PFC, HUDCO). This enables offering rates 100-150 bps below competitors while still earning 2-3x margins vs the legacy 35-40 bps Indian Railways business. Management plans to keep overhead below 0.2% even with expansion, targeting 100-110 employees in 5 years.

Legacy Book Dynamics and Growth Inflection

The Rs 4.59 lakh crore AUM is nearly all Indian Railways legacy at 35-40 bps spread. Approximately Rs 2 lakh crores of project assets still await agreement execution, with interest being capitalized (not in P&L). Annual rundown of Rs 10,000 crores from legacy book means IRFC needs Rs 10,000+ crore annual disbursements just to maintain AUM. Management targets crossing Rs 5 lakh crores by FY27.

Zero Tax and Zero NPA - Structural Advantages

IRFC pays no corporate tax due to unabsorbed depreciation from its leasing model under Section 115BAA, expected to continue 5-7 years. Zero NPA record maintained over 40 years by lending exclusively to government entities. New business risk-managed through AAA-rated borrowers, government guarantees for metros, and railway land/concession backing for SPVs.

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