I R F C — Q3 FY25 earnings call

Call held 21 Jan 2025

Management summary

IRFC's Q3 FY25 marked a pivotal quarter as the company won its first competitive bid outside Indian Railways, beating all banks and NBFCs for a coal mining project. Management laid out the IRFC 2.0 diversification strategy, targeting the broader railway ecosystem including coal mining, ports, renewable energy with forward/backward railway linkages. The key thesis: Rs 10,000 crores outside IR equals Rs 30,000-40,000 crores of IR business in margin terms. AUM stability ensured till FY28 through moratorium interest capitalization.

Highlights

  • Results described as stable, steady, and consistently moving upwards; CRAR >700%

  • Zero NPA record maintained; AUM steady at Rs 4.5+ lakh crores

  • First-ever win outside Indian Railways: L1 in coal mining project (Rs 3,000+ crores) beating all banks/NBFCs

  • Rs 700 crore deal executed with NTPC; more deals in pipeline

  • New business margins 3x-5x of Railway margins (vs 35-40 bps from IR)

  • Debt-to-equity target of 8-9x (from self-imposed 10x limit)

  • 46% of AUM under moratorium; interest capitalization offsets capital recovery (~Rs 20,000 cr each) till FY28

  • Zero tax status expected to continue for 4-5 years; Rs 6,000+ crore unabsorbed depreciation

Concerns

  • Post FY28 AUM cliff when moratorium interest capitalization stops

Key financials

  1. AUM ₹4.60L Cr
  2. CRAR 700%
  3. Moratorium AUM Proportion 46%
  4. Annual Capital Recovery ₹20,000 Cr
  5. Unabsorbed Depreciation ₹6,000 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

  • Indian Railways
    35 bps Spread
  • New Business
    120 bps Spread (indicative)

Guidance & targets

Growth

  • New Business Equivalent Growth · FY26 · High confidence Rs 10,000 cr outside = Rs 30,000-40,000 cr IR equivalent
    Rs. 10,000 crores business if I do outside, it is akin to Rs. 30,000 crores to Rs. 40,000 crores business that I am doing for the Railway.

    — Manoj Kumar Dubey

Balance Sheet

  • Debt-to-Equity Target Balance Sheet · Medium-term · Medium confidence 8-9x

    Previously 10x → 8-9x

    We would like to be hovering around somewhere 8 to 9, this is the target right now.

    — Manoj Kumar Dubey

Margins

  • NIM Improvement Margins · FY26 · Medium confidence Improving every quarter
    Definitely my NIM will improve. But putting a number to it would be difficult at this stage.

    — Sunil Kumar Goel

Risks & concerns

  • Post FY28 AUM cliff when moratorium interest capitalization stops

    high

    46% of AUM under moratorium. After FY28, capital recovery won't be offset by interest capitalization, leading to faster AUM decline unless replaced by new business.

    Analyst acknowledged

  • No EBR allocation from Railways for 7+ quarters

    medium

    Government shifted to GBS funding for railways. Management reframes as positive (low-margin business anyway) but it was historically the sole revenue source.

    Analyst acknowledged

  • New business <1% of AUM; diversification nascent

    medium

    Despite enthusiasm, non-IR business is negligible relative to Rs 4.5 lakh crore book. Only Rs 700 crore NTPC deal and one coal mining bid completed.

    Analyst acknowledged

Areas of evasion (4)

  • No specific financial numbers shared
  • Lending rates not disclosed
  • NIM targets not quantified
  • Disbursement guidance not given

Q&A highlights

2 direct
AUM Stability Mechanism Through Moratorium Direct
During this current financial year, I will be getting around Rs. 20,000 crores as capital recovery, and same quantum of the money being the debt servicing for these project asset, and these two items will offset each other.

Explains how AUM stays stable despite zero fresh IR disbursements - interest capitalization on 46% moratorium assets offsets principal rundown till FY28.

Asked by Kamal Mulchandani (Investec Capital Services)

Expansion Within Railway Ecosystem Including Gati Shakti Direct
This Gati Shakti will surely benefit us also, and it will have a very long-term effect on our AUM. It may be giving us the businesses for next decade or more.

Golden quadrilateral freight corridor expansion (4 more lines beyond current 2 DFC) represents massive multi-decade opportunity within IRFC's mandate.

Asked by Akshay Patil (Individual Investor)

Refinancing Opportunities as Growth Driver Partial
We never funded anything outside IR, but there are many allied projects which are already running, and they are being funded at a very high rate. So, now positioning ourselves as the main financing arm of the Railway ecosystem, we want to look at every business.

Refinancing existing high-cost loans to railway ecosystem entities is a quick-disbursement growth lever. Management declined specifics but indicated many are in pipeline.

Asked by Ritika Dua (Bandhan AMC)

1 min read 3 chapters

Detailed narrative

First Competitive Win Validates Diversification Strategy

IRFC won its first competitive bid outside Indian Railways for a coal mining project of Rs 3,000+ crores, beating all banks and NBFCs. Additionally, a Rs 700 crore deal with NTPC was executed. Management positions these as proof of concept for the IRFC 2.0 strategy. New business margins are 3-5x of IR's 35-40 bps, making small volumes highly accretive to profits.

AUM Stability Mechanism and FY28 Cliff Risk

AUM remains stable at Rs 4.5+ lakh crores despite zero fresh IR disbursements for 7 quarters. This is because 46% of AUM (project assets) is under 5-year moratorium where interest capitalization (~Rs 20,000 cr/year) offsets capital recovery. This mechanism works till FY28, giving IRFC 2-3 years to build alternative business. Post FY28, AUM will decline unless new business scales significantly.

Cost Leadership and Tax Shield

IRFC's operating cost at <0.1% is dramatically lower than peers (REC 0.8%, PFC 0.9%, HUDCO 2.5%). Combined with zero tax from Rs 6,000 crore unabsorbed depreciation, IRFC can undercut all competitors while maintaining profitability. CRAR at 700%+ provides massive headroom. Management targets debt-to-equity of 8-9x vs previous 10x limit.

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