IRFCNSEQ4/FY22May 24, 2022

Indian Railway Finance Corporation Limited

8,996words
99turns
12analyst exchanges
4executives
Management on call
Amitabh Banerjee
CHAIRMAN & MANAGING
Shelly Verma
DIRECTOR FINANCE, INDIAN RAILWAY FINANCE CORPORATION LIMITED
Pritesh Bumb
DAM CAPITAL ADVISORS LIMITED
Amitabh Banerjee
Chairman and Managing Director, along with Director Finance and other members
Key numbers — 40 extracted
15.32%
market borrowing arm and the AUM, the Asset Under Management has grown very rapidly at a rate of 15.32% year-on-year and as on date, it stands at Rs. 4.15 lakh crores that is for like Rs. 4,15,238 cror
Rs. 4.15 lakh crore
r Management has grown very rapidly at a rate of 15.32% year-on-year and as on date, it stands at Rs. 4.15 lakh crores that is for like Rs. 4,15,238 crore approximately. It is a business which is characterized by lo
Rs. 4,15,238 crore
a rate of 15.32% year-on-year and as on date, it stands at Rs. 4.15 lakh crores that is for like Rs. 4,15,238 crore approximately. It is a business which is characterized by low-risk and it is a cost-plus business
Rs. 41,000 crore
is the major focus of IRFC this being an NBFC. The net worth of the company has grown to about Rs. 41,000 crore. In fact, the revenue from operations has grown by about 29% year-on-year to end of this financia
29%
pany has grown to about Rs. 41,000 crore. In fact, the revenue from operations has grown by about 29% year-on-year to end of this financial year and the profit has grown at 38% year-on-year in FY22.
38%
ons has grown by about 29% year-on-year to end of this financial year and the profit has grown at 38% year-on-year in FY22. We are characterized by low overheads and administrative costs and they hav
0.13%
ry high operational efficiency probably we are one of the least cost companies in the world. Only 0.13% of our total revenue is the establishment cost of this company and the return ratios are also pre
15%
ost of this company and the return ratios are also pretty healthy as return on net worth at about 15%, return on assets at about 1.5% which compares well with the industry average. As on date, we a
1.5%
urn ratios are also pretty healthy as return on net worth at about 15%, return on assets at about 1.5% which compares well with the industry average. As on date, we are not paying any tax, not because
36%
ways. IRFC has been funding at a really consistent level to Ministry of Railways. It went up from 36% in FY 2018, that has been moving up to about 48.2%. in FY 20. It went up to a peak level of 67.
48.2%
t level to Ministry of Railways. It went up from 36% in FY 2018, that has been moving up to about 48.2%. in FY 20. It went up to a peak level of 67.3% in FY2021. The next slide shows the breakup of t
67.3%
36% in FY 2018, that has been moving up to about 48.2%. in FY 20. It went up to a peak level of 67.3% in FY2021. The next slide shows the breakup of the AUM, about 50% of the total AUM is accounted f
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Guidance — 20 items
Amitabh Banerjee
opening
“We enter into a cost-plus standard lease agreement every year with Ministry of Railways and there is a consistent spread on that we charge over the weighted average cost of borrowing on both the rolling stock assets as well as the project assets.”
Amitabh Banerjee
opening
“The next slide shows the breakup of the AUM, about 50% of the total AUM is accounted for by the project assets, 48% by the rolling stock assets that means the lease receivables from rolling stock is 48% and the lease receivables on account of the project assets is about 50%.”
Amitabh Banerjee
opening
“We have been charging a uniform spread of about 40 bps on the weighted average cost as far as the rolling stock assets are concerned and 35 bps will be project assets.”
Amitabh Banerjee
opening
“35 bps over the weighted average cost while arriving at the lease charges for project asset.”
Amitabh Banerjee
opening
“This year we have also finalized the lease agreement for funding of railway project, both EBRIF, that is Extra Budgetary Resources Infrastructure Financing as well as the national projects.”
Amitabh Banerjee
opening
“From this year onwards, we have entered into a lease agreement for the project assets also with Indian Railways.”
Amitabh Banerjee
qa
“So, there will be a CAPEX plan of about North of 10 lakh crore to end of 2030 starting from 2020 and IRFC would definitely be contributing at least 1/3rd of the total as it has been doing over the years.”
Amitabh Banerjee
qa
“We do the drawdown of those loans or we go to the market for issuance of bonds, when we receive the indents from the Railways from time to time, so that we don't, we are not required to retain this amount bank otherwise, there will be a negative carry.”
Rucha Amdekar
qa
“So, in the last call, you might have given the guidance that the borrowings from banks were in favorable terms as compared to bonds, the like directional guidance you have given.”
Rucha Amdekar
qa
“So, similar guidance you would like to share right now?”
Risks & concerns — 7 flagged
It is a business which is characterized by low-risk and it is a cost-plus business model.
— Amitabh Banerjee
All the costs incidental to lending and borrowing are all pass through to Ministry of Railways, including the cost of hedging and it is a low-risk business model for obvious reasons because no cost is being borne by us, although the margin is not that substantial that we charge on the cost element.
— Amitabh Banerjee
We have got a strategic relationship with the Ministry of Railways and that enables us to have a low-risk profile and also a very high-credit rating from both the domestic and the international credit rating agencies.
— Amitabh Banerjee
So, that accounts for a lower growth in PAT that is your area of concern probably because it has only increased by 0.7%.
— Amitabh Banerjee
So, the market is going to be quite challenging for us and we will have to take a very informed call and extremely cautious call because we have to keep the cost of our borrowing to the minimum from the available sources of funding and our basic aim is to actually diversify our borrowing portfolio.
— Amitabh Banerjee
So, we do not face any kind of that kind of risk of our net gearing ratio going beyond it and I have maintained that earlier, I maintained that even now also if the occasion demands.
— Amitabh Banerjee
So, that is the unique advantage that we have that risk weighted assets is so low.
— Sri Ram Prasad
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Q&A — 12 exchanges
Q
Congratulations for a very strong Financial Year 2022. Performance has been really strong, but I had few questions pertaining to this particular quarter. Sir ideally, our Q4 is comparatively the strongest quarter in terms of disbursements, but that has not been the case this time. So, has there been any spill overs?
Amitabh Banerjee
No, actually, what has happened is that last year, this 2021 was a one-off year it was a COVID year, the entire economy was for the major part of the year was under lockdown. So, there was a lot of fiscal constraints and therefore, the course of Indian Railways to IRFC funding was paid that much more as compared to other years. So, that was a one-off year. That is why the Q4 figures in last year was quite high, but if you see the financials of Q4 that has not been majorly impacted by the disbursements because the total turnover in Q4 has increased year-on-year by 33%, right and the expenditure
Q
Yes, I have two questions. So, first one is, can you please guide on your incremental borrowing mix for the next couple of quarters? You can answer this then I will ask you the next question.
Amitabh Banerjee
Incremental borrowing mix, the point is we go to the market while raising money. I will tell you the whole procedure. Okay, the government gives us a mandate, the Ministry of Railways gives us a mandate for the entire year right and then in the meanwhile, we go ahead and try to get into various kinds of contracts with the banks and financial institutions for various tranches of loans. We do the drawdown of those loans or we go to the market for issuance of bonds, when we receive the indents from the Railways from time to time, so that we don't, we are not required to retain this amount bank ot
Q
About the margin sprayed IRFC has kept this margin spread consistent from last four years. So, is there a possibility of incremental by some bps in rolling stocks and project assets going forward as the borrowings from the Ministry of Railways is incrementing?
Amitabh Banerjee
We have placed our request with Ministry of Railways for increasing the margin. They are considering that request. So, it is up to the Ministry of Railways to actually the one thing that you must remember is that this will increase in margin of course, when we are offering increase in margin, but keeping in view the present state of the fiscals it will be a tough call from the Ministry of Railways but bigger as it may we have already placed our request for infusion margin from the present level and it is under consideration of the Ministry. As and when we get any information we will keep you u
Q
Sir I just have one question on the dividend policy I have written that we are governed by DIPAM guidelines of 30% PAT or 5% net worth. So, just wanted to understand whether this is minimum dividend or there is no cap to the maximum or this is the maximum dividend?
Amitabh Banerjee
Yes, this is the minimum dividend that you should get that is a DIPAM guideline that it is either 30% of PAT or 5% of net worth whichever is higher. So, this is the minimum dividend. You can give any amount of dividends that you require I mean, as per the guideline. Yes. Thanks. Sir, we have declared Rs. 1.4 dividend for FY22, which is exact 30% of the FY22 EPS. This is in line with guidance with the minimum requirement, as you mentioned, so, Sir what stops us declaring more or higher dividends from here, given that we do not have any equity fund requirement going ahead? No, that's not true th
Q
So, just one question I have looking at your balance sheet of March 31st, 2022, I can see the total equity funds of Rs. 41000 crores as of March 31st, 2022. Now, I understand that this also the assets representing this total equity has also been lent to the Ministry of Railways. So, can you tell me the yield on the equity funds. On Rs. 41,000 crores are we earning as much as 8% and if that is so, that can we say that on a steady state basis Rs. 3200 crore will be my profit every year, at least in yield on the equity.
Sunil Goel
Yield on equity is around 15% as our MD sir has already pointed out and we are hopeful will continue the pace in future years. 14.87% to be precise about 15%. Okay, so that means that only on equity, you should be earning something like Rs. 6000 crores every year. We have equity of 41000 crores and we are earning profit after tax of Rs. 6090 crores for FY2022. Yes, so your expenses are minimum and on this equity, you are not paying any interest because this is your own fund. Yes. This only bring up to something like Rs. 6000 crores profit because I am multiplying 15% of Rs. 41,000 crores and I
Q
Sir I have one question like you said starting this quarter or this year we are going to lend to some railway projects like right now 98% of our books is from Ministry of Railway. So, what other than the rolling effects? What other work we have started and what is our view and how big it can grow, or how it can add to our profitability in next coming quarters.
Amitabh Banerjee
You see we are basically funding the railways on two accounts. One is the funding of rolling stock, the rolling stock constitutes the train sets, the passenger train sets as well as the freight train sets, the locomotives, coaches and wagons and so on and so forth track machines and so on and so forth. This is what we call as the rolling stock technically. The other portion is the project assets. What we categorize under EBR(IF) in Government of India it is called Extra Budgetary Resources Infrastructure Financing. Now, this comprises of many elements, principle of them being say it gauge conv
Q
Thank you so much for the opportunity. A couple of questions have already been answered. I will just pose two more questions. The spread that we operate on, which is 0.4% for rolling stock and 0:35% for the project assets. Is there any scope for revision to this number for FY23 or do you envisage even for FY24, for that number to change and B my question is till when do we envisage the zero-tax status to continue for us? Those are my two questions. Thank you.
Amitabh Banerjee
Okay, as far as the first part is concerned, I have already given a detailed answer to that, we have already represented to Ministry of Railways and it is under active consideration of Ministry of Railways and number two the zero tax thing is going to go for quite some time because of the availability of the unabsorbed depreciation balance that we have and going forward with the acquisition of more assets the balance of this particular fund will increase and that would keep the taxable income by the zero level or below for quite a few years to come.
Q
Sir my question is lot to do with the share price performance? I mean, we are at a net worth of 40,000 crore with a market cap of 28, which is about 70% of book value, but we are still generating 50% ROE. We are at a net worth of Rs. 40,000 crore with ROE of 15%. But still the market price trades at a book value of about 70% or 75% of what the book value is. This to me seems like a very heavy undervaluation in the share. I know you are team is doing well on operating metrics and all, but I think everybody on this call has an interest in seeing the share price appreciate and I think the only wa
Amitabh Banerjee
All your points are extremely well and they are very relevant and very pertinent. Now I will give you one by one. As far as this dividend is concerned, as far as this share price is concerned, we are interacting with the investors on a regular basis. We are interacting, I am interacting with various fund managers and listening with major investors. I am interacting with other potential investors also who have not subscribed to our equity portfolio and on a weekly basis I am having calls with them and physically meeting them. I am traveling to Mumbai on a regular basis and meeting various inves
Q
I am slightly new to the company. So, please pardon my ignorance on the company and its understanding. I have one question on from your presentation on slide three, where we have shown our share funding to Ministry of Railway. Sir can you help me understand that in FY18, or 19, when the share was 36 and 39% where was the balance funding coming from? Was it government of India or where was the other share going to?
Amitabh Banerjee
Yes it was 36%. in FY18. Yes. Prior to that, it was still less. Yes. So, the balance was coming from GBS from government Budgetary Support that was coming from the government revenue. Okay. So, so the other way to look at it, which would mean that whatever will be the debt borrowing of Ministry of Railways, we would remain the sole agency or the sole arrangers for debt for the Company for Ministry of Railways. Precisely.
Q
My question is related to incremental borrowing, disbursement, and AUM growth because I have gone through the quarter 4 results, there was a mention that incremental borrowing for the year FY22 was Rs. 63,908 crores whereas the disbursement is only Rs. 59,899 crores and AUM growth is only Rs. 55,159 crores, why the disbursement is lower than incremental borrowing and AUM growth is lower than the disbursement? Can you guide something on it?
Amitabh Banerjee
I would just like to mention here that the borrowing might be more than the disbursement primarily because we also borrow money to redeem our other loans for the purpose of refinancing of the costly loans, we sometimes refinance costly loans by substituting it by a low cost loan and other redemption requirements also so we have to redeem the bonds, we have to redeem the loans that fall for redemption in due course of time. So, that is why the amount that we raise would not tally with the amount that we disburse. Sir is it incremental borrowing or only the borrowing because I consider the incre
Q
Sir you might be used of delivering good results, which I can see. Congratulation for the same. I have two questions. One is related to MOA, whichever you changed 2-3 months back. I can see you have again took like you can finance to any infrastructure project now on. Does that mean you are going to finance for roll projects or any of the infrastructure projects other than a project? If so, then have you got any traction in that segment? Because I can see some of the comments from Nitin Gadkari and all other that they would like to take a separate NBFC for those kinds of activities.
Amitabh Banerjee
See, we have we are in the process of widening the scope of activity of the IRFC. As of now, the mandate states by the object clause of the memorandum of association that we can link to any sector, it can be public sector, it can be private sector, which has a backward and forward linkage with Indian Railways. Now, we wanted to have differently we have placed this proposal for widening the object clause from this to any infra sector. Infra sector means any infrastructure sector in the country we can finance to and this has already been approved by our board of directors and it is presently und
Q
Well, thank you dear investors, I mean, you have been extremely cooperative and through the year and we would definitely thank with all sincerity, the kind of support that you have given to the company and I would like to mention my special thanks to the Government of India with special reference to Ministry of Railways, DIPAM, Department of Public Enterprises and other major stakeholders who have helped us in our endeavor to make this company vibrant and to keep it as a niche company as a niche NBFC company in the public sector and I thank you all for having spare your time, valuable time to
Management
Speaking time
Amitabh Banerjee
36
Moderator
14
Harsh Shah
10
Sunil Goel
8
Nilesh Doshi
6
Santosh Keshri
5
Rucha Amdekar
3
Pranit Rathi
3
Shabbir Kayyumi
2
Priyank Chheda
2
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Opening remarks
Pritesh Bumb
Good afternoon, everyone. We, on behalf of DAM Capital, would like to welcome the management of Indian Railway Finance Corporation. Today we have with us Mr. Amitabh Banerjee – Chairman and Managing Director, along with Director Finance and other members of the management team. We will have opening remarks from Chairman and Managing Director and then move on to the Q&A. Thank you and over to you sir.
Amitabh Banerjee
Good afternoon all my dear friends. So, we have come to the end of another year, 2021-2022 and we have got a robust financial performance this year too. I just go through the presentation that has been already circulated to you, hopefully everybody has got it. So, going through the first slide: IRFC plays a very strategic role in the growth of Indian Railways. This has been the story since 1986 when we were formed as a Special Purpose Vehicle of Indian Railways to be the sole borrowing arm to fund this CAPEX capital expenditure requirements of Indian Railways. This is a dedicated market borrowing arm and the AUM, the Asset Under Management has grown very rapidly at a rate of 15.32% year-on-year and as on date, it stands at Rs. 4.15 lakh crores that is for like Rs. 4,15,238 crore approximately. It is a business which is characterized by low-risk and it is a cost-plus business model. All the costs incidental to lending and borrowing are all pass through to Ministry of Railways, including
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