IPO (INDIAN RAILWAY FINANCE CORPORATION (IRFC)

INDIAN RAILWAY FINANCE CORPORATION (IRFC)

(A Government of Indian Enterprise)

ABOUT OF COMPANY`

Indian Railway Finance Corporation (IRFC) was set up on 12th December, 1986 as the dedicated financing arm of the Indian Railways for mobilizing funds from domestic as well as overseas Capital Markets.

IRFC is a Schedule ‘A’ Public Sector Enterprise under the administrative control of the Ministry of Railways, Govt. of India. It is also registered as Systemically Important Non–Deposit taking Non Banking Financial Company (NBFC – ND-SI) and Infrastructure Finance Company (NBFC- IFC) with Reserve Bank of India (RBI).

In more than 30 years of existence, IRFC has played a significant role in supporting the expansion of the Indian Railways and related entities by financing a significant proportion of its annual plan outlay.

Since 1986, IRFC has never had a Non-Performing Asset (NPA) in its books. 

Indian Railway Finance Corporation is the dedicated borrowing division of the Indian Railways. IRFC primarily finances the purchase of rolling stock assets – powered and unpowered vehicles. These include coaches, locomotives, trucks, wagons, containers, electric multiple units, trollies, etc. IRFC also plays a role in the leasing of the railway infrastructure assets and national projects of the Government of India and offers finance to other entities under the Ministry of Railways (MoR). The organization has contributed significantly over the last three decades in enhancing the capacity of the Indian Railways by financing the annual plan.

IRFC is wholly-owned by the Government of India and acts through the MoR. It is registered with the Reserve Bank of India (RBI) as a Non-Banking Finance Company (NBFC) under the category of an Infrastructure Finance Company. IRFC has a strong leasing model for financing the rolling assets. Typically, the period of lease is around 30 years with the first 15 years focused on recovering the principal amount along with the weighted cost of borrowing plus a margin and the last 15 years to generate revenue. It has the highest credit ratings for an Indian issuer for domestic and international borrowings. 

Financial Highlights

The financial performance of IRFC over the last Six years highlights the company grow in FY19-20 by 24.3% as compared to 20.1% in FY18-19.

The financial year 2019-20 the cumulative funding to the railway sector crossed a monumental figure of INR 3.39 lakh crore. The Company has met the highest ever annual borrowing target of Rs.70,471.96 crore mandated by the Ministry of Railways (MoR) during the FY 2019-20, registering a year-to-year growth of more than 34%, that is further complemented with the reduced cost of financing (from 8.20% in 2018-19 to 7.37% in 2019-20) to MoR. Company unwaveringly has been true to its vision of establishing itself as a pivotal & premier financial services company for meeting, in the most competitive manner, the gamut of developmental requirements of Ministry of Railways for its Rolling Stocks Assets, Project Assets, as well as Projects of National Importance. Over the past three decades, we have evolved as a key player for investment in the Railways’ Infrastructure.

There has been an impressive increase of 67% in the net worth of the company as compared to the previous year, that now stands at INR 30,962.43 crore.

Indian Railways is huge. It is the largest network in the world in terms of the number of passengers it ferries and the fourth-largest for cargo. Also, India has the largest rail network in Asia. However, with respect to India’s population, Indian Railways has one of the lowest penetration per million of the population. To improve the reach of railways, the Ministry of Railways has received Rs.15 lakh crore from the Union Government for developing its infrastructure. Since IRFC is the rolling assets provider for the Indian Railways, this means better prospects for the company in the future. In FY 2021, IRFC has already disbursed Rs.30,000 crore to the Indian Railways.

Indian Railway Finance Corporation plays a strategic role in financing the growth of Indian Railways since it is its dedicated market borrowing arm.

IRFC offers a competitive cost of borrowing since it has diversified sources of funding and has the strongest credit ratings in India.

It has performed consistently over the decades and has a cost-plus standard agreement with the Indian Railways that allows it to generate steady revenue.

IRFC has a low-risk business model due to the nature of its agreement with the MoR.

It follows an active asset and liability management strategy that ensures a minimal mismatch between assets and liabilities.

IRFC boasts of a senior management team with extensive experience in corporate lending, structured finance, and law, with exposure to the private and government sectors

IRFC’s constant endeavor has been to diversify its borrowing portfolio in terms of instruments, markets and investors which has led to the Company meeting the targeted borrowings year after year, through issue of both taxable and tax-free bonds, term loan from banks/financial institutions besides off shore borrowings, at competitive market rate.

THREATS

IRFC business is dependent on the continued growth of the Indian railway sector. Therefore, it is susceptible to the government’s initiatives to modernize the railways and other policies. Any slowdown in the growth of Indian Railways will impact its business and results of operations.

IRFC derives a significant amount of its revenue from operations from the Indian Railways. Therefore, a loss of or reduction in business from the Indian Railways, any direct borrowing by the Indian Railways, or the introduction of any new avenues of funding by the MoR could have an adverse effect on its business.

If the margin on the Rolling Stock Assets leased to the MoR by IRFC is not favorable, it may have an adverse impact on its financial condition and results of operation.

The Standard Lease Agreement between IRFC and the MoR is executed after the end of the Fiscal to which it relates and there can be no assurance that the agreement will be executed each year.

Non-availability of funding from the Life Insurance Corporation of India (LIC) matching the requirement of funds by Indian Railways for railway projects under EBR-IF may affect the asset-liability position of the Company.

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