IRFC Nov-24 Conf call

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the confirmed funding arrangement for the Ministry of Railways going forward?

They will not need any funding from the IRFC.

Funding will come from the Indian Railway Finance Corporation only.

MoR funding will be eliminated entirely in the next fiscal year.

Funding from the MoR is expected to continue. (correct)

When is the revised estimate for the current fiscal year expected to be released?

February

January (correct)

March

December

What is the size of the deal made with NTPC?

900 crores

500 crores

700 crores (correct)

800 crores

What unique model was employed in the deal with NTPC?

A leasing model for 15 years Signup and view all the answers

What may happen in the fourth quarter regarding the funding expectations?

Any additional funding will be disbursed in the fourth quarter. Signup and view all the answers

What does the speaker indicate about the unfolding story of government business?

It will be clearer in January and February. Signup and view all the answers

How long is the leasing period for the deal with NTPC?

15 years Signup and view all the answers

What is the nature of the contract with NTPC as described?

A leasing model similar to railways Signup and view all the answers

What margin is typically used for lending in railways?

35 bps and 40 bps Signup and view all the answers

What strategy is being implemented for the next fiscal year?

Looking into new prospects outside of railways Signup and view all the answers

What is indicated about the growth of PAT in the future?

It will show good growth Signup and view all the answers

What type of business is identified as a zero NPA business?

Railways Signup and view all the answers

What is the expected effect of exploring lending outside of railway business?

Access to lucrative margins Signup and view all the answers

How does the cost of funds for REC-PFC compare to their lending rates?

Cost of funds is slightly below lending rates Signup and view all the answers

What is a potential challenge when extending beyond railway lending?

Maintaining a zero NPA status Signup and view all the answers

What is the primary goal for the company in the future according to the strategy?

To compete with PFC-REC in infrastructure funding Signup and view all the answers

What is the company's approach to entering new markets outside of railway funding?

They aim to be attractive lenders in the ecosystem. Signup and view all the answers

What is a defining characteristic of the railway funding mentioned?

It guarantees disbursement in the same financial year as sanctioned. Signup and view all the answers

What does CAGR refer to in the context of growth expectations?

Compounded Annual Growth Rate Signup and view all the answers

Why does the speaker refuse to provide specific CAGR numbers for future growth?

It's too uncertain at this point. Signup and view all the answers

What future sectors does the company mention exploring for growth?

Logistics and infrastructure Signup and view all the answers

What does 'zero NPA' signify in the context of railway financing?

There are no non-performing assets in that sector. Signup and view all the answers

What is a notable benefit of the unique railway funding process mentioned?

Sanctioned projects are guaranteed immediate funding within the same year. Signup and view all the answers

What term describes the expected share of non-railway financing in the total AUM over the next few years?

Projected growth distribution Signup and view all the answers

What is the expected timeline for clarity on the funding allocation for IRFC?

January for this FY and February for next FY Signup and view all the answers

What is the current balance sheet size mentioned for the company?

5 lakh crores Signup and view all the answers

Which sector is highlighted as a potential area for the company's diversification?

Infrastructure Signup and view all the answers

What competitive advantage does the company have in the external commercial borrowing (ECB) market?

Cheapest lending rates Signup and view all the answers

What distinguishes the company regarding the bond market?

First to list a bond in Gift City Signup and view all the answers

What is the interest rate difference between railway and non-railway business for the company?

300 bps Signup and view all the answers

What is the company's goal concerning its participation in the national infrastructure pipeline?

To capitalize on investment opportunities Signup and view all the answers

What outcome is the company seeking by positioning itself as a NBFC?

Mitigating risks through diversification Signup and view all the answers

What is the primary source of funding mentioned for the railway asset?

Government backing Signup and view all the answers

What is the current status regarding capital infusion for growth?

No capital infusion is required. Signup and view all the answers

What expertise does Manoj Kumar Dubey have that is relevant to building an appraisal team?

Previous work in finance and PPP projects Signup and view all the answers

What is the projected net worth mentioned?

50,000 crores Signup and view all the answers

Which team is being prioritized for development as they explore business outside railways?

Business development and appraisal team Signup and view all the answers

What indicates a strong confidence in proposed railway projects?

The government's sovereign backing Signup and view all the answers

What is noted as a strength of Manoj Kumar Dubey?

Mobilizing the cheapest funds Signup and view all the answers

What is expected to be clarified by January and February?

The ticket size to be received from the government Signup and view all the answers

What is the reason for charging a lease rental of 7.4% when the incremental borrowing rate is 7%?

It accounts for risks associated with borrowing. Signup and view all the answers

What is indicated by the cost-plus model mentioned in the discussion?

Risks and costs are passed on to the lessee. Signup and view all the answers

What could potentially affect the interest cost if borrowing is done at a floating rate?

Frequent adjustment according to market fluctuations. Signup and view all the answers

If a lease is fixed at 7.4% for 15 years, what fact must be considered about the initial borrowing?

The timing and duration of borrowings can vary. Signup and view all the answers

What may influence the decision-making of shareholders regarding the interest margin with railways?

Insulation from market fluctuations enhancing stability. Signup and view all the answers

What does the term 'WACC' refer to in the context of leasing?

Weighted Average Cost of Capital. Signup and view all the answers

Why are risks such as interest rate variation passed on in the lease agreements?

To distribute financial exposure across parties. Signup and view all the answers

What is one potential characteristic of the 100 crores borrowing for the lease?

Borrowings can have different durations. Signup and view all the answers

Study Notes

Funding Arrangement and Expectations

The revised estimate for the current fiscal year is expected to be released soon.
The fourth quarter may see a change in funding expectations.
The speaker expects the unfolding story of government business to reveal the final funding arrangement.

NTPC Deal Details

The deal with NTPC involves a unique lease model.
The leasing period for the deal is 15 years.
The contract with NTPC is a cost-plus model, meaning the company is compensated for its costs and a certain margin.
The deal size has not been disclosed in the text provided.

Lending Strategy and Growth

The typical lending margin for railways is not explicitly stated.
The strategy for next fiscal year focuses on leveraging the strong railway business for growth in other sectors.
Profit After Tax (PAT) growth is expected to increase in the future.
Railway financing is considered a zero Non-Performing Asset (NPA) business, indicating low risk.

Expanding Beyond Railway Lending

The company is exploring lending opportunities outside of railway business.
The cost of funds for REC-PFC is lower than their lending rates, potentially creating a competitive advantage.
One challenge of expanding beyond railway lending is the risk of higher NPAs in new sectors.

Future Growth Strategy

The primary company goal is to become a leading financing institution, seeking to grow its overall business.
The company's approach to entering new markets is gradual and strategic, leveraging its expertise in railway financing.
Railway funding is characterized by low risk and predictable cash flows.
The company expects significant growth in non-railway lending in the next few years.

Expectations and Growth Projections

CAGR refers to the Compound Annual Growth Rate, a measure of expected growth over time.
The speaker refrains from providing specific CAGR numbers as they are not yet finalized.
The company is exploring growth opportunities in infrastructure, renewable energy, and other sectors.
"Zero NPA" signifies a lack of delinquent loans, highlighting the company's strong financial performance in railway financing.

Key Highlights

The unique railway funding process offers a notable benefit of low risk and a predictable cash flow.
Non-railway financing is expected to play a significant role in the company's AUM (Assets Under Management) in the coming years.
Clarity on the funding allocation for IRFC is expected by January or February.
The company's current balance sheet size is not explicitly stated.
Infrastructure is highlighted as a potential area for the company’s diversification.

Competitive Advantages and Strategy

The company has a competitive advantage in the external commercial borrowing (ECB) market due to its strong track record and expertise.
The company is distinguished in the bond market for its ability to access funds at competitive rates.
The interest rate differential between railway and non-railway business is not specified, but it’s likely to be lower in railway lending due to its lower risk profile.
The company aims to participate actively in the national infrastructure pipeline to secure growth opportunities.
By positioning itself as a Non-Banking Finance Company (NBFC), the company seeks to attract a wider range of investors and broaden its funding sources.

Railway Asset Funding and Growth Strategy

The primary source of funding for railway assets is internal, but the company is exploring external options as well.
Capital infusion for growth is still under discussion and not yet finalized.
Manoj Kumar Dubey has expertise in credit appraisal and debt management, relevant for building a strong appraisal team.
The projected net worth of the company is not mentioned in the text.
The credit appraisal team is being prioritized for development to support growth in non-railway businesses.

Key Insights and Future Plans

Strong confidence is evident in the proposed railway projects, which are seen as attractive by investors.
Manoj Kumar Dubey is recognized for his strengths in credit appraisal and risk management.
Further clarity on funding and capital infusion is expected by January and February.

Leasing Arrangement and Cost Analysis

The reason for charging a lease rental of 7.4% when the incremental borrowing rate is 7% is not explained in the text.
The cost-plus model mentioned implies that the lease rental covers the company's borrowing costs and a margin for profit.
Floating interest rates on borrowings could potentially affect the interest cost of the lease.
If a lease is fixed at 7.4% for 15 years, the initial borrowing costs must be considered carefully, as they might influence the overall profitability of the lease.
The interest margin with railways is likely to be influenced by shareholder expectations and the need to balance profitability with attracting new business.
WACC refers to the Weighted Average Cost of Capital, a metric used to assess the cost of capital for a company.
Risks like interest rate variation are passed on in lease agreements because they are difficult to predict and could impact overall profitability.
the 100 crore borrowing for the lease may have a fixed interest rate, as the company is seeking a predictable cash flow.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Join us for a detailed overview of the Indian Railway Finance Corporation's Q2 FY25 earnings conference call. This session highlights key financial figures, management insights, and future strategies for investment and growth in the infrastructure sector. Discover the company's focus on maintaining a zero-NPA record and expanding into new sectors.