Indian Railway Finance Corporation Limited
IRFC is a Public Sector Undertaking (PSU) wholly-owned finance by the Government of India acting through the Ministry of Railways. The company is registered with the Reserve Bank of India as a systematically important NBFC and is classified under the category of an “Infrastructure Finance Company”. IRFC is the dedicated market borrowing arm of the Indian Railways. Its primary business is financing the acquisition of rolling stock assets, which includes both powered and unpowered vehicles, for example locomotives, coaches, wagons, trucks, flats, electric multiple units, containers, cranes, trollies of all kinds and other items of rolling stock, leasing of railway infrastructure assets and national projects of the Government of India and lending to other entities under the Ministry of Railways. The actual capital expenditure of the Indian Railways was INR133,400 crore in FY2019 and IRFC financed INR52,535 crore accounting for 39.38% of the actual capital expenditure. In FY2019, IRFC was responsible for financing 82% of the Indian Railway’s total rolling stock through a financial leasing model with leasing period typically spanning 30 years.
Indian Railway Finance Leasing Model
They follow a financial leasing model for financing the Rolling Stock Assets. The period of lease with respect to Rolling Stock Assets typically 30 years comprises a primary period of 15 years followed by a secondary period of 15 years in the same way, unless otherwise revised by mutual consent.
In terms of the leasing arrangements, the principal amount pertaining to the leased assets is effectively payable during the primary 15 years lease period, along with the weighted average cost of borrowing and a margin determined by the MOR in consultation with them at the end of each Fiscal.
Typically, the weighted average cost of borrowing factors in any expenses incurred by them with respect to any foreign currency hedging costs and/ or losses (and gains, if any) as well as any hedging costs for interest rate fluctuations. For the second 15 year period, they charge the Indian Railways a nominal rate which is subject to revision on mutually acceptable terms.
They also follow a leasing model for Project Assets, which consequently provide for lease periods of 30 years. As of September 30, 2019, their total AUM, consisted of 60.80% of lease receivables primarily in relation to Rolling Stock Assets, 2.56% of loans to central public sector enterprises entities under the administrative control of MoR (“Other PSU Entities”), and 36.64% of advances against leasing of Project Assets.
|Particulars||For the year/period ended (Rs in million)|
|Profit After Tax||18,868.41||31,920.96||21,399.33||20,014.60|
Indian Railway Finance Limited: Key Strength
- Strategic role in financing growth of Indian Railways
- Competitive cost of borrowings based on strong credit ratings in India and diversified sources of funding
- Consistent financial performance and cost plus model
- Low risk business model
- Strong asset-liability management
- Experienced senior management and committed team
Indian Railway Finance IPO Issue Object
- Augmenting their equity capital base to meet their future capital requirements arising out of growth in their business; and
- General corporate purposes.