Ladies and gentlemen, good day and welcome to IRFC Q2 FY 2025-26 and half-year result earnings call hosted by Dam Capital Advisors Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchtone phone. I now hand the conference over to Parvija Rivara from Dam Capital Advisors Limited. Thank you and over to you, sir.
Capital Advisors Limited. From the management, we have with us Sri Manoj Kumar Dubey, Chairman, Managing Director, and CEO, and Sri Randhir Sahay Director of Finance and CFO. Without further ado, I shall hand over the call to Shri Manoj Kumar Dubey for his opening remarks, post which we can open the floor for Q&A. Over to you, sir. Thank you.
Very good morning, Parth, and very good morning to all of our friends who are there on the call. We are here once again to celebrate the remarkable path IRFC has charted, a journey that grows deeper every day in connecting with the lives of a wide base of India, having more than 5.5 million shareholders also. Because in every project that we finance, every rupee that we mobilize, it is the pulse of India's people that moves. We are humbled to fuel their aspirations also. Friends, a warm and hearty welcome to the IRFC con call after publishing our quarter two results for FY 2025-2026. I'm joined today with my colleagues, as already told, my CFO and Director of Finance, Mr. Randhir, also my Head of Accounts, Head of Business Development, and a few more HODs who are there in the Apex team.
In quarter two, FY 2025-2026, as you all know, we delivered a profit after tax of nearly INR 17.80 billion, marking more than 10% growth, while H1 profit touched INR 35.23 billion, again a double-digit leap vis-à-vis last H1, which is highest ever in the IRFC journey. Our net worth has touched the record more than INR 560 billion with the EPS of INR 5.39. Our assets under management have shown the reverse trend now, that is the upward trend from this quarter onwards, and we hope that this upward trend remains steady and grows further and further. IRFC has really showcased the power of strategic diversification that we embarked upon, even without new allocations from Indian Railways for the third consecutive year. What makes this growth remarkable is the nine-fold increase in our new business agreements that we signed.
In fact, INR 360 billion of agreements were signed within three days of the last four days of this H1, that is between 26th to 29th of September, touching nearly more than INR 450 billion in H1 for the sectors like renewable energy, transmission, coal mining, and industrial infrastructure, etc. It gives me immense pride to share that IRFC continues to script new chapters of financial excellence. Our net interest margin, which was in last FY standing at 1.42%, has now improved to 1.55% by the end of H1. This shows that our planning of going for diversification and for the assets where there are better margins are already reflecting in our net interest margin. Alongside this achievement, as we grow in our path and we do good, we need to reward our shareholders also. The board has declared a record-breaking interim dividend of INR 1.05 per share.
INR 1.05, further reinforcing the trust and confidence of our shareholders. Through all of this, IRFC maintains a zero NPA record, a rare hallmark, and the kind of business that we're picking up in diversification also, we intend to maintain our unblemished record of zero NPA. This stands as a testimony of our resilience, risk discipline, and the trust that we command across the ecosystem. In the coming quarters, IRFC will continue to expand its footprint in renewable energy, logistics, port, any metro transportation, on-rail, and allied sectors. As India accelerates towards an infrastructure in Asia, IRFC is future-ready with clear ambition to deepen our diversification, not just for the railway directly, but for India's developmental vision at large, keeping railway as a center. Thank you all, and we are ready for the question and answer session. Over to you, Parth.
Thank you, sir. Thank you, sir. Ladies and gentlemen, we'll begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use headsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. The first question is from the line of Vikas Kasturi from Focus Capital. Please go ahead, sir.
Good morning, sir. I wish you a very happy Diwali and congratulations on a fantastic quarter. Sir, my question is, historically, we have been, say, giving loans to the Indian Railways, right? There we did not require much human capital in the form of to do things like sales, underwriting, collections, etc., right? How are you approaching this challenge, sir, with respect to building this human capital when you're going outside the realm of Indian Railways? That is my only question, sir.
That's a very good question that you have put up. It shows that you are very happy on the part of deliverance of the company and you are rightly worried, like me, for the human resource that has to propel this growth. As you know, the sweet spot for me as a CMD is the fact that since the team was stronger, we have to choose the right kind of people. We are choosing the right kind of people, the best of the talents that are available in the ecosystem. We have added a few experts from the railways on deputation. We've also taken lateral entry from various sister CPSCs. When we're choosing now and the kind of buzz that my company has created, your company has created, we are attracting the best of the talents.
Your question is bang on for the fact that the borrowing side of this company was very strong. We never did business development outside railways. Now my business development team is headed by a very seasoned senior guy from NTPC background. We have got other verticals also in place. We have got mentors and risk management officers from the ecosystem, people who have done more than 35 years of service in NBFC, parlance. I don't want to name the companies, but yes, we have roped in veterans as consultants on a long-term basis, as well as our modulate team has grown by 50% now. From 40 odd, we are nearly 60, and we want to grow by attracting the best of the talents. In normal parlance, as a common understanding goes that only the private sector picks up the best of talent.
We are kind of setting up a system where we should excel and should be at par, if not better than any of the private or public players in the ecosystem. That is what we are striving for going forward. I hope I have answered you. Yes.
All right. Thank you, sir, and wish you all the best.
Thank you.
Thank you. Our next question is from the line of Hardi Jain from Investec. Please go ahead, sir.
Hello. I'm audible.
Yes, please go ahead.
Yeah. Hello, sir. Good morning. First of all, very much congratulations for your event. I have a few questions for you. Like in PPT, there's 11. I want to understand what is the difference between sanction limit and agreement limit. As you have written for NTPC BOBR rep that you have sanctioned INR 700 crore but signed the agreement of INR 250 crore. I wanted to understand what's the difference between that?
My BD Head, Mr. Suhay, will answer the question.
Yeah.
We receive a credit proposal from our board, we receive a credit proposal from NTPC, and we receive a credit approval.
Actually, sir, I'm sitting here very silent, please.
Am I audible, ma'am?
Yeah, now you are audible.
Ma'am, generally, we follow a process and we take an approval, credit approval from my board. My board gives me a sanction for that particular lending. After that, we have to execute a transaction document. We are saying with NTPC, my board has given a sanction for INR 700 crore, and we have executed the transaction document for INR 250 crore, and for the remaining amount, it's yet to be executed. For other things, as CMD, sir, has appraised you regarding this INR 45,000 crore, this is what we have already sanctioned, and a transaction document has been executed for the same. There are certain transactions for which we have got the sanction from our board, and their document is yet to be executed. I hope I have clarified.
Just to summarize this for your understanding, out of INR 700 crore, INR 250 crore agreement has been signed for the same, and for other INR 45,000 crore also, agreement has been signed.
Okay. Understood. I have one another question also. I want to understand what is the financing approaches for railways. What do you are expecting?
The railways as a client or railway ecosystem?
I'm expecting that I want to understand term of your term of the financing opportunity, whether it is going to be upstream or downstream for railways.
No, for the ecosystem, it has to be upstream only. We have already, you know, we have got a good pipeline. Going ahead, things will be upstream.
Understood. I wanted to know what is your planning for human resource for infrastructure transactions in the future?
I think you heard the first question I answered, or I have to repeat it again?
No, actually, I missed a few points.
We are looking for the best of human resource in all of the areas except borrowing, where we are very strong. We have already added around 20 odd very good talents from the railways on deputation as well as from the other sibling companies on lateral basis. We have added many consultants also. Going forward, as the need arises, we'll be looking for the best of the class executives in the ecosystem with us.
Okay. Understood. May I know what is the?
While doing everything, we still want to be having our overheads at the minimum.
Okay. Understood. May I know what are your expectations for the disbursement and AUM growth for next quarter?
I think if you know my guidance, if you are following us, we have given a guidance of INR 30,000 crore disbursement in this FY. Now the pipeline is there. We have already done INR 7,000 crore. Q3 we'll be doing additional maybe INR 10,000 to 15,000 crore. Whatever rest is there, we are very confident that we'll be doing it in the fourth quarter. INR 30,000 crore disbursement guidance is pretty much intact.
Okay. Understood. One last question is that from my side.
There are so many concerns.
I want to understand whether you guys are doing project financing on a milestone basis. If you are doing on a milestone basis, I wanted to understand what are the timelines for such projects, completion of such projects?
Yes, ma'am. We are doing based on the milestone. Whatever we do, the credit we ask from the prospective borrowers using the theory and based on their concerns. Based on that, we are monitoring and we are appraising results.
Okay, any of the?
Thank you. We have asked many, so let's move to a new question.
Okay. Hello.
Yeah, Parth.
Thank you so much.
Parth, some noise was coming. Was it coming from that girl's side or from where? The last question, there was a lot of noise.
Sir, it's coming from your end.
No, my end is, sir, it's absolutely quiet. The first question went fine, but after that, in the second question, there was a lot of noise.
Yes, now it's not. Now I can see the loud and clear. Maybe it's from the girl's side, from Hardi.
Yeah, go ahead.
Perfect. Thank you.
Thank you.
Ladies and gentlemen, to ask a question, please press star and one on your phone. The next question is from Rishi Maheshwari from AKSA Capital. Please go ahead.
Thanks for taking my question. Sir, congratulations on a good set of numbers. I wish to understand, you know, given the cost of deposit that would be coming lower for you, is that the rate processing has already been done, or do you think there is further scope of rates which will come down and therefore give any higher boost towards our NII?
You see, since we are not directly linked with the REPO system, REPO is a benchmark. We generally land with a benchmark of AAA plus CSU lending rates. Typically, we use to do business with 40-bps margin with the railways on cost-plus model. The new diversification model that we are working on, despite being very competitive, what our experience in the last H1 with around 10 clients where we mopped up around INR 45,000 crore, more than INR 50,000 crore, in fact, if you take the three quarters. Our rates are 2x- 3xX in terms of margins, which is reflecting in our NIM also. NIM is continuously growing. From last FY, it was 1.4. Now it is 1.55.
Going forward, we believe that with the diversification and the outside Indian Railways assets that we are coming to a kitty, despite the fact that we are competing with the banks also for the quality assets right now, going forward, our NIMs will be showing a better margin.
Good to know, Sir. So, given that, you know, I'm trying to understand the risk elements over here outside the railway business, given that a large part of it is wholesale business that you're doing outside railways also. There, the competition will be pretty stiff. With that in mind, so far, there have been no delinquencies, and that's a remarkable thing to your business. Given the future, given that you are moving into unchartered territory, how do you perceive delinquency stages coming, you know, if about a year later or two years later? What is your opinion on that?
You really nailed the question, what we discuss almost every week in our boardroom. Just to give a flavor and confidence to all my shareholders, we have embarked on a whole-of-government approach. The only difference right now in my clientele is I'm not only limiting myself to Indian Railways, but there are many ministries and the state governments who are doing business, including CPSC. I'll give a flavor. My first four assets came from NTPC. Now, I don't have to speak about NTPC. They are AAA-rated assets, and their subsidiaries are also that well-rated. If I'm funding to NTPC, you and I both know what kind of risk I'm going to have. Second flavor, maybe we funded one joint venture promoted by GAIL, Coal India, and Rashtriya Chemical. To our Maharatna having such strong balance sheet, you can perceive the kind of risk that we can think about them.
Almost nil risk. Similarly, we are funding to those JNCOs who are having a link with railways, and they are very strong. We have right now, with our very low overhead cost and very competitive rates, spoiled choices to pick up which asset within government I want to pick up. Going forward, since we are only lending to the entities who are in the whole-of-government ecosystem, we don't perceive any kind of risk so far as our lending is concerned. Yes, it is not directly sovereign as it used to be in Indian Railways, but the kind of clientele that I mentioned to you, we have lent it to an entity which is promoted by my siblings, Concord and RVNL and Government of Odisha. You can think about their solvency also.
We're cherry-picking up the best of the CPSCs, best of the government, state governments who are balancing it, and their entities are having a very robust kind of cash flow. We believe that within the whole-of-government approach concept, we have almost zero risk of having any NPA. That is what is driving us to work within the government ecosystem itself.
Thank you, sir. Sir, my fundamental question to understand that was that given that 6.5%, 7% is the cost of funds, the rates at which you are doling out will give you a fairly thin spread in terms of going ahead. That would obviously mean that you've got to keep your overheads at a very, very stringent number. It's difficult to expand from that perspective. If at all you have to move, unless you want to move into some of the riskier elements. Is the business model continuing in the future? The business model continuing to remain the same way that you will only, you know, disburse to such entities which are quasi-government owners? Therefore, the risk will be extremely low, and the idea will be to lower the cost of funds as much as possible.
You understand the business model. We started with a margin of 40 bps that we used to have with the railways, the single client. My NIM stood at 1.4 for so many years. The peers that you're talking about, they were working in the arena of 2.5%- 3% of NIM. Of course, they were having risky assets also in the kitty. The kind of thin margin that you mentioned to us, for us, getting a margin of 100 bps or 120 bps is coming out to be three times the margin that I used to have for a donkey number of years. You may feel that 100 bps margin or 120 bps margin is a small margin compared to the peers.
For us, going for a very quality asset in the government with absolutely zero risk quotient, getting a margin from 40 bps to 120 bps, we are very pretty happy with the kind of impact it will have, a positive impact it will have on our PAT. I think that will be a great thing for shareholders also when they see their PAT growing steadily without any risk. The thin margin concept that you are mentioning, we are finding very happy getting a margin of 2x-3x from what we used to get from the railways. That is where we are differentiating ourselves as a product compared to other peers and the banks.
Fair enough, sir. I completely get your line of thoughts, and I think completely.
Actually, Rishi, I'll add one more thing through you to all the people who are going to read my con call. You know, when we started venturing out outside the railways, we were used to earn 40 bps. Obviously, it is a zero NPA kind of thing. None of the government entities had faltered any day, the best of the entities, including the state governments in the last 70 years. While funding to them, lending to them, we found that every private or public entity were adding a premium to their lending with kind of a more percentage. The funding to government entities also in this country used to be very high. Putting numbers, you are more aware than me, nobody was getting a loan less than 9% in the ecosystem we found. We are very happy, as you mentioned, our cost per capita is 6.5%- 7%.
We are very happy lending them with a margin of 100 bps, 120 bps. It's a very good margin when you're finding that the risk is nearly zero for these kinds of assets. What we are doing right now and why businesses are running and coming to our office without ourselves going and marketing ourselves is the fact that there is a lot of appetite in the CapEx for the government parlay. You know, 70% of India's CapEx is coming from the government parlay. They never had thought that somebody will be lending to them in and around 8% or 8.2% kind of thing. We are playing an art of, and our competitors, including the banks, are coming to art of.
In result, we believe that we are doing a good thing for the nation by bringing out a quality kind of funding at a very competitive rate to the government sector also. That is perhaps what is the need of us.
Sure. This is largely a volume game where you will be actually based on your growth. Therefore, the absolute number of NII will keep on growing and risk-free growth that we will more or less see. Sir, what is this year? You know you've already spoken about the disbursement. What about next year? How do you perceive the growth for next year?
The kind of queries and the response we are getting, Rishi, in fact, I have to double or triple the size of my BD team because we are yet to go every nook and corner of this country. We are flooded with requests from almost all states of the country. Because they now know that through all of you that we are lending to the railway ecosystem, there is hardly anybody in the government system who are not having any linkage with the railways. Looking forward for, I think I'm partly there for the next five years or so or more, maybe a decade, we'll be really flooded with the kind of businesses. What we need to do is for the confidence of all my shareholders, we need to do the cherry-picking for the asset quality within government also.
That is why we are putting a system in place with a very seasoned team, with new professionals also. This mix of team will have a job to see through the government proposals also, as we are very, very conscious of maintaining our zero NPA with a philosophy of making 2x-3x margin of what we used to get from the railways. I think this mixture is going to give a very good result and return for our shareholders because there won't be anything cyclical. I can only perceive with my experience and tell you that next year and year next to that, we'll be having an upward trend in terms of our assets, also in terms of our pack also.
Fair enough, sir. Thank you so much. Wish you great luck. I think with this kind of rigor and discipline, I'm sure the growth will be phenomenal. The last question, sir, is that in this model, I do not see a risk for dilution in the business because the current equity, the current profits itself will fuel the growth. Am I right, or at some point in time, you see that?
You are absolutely right. You are absolutely right. After paying the highest ever dividend, interim dividend of INR 1.05, we are still pretty happy with our CRA or our Tier 1 capital. That is the beauty, Rishi, that we are having with the grace and the best wishes of more than 5.5 million shareholders of this company. The ingredients that have been given to this management are top class. Based on those ingredients, what this management has delivered is a top-class result to the shareholders without having any kind of risk appetite. The business is there. As I mentioned to you, 70%, I mean, this misnomer is there that the growth is being fueled by the private sector. CapEx of this country, not only in this year, looking at the national infrastructure pipeline for decades and more, the people.
Ladies and gentlemen, the management line has been disconnected. Please stay connected while I connect them again. Thank you.
Hello, yes.
Yes, sir. Please go ahead, sir. You were explaining about.
I think we have summarized it, Rishi. We can go ahead to other.
Sure, sir. Thank you so much.
Thank you so much.
All the best, sir. Thank you.
Thank you, sir.
Thank you, sir.
Our next question is from the line of Srivasta Raghu Garmila from Travis Capital. Please go ahead.
Thank you for the opportunity. Continuing on the previous question, most of my questions have been answered. One risk I foresee is we presently do not pay any MAT on our profits because we have got an exemption in 2020. Do you, is that one of the risks where maybe it can come back in the future?
Let my BD Head answer this question.
We have as of now around INR 3,000 crore of unabsorbed depreciation still with me, for which I can take benefit in future years. Apart from that, because of our business model, we have a project asset funding of INR 2.5 lakh crore for which a lease agreement is yet to be executed. These assets would get capitalized in coming years, and against which I'll have a good amount of depreciation in my P&L in coming years. We don't foresee in the next five to seven years there would be any MAT liability on us. There is a good reasonable assurance for the next five to seven years that this liability would not come because of the business model and because of the unabsorbed depreciation level we have as of now.
Okay. The second question is because now you said we are flooded with opportunity. I just want to know with the present framework what we have, is it ever possible that we can grow our loan book by something like 20% or something like that? Is it possible?
You're talking about assets under management or year-over-year loan book growth?
Year-over-year loan book growth.
Obviously, obviously. Now, you see, when I was speaking in the beginning of the quarter, with all coercing from the TV channels, I came out with numbers. Generally, we should not come out with numbers. We gave a number of INR 60,000 crore assets to be taken by signing agreements, and this was in INR 30,000 crores that we wanted to disburse. Going forward, with the kind of, as you rightly mentioned, we are actually flooded with the requests. We feel that looking at the prospect of the government, as the government has come out with the papers about the GDP growth and everything, next 5 to 10 years, I mean, we'll have an upward trajectory not only in AUM but in the pack also.
These two numbers which really matter for the investors and the shareholders, this company we perceive and we feel that there is absolute clarity that assets will be growing. 20% number that you are giving, I'm not putting in a number of CAGR, but I can assure you that the kind of queries we are getting, and as I mentioned in the last con call also, that you know we are the single financier for the Indian Railways, and their appetite is more than INR 2.5 lakh crores every year. Right now, for the last three years, they are getting everything from government budgetary support. You know in the government, when the budget comes, there are more than 30 ministries who are competing for the budgetary support from the government. Today, railways are getting, tomorrow, they may not get the full thing.
What we planned and perceived is that the diversified loan books that we are creating, that will be our real cake, real cake because here the margins and the NIM is 2x-3x of what I'm getting from the railways. The cherry on the cake will be the business that will be coming from the railways. The beauty of this cherry is whatever business I get, it gets disbursed in the same year. This is risk-free. In RV Parlais also, while calculating CRAR, the railways' disbursement will have zero risk. That will further strengthen my already industry-best CRAR, and business will be growing. I don't put any number on that of CAGR, but yes, I'm very confident along with the whole team that going forward, every year, our AUM should grow. Every year, every quarter, my pack should grow.
The growth of pack, I've already spoken in the morning on the TV channels that we have given as a target that our pack annually and quarterly should grow in double digits. That is what we are striving for.
Thank you. It's really great to hear you. Thank you so much.
Thank you, sir. Our next question is from the line of Ramakrishna Nethi from Zenwent Wealth Management Services Limited. Please go ahead.
Hello sir. Thank you for the opportunity. I just have a couple of questions. Now that Indian Railway Finance Corporation is starting on the journey to diversify aggressively outside of the railways, I mean, to the sectors linked to the railways, do you have any caps within these non-railway segments? You know, like you know about the total disbursement for the AUM, like what would be the percentage caps that you would have, you know, beyond which you would not lend to these segments? You know, when you mentioned state governments and also some of the state governments where there are some health, fiscal health concerns. If you can just share some light on this. The second point is, I'm sorry, I have missed your initial comments.
I just wanted to understand the current AUM breakup between railway and non-railway segments, and in the future, where do you intend to keep it? Hello?
One very long question. Yeah, yeah. I'm just one very long question. I have forgotten what you asked in the beginning. It was such a long question.
No. You want me to repeat?
No, just the flavor of that. What did you want to hear?
Yeah, do you have any internal caps with respect to percentage?
Got it. The sweet spot for this company is there is no cap for any segments. Per se, theoretically, I can have 100% of my AUM from the railway ecosystem on diversification. Now, where is the limitation? Limitation comes from the RBI guidelines. Answer to your question specifically, RBI has made a mandate for everybody that 30%.
30% for a single entity.
30% of my net worth.
For a single entity.
For a single entity. Today, my net worth is nearly INR 55,000 crore. You can put 30% number. One client or one state, I cannot do more than that. That is the cap from RBI. For a group of the companies, it's 50%. If you take NTPC and take all these subsidiaries together, I can fund them up to 50% of my net worth, which should be around typically INR 25,000 plus crore for one entity. I think that is a huge number. Now that our muscle is growing every year, our net worth is growing every year in terms of more than INR 4,000 crore. Going forward, I don't find any problem. Our debt-equity ratio has also cooled down to near to 7. Overall, we are sitting in a very sweet spot. We can look to that is the thing that we have no exposure to anybody except railways.
Next five years of time, we are in a very good position that anybody with a good asset is coming to us. We are there to cater to them. Second thing, as you mentioned, that bifurcation. Right now, you can add total AUM is INR 4.6 lakh crore. Out of that, disbursement has started. Slowly, but surely, the target is that in the next five years, we should have a mix of 75%, 25%. That is, 75% should be from the railways, and 25% should come from the diversified thing. Let us see how things unfold in the coming year.
Sure. This helps. Thank you.
Thank you.
And number.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone.
Reminder to all the participants, for asking a question, you may press star and one. Thank you. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for the closing comments.
Thank you, Parth. This is a pre-Diwali con call that we're finishing. We were extremely busy for the last one week after closing the quarter two with the preparation of results and doing it. As we discussed with the people who came on the con call, we are all driven by the fact that we are going in the right direction. The future ahead, we'll continue doing the good work that we're doing. Thank you to DAM for organizing this con call. Thank you so much.
Thank you. On behalf of DAM , that concludes this conference. Thank you for joining us, and you may now disconnect your lines.