Detailed Rationale CRISIL Ratings has assigned its 'CRISIL AAA/Stable’ rating to the Rs 66500 crore long-term borrowing programme of Indian Railway Finance Corporation Limited (IRFC). Ratings on existing debt instruments has been reaffirmed at 'CRISIL AAA/Stable/CRISIL A1+'.
CRISIL Ratings has also withdrawn its rating on Bonds of Rs 12,067 crore (See Annexure 'Details of Rating Withdrawn' for details) in line with its withdrawal policy. CRISIL Ratings has received independent verification that these instruments are fully redeemed.
The ratings reflect IRFC's strategic importance to its parent, the GoI, because of the company's status as the financing arm of Indian Railways (IR). The ratings also factor in IRFC's strong capitalisation and asset quality and adequate resource profile. These rating strengths are partially offset by IRFC's average earnings profile. |
Analytical Approach For arriving at the ratings, CRISIL Ratings has considered the standalone business and financial risk profiles of IRFC, and has factored in support from GoI. This is given the majority ownership of IRFC by GoI, and the significant role it plays in supporting the expansion of the Indian Railways as the dedicated financing arm. |
Key Rating Drivers & Detailed Description Strengths: Strategic importance to and support from GoI IRFC, IR's financing arm, functions under the Ministry of Railways (MoR) and constitutes a crucial part of India's infrastructure. Hence, IRFC derives substantial business and financial support from GoI. The support is reflected in IRFC's majority ownership (86.36%) by GoI. Moreover, IRFC has a close working relationship with IR and has MoR's officials as directors on its board.
Favourable lease agreements between IRFC and IR protect the former's net interest margin, as interest and foreign exchange risks on its borrowings are transferred to IR. IRFC also plans to diversify its business profile by lending outside IR; however, this will form a small part of the total portfolio and advances will be to entities having linkages with IR.
Strong capitalisation and asset quality Capitalisation is strong, marked by continued support from the GoI. As on December 31, 2021, networth was Rs 39,505 crore and capital adequacy ratio was 466.34%. GoI has been infusing equity capital at regular intervals to support the capital structure (Rs 2854 crore and Rs 2500 crore infused in fiscal 2019 and fiscal 2020, respectively). Further, Rs 3,088.92 crore were raised via IPO in fiscal 2021. Gearing stood at 9.34 times as on December 31, 2021 (9.00 times as on March 31, 2021), and may remain around 10 times on a steady state basis.
Asset quality is strong, with zero non-performing assets as on date, as IRFC mainly lends to IR, which is a sovereign entity.
Adequate resource profile Ability to raise long-term funds at competitive rates is underpinned by IRFC’s access to a diversified pool of wholesale investors, including banks, mutual funds, pension and gratuity funds, insurance companies, as well as external commercial borrowings (ECBs). The weighted average cost of borrowing was around 6.38% (annualized) for six months ended September 30, 2021 (6.35% for fiscal 2021) and compares well with that of its peers.
Weakness: Average Earnings Profile Earnings profile remains average as IRFC is a funding vehicle, and enhancing profitability is not the primary objective. The margin remains stable, by way of a mark-up over the borrowing cost. CRISIL Ratings, therefore, believes that IRFC will continue to generate adequate return on its assets of 1.51% (annualized) for nine months ended December 31, 2021 (1.35% in fiscal 2021). |
Liquidity: Superior IRFC had total borrowings of Rs 369102 crore as on December 31, 2021. Total debt maturing over next three months till June 30, 2022 is Rs 15,811 crore. Against this, IRFC had cash balance of Rs 13 crore and unutilised bank lines of Rs 12,418 crore as on March31, 2022. |
Outlook: Stable CRISIL Ratings believes IRFC will continue to derive business and financial support from the GoI because of its strategic role in channelling finance to IR. Support from GoI should help IRFC maintain a strong credit risk profile. |
Rating Sensitivity Factors Downward Factors
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About the Company IRFC was set up as a dedicated funding arm of MoR, specifically to raise resources from the capital market to finance rolling stock (wagons and coaches). IRFC leases rolling stock to IR and collects lease rentals from IR in advance, at half-yearly intervals. An annual lease agreement, structured to ensure that IRFC's expenses (mainly cost of borrowing) are covered, backs this arrangement and allows IRFC to earn adequate margin.
For fiscal 2021, IRFC reported profit after tax (PAT) of Rs 4416 crore on total income (net of interest expenditure) of Rs 4534 crore, as against Rs 3192 crore and Rs 3258 crore, respectively, for the previous fiscal.
For nine months ended December 31, 20210, IRFC reported profit after tax (PAT) of Rs 4597 crore on total income (net of interest expenditure) of Rs 4647 crore, as against Rs 2934 crore and Rs 2997 crore, respectively, for the corresponding period previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
^Not yet issued #According to the company, currently ISIN not assigned $Part of long term borrowing programme for fiscal 2021 %Part of long term borrowing programme for fiscal 2022 @Total short-term bank borrowings and borrowings under the rated short-term debt programme not to exceed Rs.15000 crore at any point in time
Annexure - Details of Ratings Withdrawn
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Criteria Details
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