Ministry of Railways - Indian Railway Finance Corporation Ltd.

Strictly Private and Confidential 

Indian Railway Finance Corporation Ltd. 

1 

IRFC Presentation to Investors 

USD 300 Million Bond Issue 

3 rd October, 2012


Scheme of Presentation 

• Company Overview 

• Leasing Arrangements with the Ministry of 

Railways (“MOR”) 

• Financial Overview 

• Ministry of Railways - Building Rail 

Infrastructure in India – Challenges & 

Opportunities 

2


• Company Overview 

3

IRFC Overview 


• Indian Railway Finance Corporation Ltd. (“IRFC”) is a public limited company 

under the Companies Act, 1956. It is the dedicated funding arm of the Ministry of 

Railways (MoR), which is responsible for running the Railways. MoR relies heavily 

on IRFC for its Extra Budgetary Resource needs to fund acquisition of its rolling 

stock, and to a smaller extent, in a few other key areas. MoR is a strategically 

important part and one of the Department of the Government and therefore 100% 

owned by Government. 

• More than half of Indian Railways’ rolling stock fleet has so far been financed by 

IRFC. 

• IRFC enjoys legal ownership of the rolling stock assets, which are leased to MoR 

for a period of 30 years on Financial Lease terms. MoR effectively uses and 

maintains them throughout their life. 

• The lease period is typically 30 years, comprising a primary component of 15 years 

followed by a secondary period of 15 years. Full recovery of principal and interest 

is effected during the primary lease period itself. After 30 years, assets may be 

sold to the MoR for a nominal price 

4

IRFC Overview – Contd. 


• An arrangement exists for IRFC’s debt payments being committed by 

the MoR in case of difficulties experienced by the company, However, 

in its almost 25-year history since inception, IRFC has never had to 

resort to MoR’s extraordinary support for meeting its debt obligations. 

• Through successful execution of its mandate to arrange lease finance 

for MoR year-after-year, IRFC has been able to establish a 

respectable niche franchise and has managed to sustain a strong 

financial performance track record. 

5


Unique Character of IRFC 

• In addition to IRFC being fully owned by the Government through the MoR, its 

business is predominantly with the MoR, which remains its major client. 

• The business of IRFC is critical to MoR as the company funds a significant 

portion of its capital investment in infrastructure needs. 

• Not only does the annual borrowing target of IRFC carry approval of the 

Parliament of India but also MoR’s debt servicing obligation is committed by the 

Parliament each year. 

• The Government has high stakes in good health of IRFC’s business and has 

been extending all necessary support to it. The Government would require the 

Company to steer its business operations entirely consistent with its obligations 

towards MOR. 

6

Organizational Structure 


Board of Directors 


Chairperson 

Chairman 

( Vijaya Kanth ) 

(R. Sivadasan ) 

Managing Director 

((R. Rajiv Kashyap Datt ) ) 

Director Finance 

Director (vacant) Finance 

( D C Arya ) 

G.M. (TL) 

(Bonds)& Co. Secretary Secy 

G.M. 

G.M. 

Addl . G.M. 

G.M. (ECB) (ECB) G.M. (Accounts) (Bonds) G.G.M. (Admin.) 

Other Executives 

Staff 

& 

Staff 

7



• IRFC’s Board comprises a sound mix of professional expertise and experience. 

• Apart from the Chairman who is Financial Commissioner (Railways), and two 

functional Directors, the Board of Directors also includes one nominee Director 

from Ministry of Finance and two Independent Directors who are eminent 

experts in relevant areas. 

• The Company follows all applicable Corporate Governance Practices as 

prescribed by the Department of Public Enterprises (DPE) for all the Central 

Public Sector Enterprises (CPSEs), both in the form of mandatory 

requirements and voluntary guidelines. 

8

Relationship with the Government of India 

• IRFC’s share capital has been wholly provided by the Government of India. 


• Under the Companies Act, 1956 of India, IRFC is a "Government Company", since 

not less than 51% of the paid-up share capital of IRFC is held by the Central 

Government. 

• Market borrowings to be done by IRFC each year and the payment of lease rentals 

by MoR to IRFC, form part of the Railway Budget which is approved by the 

Parliament of India. 

• MoR considers IRFC as of high strategic importance for its critical role in capital 

formation in Railways. 

• Supporting such an understanding is the fact that MoR infused additional equity of 

Rs.2.68 Billion, Rs.3 Billion, Rs. 2.91 Billion, Rs.5.11 Billion, Rs.5 Billion and 2.5 

Billion in March 2007, March 2009, December 2009, October 2010, January 2012 

and March 2012 respectively. During the current year, a further sum of about Rs. 

14.50 Billion is programmed for additional infusion. 

• The Chairman of IRFC is an official of the MoR. Traditionally, the Financial 

Commissioner of the MoR has been the Chairman of the Company. 

• Managing Director and Director Finance are professionals with vast experience 

including Railways & Corporate Sector 

9

Control of Various Regulators 


• IRFC is a notified Public Financial Institution under Section 4A of the 

Companies Act,1956 and is subject to relevant provisions of the Act. 

• As a Government Undertaking, it is subject to guidelines of Department of 

Public Enterprises. 

• Accounts of IRFC are subject to audit by the Supreme Audit agency set up 

under the Constitution - Comptroller & Auditor General (C & AG) of India. 

Besides, C & AG also undertakes propriety Audit of the company which is a 

valuable means of prudent external review of its business. 

• Being a regular issuer of bonds in the domestic Capital Market, the Company 

is required to comply with the guidelines issued by the Securities Exchange 

Board of India (SEBI). 

• RBI approves IRFC’s proposals for borrowings from Overseas Market, and 

exercises control as it deems fit for Public Financial Institutions - such as 

IRFC. 

10

IRFC – Highlights of Performance 


• IRFC has acquired position of considerable repute amongst financial 

institutions and is the only such institution in the Railway Sector. 

• IRFC has funded acquisition of assets valued at Rs. 694.84 Bn. (USD 13.64 

Bn.) for MOR till end of March 2011 which is expected to reach a level of Rs. 

816.43 Bn. (USD 16 Bn.) at the end of the financial year 2011-12. 

• The Company has been consistently paying dividend to its Shareholders and 

has so far paid Rs.16.68 Billion (USD 327.50 Mio) on an equity base of 

Rs.2.32 Billion (USD 45.55 Mio) upto feb 2007 since inception, which was 

enhanced to Rs. 5 Billion (USD 98.17 Mio) in March’2007; to Rs.8 Billion 

(USD 157.08 Mio) in March’2009; to Rs.10.91 Billion (USD 214.22) in 

December 2009; to Rs.16.02 Billion (USD 314.55 Mio) in October 2010; to 

Rs.21.02 Billion (USD 412.72 Mio) in January 2012; and further to Rs.23.52 

Billion (USD 461.81 Mio) in March 2012 

• Affairs of the Company are carried out by a lean team which has just 19 

personnel. Overhead to Turnover ratio is 0.12%, which is perhaps the lowest 

for any company the world over. 

11

IRFC – Highlights of Performance (contd.) 


• Besides enjoying the highest possible credit rating for its operations in 

domestic market and rating identical to the Country rating for its overseas 

borrowings, IRFC has been rated “Excellent” by the Government of India on 

thirteen occasions, based on its performance in the last fourteen years. It 

ranked amongst Top Ten PSUs based on its performance during 2001-02, 

2002-03, 2003-04 and 2004-05. 

• IRFC has been successfully funding a significant part of Plan Fund 

requirements of MoR over the years at competitive rates. Cost of the funds 

raised by the company during recent years compares well with cost of 

borrowing of Government of India. 

12


Total Plan outlay of Railways & IRFC’s Share 

(Rs. Million) 

700000 

600000 

500000 

400000 

300000 

200000 

100000 

0 

Total Plan Outlay of Indian Railway 

IRFC's Share 

Total Plan Outlay of IR during the year 1996-97 to 2012-13 : Rs. 3,929.33 Bn. ( USD 77.15 Bn. ) 

Funding by IRFC during the period 1996-97 to 2011-12 : Rs. 927.67 Bn. ( USD 18.21 Bn. ) 

Share of IRFC in Total Plan Outlay : 23.61% 

13


Credit Ratings 

• IRFC maintains the highest possible ratings for an Indian issuer, reflecting its 

sound financials and special status as a wholly-Government owned Public 

Financial Institution: 

Foreign Currency 

Issuer Rating 

Outlook 

Moody's Baa3 Stable 

Standard and Poor’s BBB- Negative 

Fitch BBB- Negative 

Japanese Credit Rating Agency BBB+ Stable 

Domestic 

Rating 

Outlook 

CRISIL AAA Stable 

ICRA (ICRA)AAA Stable 

CARE AAA Stable 

14


• Leasing Arrangements with the 

Ministry of Railways (“MoR”) 

15


Leasing Activity 

• As lessor, IRFC retains legal title to the assets leased under the terms of the 

Standard Lease Agreement with MoR. This allows the company to obtain 

depreciation benefit under the tax law. 

• The lease period is typically 30 years, comprising a primary component of 15 years 

followed by a secondary period of 15 years. Full recovery of principal and interest is 

effected during the primary lease period itself. After 30 years, assets may be sold to 

the MoR for a nominal price. 

• Each year, IRFC enters into a Standard Lease Agreement with MoR through which 

lease rental in respect of assets acquired during the year is fixed. The IRR of the 

lease includes a moderate mutually agreed mark-up over the average borrowing 

cost of the company relevant to incremental assets acquired during the financial 

year. 

• IRFC runs essentially a risk free business, with foreign currency risk and interest 

rate risk associated with its borrowings either transferred to MOR or hedged at 

MOR’s cost. 

16

Lease Receivables 


• IRFC’s cash flows from lease rentals are robust and stable, as evidenced by the 

table below. Outstanding leased assets 1 are valued at INR 431.58 Billion (USD 

8.47 Billion) on March 31, 2011. Gross value 2 was INR 639.88 Billion (USD 

12.56 Billion). 

Year INR Billion USD Billion 

2011-12 61.71 1.21 

2012-13 61.71 1.21 

2013-14 60.50 1.19 

2014-15 59.31 1.16 

2015-16 56.58 1.11 

2016-17 54.07 1.06 

2017-18 52.15 1.02 

2018-19 49.41 0.97 

2019-20 46.32 0.91 

After 1 April 2020 162.01 3.18 

Total 663.77 13.03 

17 

1. Outstanding leased assets ( i.e. receivables ) depict the gross value net of capital 

recovery already effected on such leased assets 

2. Gross value is the original value / purchased cost of the assets leased, and excludes 

the value of Rs.19.70 Bn and Rs.38.80 Bn representing the assets taken on lease for 

subleasing to MOR and assets pertaining to the Securitization transaction 

respectively.


Assets Leased to MoR and Lease Rentals Received 

Rs Million 

Line 

18


Asset Creation by IRFC and Cost-Benefit to MoR 

19


IRFC Share in Indian Railways Rolling Stock 

Position as on 31-03-2011 

• More than half of Indian Railways’ rolling stock fleet stands financed by IRFC. 

Particulars Units Rs. Billion 

Locomotives 5,567 294.45 

Passenger Coaches 33,856 196.26 

Freight Wagons 1,49,030 204.12 

Cranes and Track Machines 85 3.60 

Total 698.43 

20


• Financial Overview 

21


Sources of Finance 

• IRFC’s principal sources of funding are borrowings through issue of bonds, 

term loans & external borrowings besides sums which are generated 

internally: 

As on 31 March 2012 

( INR Billion ) 

Total : Rs. 584.42 Billion ( USD 11.47 Billion ) 

22

Summary of Key Financial Indicators 


For the year ended 

31 March 

2012 

USD 

Million 

2012 

INR 

Million 

2011 

INR 

Million 

2010 

INR 

Million 

2009 

INR 

Million 

2008 

INR 

Million 

Total Income 923.26 47021.60 38416.52 34839.37 30247.81 26247.90 

Total Expenditure 726.06 36978.60 29433.07 26955.28 23670.94 19864.40 

Profit Before Tax 197.19 10043.00 8983.45 7882.86 6576.87 6383.50 

Net Profit 

After Current Tax 

157.74 8033.90 7196.14 6531.61 5827.10 5660.30 

Net Profit After Tax * 93.77 4775.90 4852.04 4426.91 1807.92 4215.10 

Share Capital 461.81 23520.00 16020.00 10910.00 8000.00 5000.00 

Reserves & Surplus 

(Incld. DTL) * 

1195.52 60887.80 53853.98 47815.02 42372.57 37804.20 

Total Loans 9866.73 502512.60 381244.76 336085.75 273887.10 240985.70 

23 

Total Balance Sheet 

Size@ 

11896.28 605877.70 466902.20 406641.00 334113.30 291927.80 

* IRFC has decided to provide for Deferred Tax liability in line with AS-22 from fiscal 2004-05. 

@ In compliance with statutory requirement, 2011-12 accounts drawn as per Schedule VI of 

the Indian Companies Act 1956 as amended. Previous years numbers have been realigned 

to make them comparable to 2012 numbers.


Hedging Strategies - Prudent use of Financial 

Derivatives 

• IRFC follows the practice to appropriately hedge exchange rate and interest rate 

risks on its forex debt portfolio. 

• The Principal amount outstanding against the External commercial borrowings 

involving bullet repayment at the end of 5/10 years is hedged through suitable 

derivative products at an opportune time, over the life of such borrowings. 

• For Interest servicing in respect of External Commercial Borrowings and 

repayment of principal amount against overseas borrowings with amortized 

repayment structure, hedging philosophy generally followed is not to contract 

derivative products, mainly because such amortized structures offers a natural 

hedge. 

• Interest rate swaps are contracted selectively on merits. 

• Derivatives are prudently used as a tool for hedging the Forex and Interest Rate 

Exposure. 

• Derivatives are also used as a mechanism for structuring financial products to 

achieve low cost funding. 

24


Prudent use of Financial Derivatives (contd.) 

• Philosophy behind contracting derivative transactions is to optimally contain the 

financial risks and achieve low cost funding without exposing the company to 

undue risk. 

• Timing is of essence, and it is IRFC’s experience that selecting the right time 

for a derivative transaction can have very significant bearing on cost. 

• Exotic and Complex derivative structures are avoided. 

• Derivative portfolio is constantly monitored and the company keeps in 

preparedness to ‘exit’ from the derivatives if the conditions are expected to 

become grossly unfavorable. 

• Decisions about timing, quantum of hedging and structure of hedge products 

are preceded by constant monitoring of macro economic factors, financial 

market movements and meticulous cost-benefit analysis. Expert external 

advice is also sought. 

25

Achievement of objective 


IRFC has been admirably discharging its responsibility as efficient funding arm of 

Railways. 

12.00% 

10.00% 

8.00% 

6.00% 

4.00% 

2.00% 

0.00% 

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 

Margin to IRFC 0.55% 0.55% 0.53% 0.52% 0.51% 0.51% 0.50% 0.50% 

Cost to IRFC 5.55% 7.00% 8.22% 9.33% 8.98% 7.70% 7.62% 8.73% 

Cost to MOR 6.10% 7.55% 8.75% 9.85% 9.49% 8.21% 8.12% 9.23% 

Cost to AAA Rated Entities 6.78% 7.98% 9.06% 9.62% 9.72% 8.60% 8.57% 9.29% 

Cost of Borrowing of GOI* 6.11% 7.34% 7.89% 8.12% 7.56% 7.23% 7.85% 8.39% 

*For the Year 2011-12 Cost of Borrowing of GOI has been assumed to be the AVG. 10Year G-Sec Yield during the year 

26


BUILDING 

RAIL INFRASTRUCTURE 

IN INDIA 

* 

CHALLENGES 

& 

OPPORTUNITIES 

27 

Ministry of Railways

Indian Railways Network 


28 

• For the public at large, the Indian 

railway network is the principal 

mode of transport, especially for 

long distance travel of 500km 

and above. Over 20 million 

passengers are carried every day 

by the Indian Railways to more 

than 7,000 destinations. At over 

7.4 billion, in a year, Indian 

Railways carry more than the 

population of the whole World. 

• The network is made up of 

sixteen zones, which are further 

broken down into fifty-nine 

operating divisions. 

Country 

Route Length (kms) 

United States 194,731 

Russia 87,157 

China 73,002 

India 63,465 

Canada 49,422 

Germany 45,514 


Growing Traffic 


• During the fiscal 2009-10, the Indian Railways carried 888 million tons of freight traffic, and 

7.38 billion passenger-traffic. 

• Improving upon this, during 2010-11, it carried 922 million ton of freight traffic (up 3.8% on 

previous year) and 7.80 billion passenger traffic (up 6% on previous year) . Figures for 2011- 

12 were 970 Million tones (+5.25%) and 8.29 billion (+6.17%) respectively and those for 2012- 

13 are expected to be 1025 Million tones (+5.67%) and 8.74 billion (+5.43%) respectively. 

• In 2009-10, Freight traffic was the largest segment of Indian Railways operations with 

earnings of INR 585.02 billion (US$ 11.49 billion) in the total gross revenue receipts of INR 

869.64 billion (US$ 17.08 billion). For the year 2010-11, it grew to INR 628.45 billion (US$ 

12.33 billion) compared to total gross revenue receipts of INR 945.36 billion (US$ 18.56 

billion). For the year 2011-12, Freight Traffic Receipts were INR 686.20 billion (US$ 13.47 

billion) and compared to total gross revenue of INR 1039.17 billion (US$ 20.40 billion). Gross 

Traffic Receipts are estimated at INR 1325.52 billion (US$ 26.03 billion) for 2012-13. 

29 

Railways’ 

Earnings 

INR Billion 

1400.00 

1200.00 

1000.00 

800.00 

600.00 

400.00 

200.00 

0.00 

2008-09 2009-10 2010-11 2011-12(RE) 2012-13(BE) 

Freight Receipts 534.33 585.02 628.45 686.20 893.39 

Passenger & Other Receipts 264.29 284.62 316.91 352.97 432.13 

Total Receipts 798.62 869.64 945.36 1039.17 1325.52 

Series4 


Net Revenue and Operating Ratio 


 

Indian Railways is one of the few railways in the world which has an operating surplus. 

Net revenue for the year 2009-10 was INR 55.44 billion (US$ 1.09 billion), and rose to 

INR 63.46 billion (US $ 1.25 billion) for 2010-11. For the year 2011-12, the net revenue 

is expected to INR 71.44 billion (US$ 1.40 billion). For the year 2012-13, the net 

revenue is estimated at INR 222.33 billion (US$ 4.37 billion). Similarly, the 

Operating Ratio of 95.3% during 2009-10 go down up to 94.6% in 2010-11. It 

involved 95% in 2011-12 and is now estimated to go down to 84.9% in 2012-13 . 

250000 

100.0% 

200000 

95.0% 

150000 

90.0% 

100000 

85.0% 

50000 

80.0% 

0 

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 (RE) 2012-13 (BE) 

75.0% 

Net Revenue (INR Million) Operating Ratio (%) 

30 


Outlook for Future 


• GDP growth poised to resume on upward trajectory 

• Freight and Passenger traffic expected to keep pace 

with renewed growth. 

• Infrastructure needs to be in place to fully capitalize 

on the opportunity 

31 


Key Priorities 


• Continued focus on customers and 

thrust on operational improvement 

• Rolling stock to match growth 

• Targeted investment for augmentation of 

capacity and removal of bottlenecks 

• Harnessing new technologies 

• Policy & Institutions to catalyze and absorb 

investments 

32 


Vision 2015 


• Doubling and port connectivity – 6,000 Kms. 

• Gauge conversion- 12,000 Kms. 

• Dedicated Freight Corridors-11,500 Kms. 

• Up gradation of feeder routes of DFC- 15,000 Kms. 

• Asset renewal/up gradation–All HDN routes 

• Modernization of passenger and freight terminals 

• Augmentation of manufacturing capacity of rolling stock. 

• Approximate investment – Rs.3,500 Billion (provisional) 

33 


12 th Five Year Plan ( 2012-2017 ) 


• Investment targets Rs. 7,196 Billion 

• To be financed as follows :- 

Budgetary support - Rs. 3540 Billion 

Internal Generation - Rs. 2018 Billion 

Market borrowing - Rs. 1470 Billion 

Railway Safety fund – Rs. 168 Billion 

Ministry of Railways 

34

Dedicated Freight Corridor 


• Initially the Western and Eastern routes 

2700 Kms (5000 kms of track) 

approximate cost - Rs.300 Billion 

• Subsequently other corridors 

• Opportunity for innovations on design, construction and 

maintenance to achieve optimal life cycle costs 

• Opportunity for freight terminals, logistics parks and ICDs. 

35 


Growth of Railways: 

Implications for IRFC 


•Projected planned Rail sector development in India 

demands increased capital investment. 

•To meet the planned development, majority of the 

market borrowing needs are to be met by IRFC 

36 



• This presentation carry USD/INR 

exchange rate at Rs.50.93 to one 

USD 

Thank You 

37

Ministry of Railways - Indian Railway Finance Corporation Ltd.

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