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IRFC

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INTRODUCTION

IRFC is the dedicated market borrowing arm of the Indian Railways. Their primary business is financing the acquisition of rolling stock assets, which includes both powered and unpowered vehicles and other items of rolling stock components as enumerated in the Standard Lease Agreement (collectively, “Rolling Stock Assets”), leasing of railway infrastructure assets and national projects of the Government of India (collectively, “Project Assets”) and lending to other entities under the Ministry of Railways, Government of India (“MoR”). The MoR is responsible for the procurement of Rolling Stock Assets and for the improvement, expansion and maintenance of Project Assets. IRFC is responsible for raising the finance necessary for such activities. 

The Union Budget proposed a capital expenditure of ₹1,602 billion for the Indian Railways for Fiscal 2020, which was higher than the capital expenditure (revised estimate) of ₹1,388.58 billion in Fiscal 2019. The actual capital expenditure of the Indian Railways was ₹1,334 billion in Fiscal 2019. In Fiscal 2019, They financed ₹525.35 billion accounting for 39.38% of the actual capital expenditure of the Indian Railways.

In Fiscals 2017, 2018 and 2019 (revised estimate), they were responsible for financing 72%, 93% and 82%, respectively, of the Indian Railway’s total rolling stock. The total value of Rolling Stock Assets financed by IRFC as of March 31, 2019 and as of September 30, 2019 was ₹1,940,440.00 million and ₹2,102,023.51 million, respectively, while the value of Rolling Stock Assets financed in Fiscal 2019 and in the six months ended September 30, 2019, was ₹240,550.84 million and ₹146,517.25 million, respectively.

COMPETITIVE STRENGHTS

Strategic Role in Financial Growth of Indian Railways
In Fiscal 2019, IRFC financed ₹ 525.35 billion accounting for 39.38% of the actual capital expenditure of the Indian Railways. In Fiscals 2017, 2018 and 2019, and in the six months ended September 30, 2019, they financed Rolling Stock Assets worth ₹142,808.41 million, ₹186,698.64 million, ₹240,550.84 million and ₹146,517.25 million, respectively.
They believe that the extensive expansion plans of the Indian Railways in the future will involve significant financing, and believe that their operations, as a primary financing source for the Indian Railways, will increase significantly.

Consistency in Financial Performance
IRFC’s total revenue from operations increased by 15.65% from ₹80,133.58 million in Fiscal 2017 to ₹92,671.44 million in Fiscal 2018 and by 20.13% to ₹111,323.21 million in Fiscal 2019, and was ₹66,572.47 million in the six months ended September 30, 2019. In Fiscals 2017, 2018 and 2019, and the six months ended September 30, 2019, their profit for the period was ₹9,211.71 million, ₹20,490.86 million, ₹22,546.61 million and ₹17,147.96 million, respectively.

Low Risk Business Model
As of September 30, 2019, IRFC’s total AUM, consisted of 60.80% of lease receivables primarily in relation to Rolling Stock Assets, 2.56% of loans to Other PSU Entities, and 36.64% of advances against leasing of Project Assets. As of September 30, 2019, they did not have any non-performing assets.

Excellent Asset-Liability Management
In addition to traditional cash flow management techniques, IRFC manages their cash flows through an active asset and liability management strategy. Their asset-liability management model is structured in a manner which ensures that we have minimum asset-liability mismatches. They borrow on a long-term basis to align with the long-term tenure of the assets funded by themselves.

STRATEGIES

Diversification of Borrowing Portfolio
IRFC plans to diversify their borrowing portfolio through a range of financing instruments and identifying new markets and investors, including through issuance of ‘green bonds’ and ‘medium term notes’.

Widening Financing Portfolio
IRFC plans to diversify their financing portfolio and broaden lending activities by funding financially viable Project Assets. They plan to fund various Project Assets including those relating to the decongestion of the railways network and the expansion of the existing network of the Indian Railways.

Peculiar Focus on Asset-Liability Management
To manage their liquidity risk and interest rate risk, they intend to continue to undertake periodic analysis of profiles of assets, liabilities, receipts and debt service obligations. As part of their measures to improve asset-liability management, they take into account interest rate forecasts and spreads, internal cost of funds, 108 operating results, and projected funding needs of the MoR.

Provide Consultancy Services
IRFC intends to assist other Indian Railways entities with their funding requirements, providing strategic advice on, long-term access to capital, acquisition finance and equity capital.

SHAREHOLDING PATTERN

Name of Shareholders Number of Equity Shares Percentage of pre Issue Equity Share Capital
President of India, acting through MOR 9,380,460,000 100%

*Inclusive of 1,200 Equity Shares held by nominees of the President of India, acting through the MoR. 

OBJECTS OF THE OFFER

The Issue comprises a Fresh Issue by our Company and an Offer for Sale by the Selling Shareholder.
The Offer for Sale
The proceeds of the Offer for Sale shall be received by the Selling Shareholder only and our Company will not receive any proceeds from the Offer for Sale.
Objects of the Fresh Issue
The Net Proceeds are proposed to be utilised towards funding of the following objects:
(1) Augmenting our equity capital base to meet our future capital requirements arising out of growth in our business; and
(2) General corporate purposes.
In addition, Company expects to achieve the benefits of listing of our Equity Shares on the Stock Exchanges and enhancement of our Company's brand name and creation of a public market for our Equity Shares in India.

INDUSTRIAL ANALYSIS

Union Budget 2019 - 2020 (Railways)

The Union Budget 2019 -2020 proposed a capital expenditure of ₹1,602 billion for the Railways Ministry for Fiscal 2020.
The proposed capital outlay for Fiscal 2020 comprises ₹661.05 billion from gross budgetary support, ₹105 billion from internal resources and ₹835.71 billion from extra budgetary resources.
While ₹272.78 billion has been allocated for construction of new lines, gauge conversion received ₹31.18 billion, doubling ₹176.02 billion, rolling stock ₹375.15 billion and signalling and telecom received ₹17.50 billion. The allocation for passenger amenities was ₹59.23 billion.

INDIAN RAILWAYS

Background

The Indian Railways is a departmental undertaking of the GoI, which owns and operates India's rail transport, through the Ministry of Railways, GoI (“MoR”). The Indian Railways is the largest rail network in Asia, running approximately 13,452 trains every day to transport approximately 22.70 million passengers per day in Fiscal 2018. As of March 31, 2019, the total running track kilometres was 96,552 (provisional) kilometres. Further, the total freight traffic per day was 3.19 million tonnes in Fiscal 2018. The Indian Railways employs 1.27 million people (Source: Ministry of Railways). Indian Railways’ revenue increased from approximately ₹1,653 billion in Fiscal 2017 to ₹1,787 billion in Fiscal 2018.
Based on the data of the World Bank, in 2017, India had one of the lowest rail route kilometre per million population internationally.

The Indian Railways has deployed 11,764 locomotives, 65,326 passenger service vehicles, 279,308 wagons and 6,499 other coaching vehicles as of March 31, 2018. There were 7,318 and 7,401 (provisional) railway stations in India as of March 31, 2018 and as of March 31, 2019, respectively.
Fiscal 2018, the Indian Railways earned approximately ₹1,135 billion from freight traffic excluding demurrage/ wharfage and approximately ₹486 billion from passenger traffic. The number of originating passengers on Indian Railways increased by 1.84% from 8,286 million in Fiscal 2018 to 8,439 (provisional) million in Fiscal 2019. Further, the passenger earnings also increased by 5.14% or ₹25 billion from Fiscal 2018 to Fiscal 2019, to amount to ₹511 (provisional) billion in Fiscal 2019. In addition, the freight earnings, excluding demurrage/ wharfage, also increased by 8.01% or ₹91 billion from Fiscal 2018 to Fiscal 2019, to amount to ₹1,226 (provisional) billion in Fiscal 2019.

Freight Volumes

The Indian Railways along with national highways and ports is the backbone of India’s transportation infrastructure. Currently approximately 30% of total freight traffic (in terms of tonne kilometres) of India moves on rail.
Freight remains the major revenue-earning segment for the Indian Railways, it utilises one-third of its capacity and generates two-thirds of Indian Railway’s revenues.

Tonnage originated and earnings from freight carried in the periods indicated:

*Excluding wharfage and demurrage charges

Provisional figures for FY2019: Tonnes Originating- 1225 Million Tonnes                                                                                 Earnings from freight carried-1226 ₹ Billion

The Indian Railways generates most of its freight revenue from the transportation of coal, cement, iron ore and food-grains, which accounted for 45.84%, 8.47%, 7.76% and 7.40%, respectively, of the total earnings from bulk commodities in Fiscal 2018. The Indian Railways goods earnings increased from approximately ₹1,020 billion in Fiscal 2017 to approximately ₹1,135 billion in Fiscal 2018.

Passenger Traffic

Passenger trains utilise two-thirds of capacity, however, generate only one-third of revenues for the Indian Railways.

Passengers originated & passenger earnings in periods indicated:

Provisional figures for FY2019: Passengers Originating- 8439 Million                                                                                     Passengers Earnings-511 ₹ Billion

Track/Route kilometres

The total running track kilometres have expanded from 81,865 as of March 31, 2001 to 96,552 (provisional) as of March 31, 2019. The Indian Railways has increased the electrified running track kilometres from 27,937 as of March 31, 2001 to 59,397 (provisional) as of March 31, 2019.

Total running track kilometres, electrified running track kilometres

*Provisional Figures

Number of stations

In line with improving connectivity, the Indian Railways has added stations over a period. 

Number of stations in India as of the periods indicated:

*Provisional Figures

Capital Investments in Railways

The MoR has made substantial progress in initiating railway infrastructure. The amount of investment made during Fiscal 2015 and Fiscal 2017, was approximately 75% of the total investment made in the Indian Railways during the prior 10 Fiscals, i.e. Fiscal 2004 to Fiscal 2014.

Investments in the Indian Railways:

The Indian Railways had laid down a capital expenditure plan from Fiscal 2016 to Fiscal 2020 of 8,560.2 billion.

Detailed breakup for the ₹8,560.2 billion capital expenditure plan from Fiscal 2016 to Fiscal 2020:

Locomotives

Diesel & Electric locomotives in Units

*Provisional Figures

Coaches

The following charts shows cumulative coaches deployed over the years – Passenger carriers and EMU/DMU/ diesel hydraulic multiple unit (“DHMU”) coaches.

*Provisional Figures

Wagons

Wagons manufacturing got a boost post the economic reforms in early 1990s with annual production figures reaching as high as 26,000.

The following charts shows cumulative wagons over the various Fiscals:

*Provisional Figures

Sources of Funding

The capital expenditure plan from Fiscal 2016 to Fiscal 2020 as laid above is funded through various sources of financing for the Indian Railways. The primary sources of funds for the planned capital outlay of the Indian Railways are GBS, internally generated funds, public private partnerships and market borrowings leasing through IRFC and other sources (EBR-IF), railway safety fund and RRSK.
Total annual outlay for proposed capital expenditure for Fiscal 2020 has been budgeted at ₹1,602 billion comprising gross budgetary support of ₹661.05 billion, internal resources of ₹105 billion and extra budgetary resources of ₹835.71 billion consisting of marketing borrowings, public private partnership and institutional financing.

Indian Railways actual capital outlay and its sources of financing:

Period Capital Outlay Gross Budgetary Support Internally Generated Funds Public Private Partnership

IRFC

EBR-IF through IRFC

Railway Saftey Fund RRSK
FY 2019 1,334 349 16 243 237 279 30 180
FY 2018 1,020 270 18 221 188 146 16 161
FY 2017 1,083 345 105 268 143 115 107 -
FY 2016 935 350 168 151 141 99 26 -
FY 2015 587 301 153 - 110 - 22 -
FY 2014 540 271 97 - 152 - 20 -
FY 2013 503 241 95 - 151 - 16 -

The breakup of the capital expenditure plan from Fiscal 2016 to Fiscal 2020 amounting to ₹8,560.20 billion is as follows

Gross Budgetary Support

In Fiscal 2020, the gross budgetary support from the central Government is proposed to be ₹661.05 billion, which has increased from ₹349 billion in Fiscal 2019.

Internally Generated Funds

The Indian Railways internal resources are primarily utilized for replacement, renewals, upgrades and modernization of existing infrastructure.
During the periods from September 2016 to March 2017, Fiscal 2018, and April 2018 to June 2018, the Indian Railways earned approximately ₹3.71 billion, ₹8.60 billion, and ₹2.62 billion, respectively, as additional earnings from trains offering flexi fare.

Railway Safety Fund and RRSK

The railway safety fund actual capital outlay has increased from ₹16 billion in Fiscal 2018 to ₹30 billion in Fiscal 2019.

Public Private Partnerships

The Indian Railways has laid emphasis on public private. The Indian Railways proposed capital expenditure plan from Fiscal 2016 to Fiscal 2020 comprises ₹1,300 billion in public private partnerships. Public private partnerships estimated contribution was ₹270 billion in Fiscal 2019 and is estimated to contribute ₹281 billion in Fiscal 2020.

Market Borrowings/ Debt

The Indian Railways/ RVNL has borrowed an amount of ₹236.86 billion, ₹274.88 billion, ₹335.22 billion and ₹525.35 billion in Fiscal 2016, Fiscal 2017, Fiscal 2018 and Fiscal 2019, respectively, from IRFC. The MoR has indicated its intention to borrow ₹554.71 billion from IRFC in Fiscal 2020. As of March 31, 2019, the cumulative funding by IRFC to the MoR amounted to ₹2,688.67 billion.

FINANCIAL OVERVIEW

(₹ Crore)

  Total Income  Total Expenses Profit for the Year Total Assets Debt Securities

Borrowings

(Other than Debt Securities)

Total Long-Term Borrowings
31 March 2017(Proforma) 8013.79 5900.29 921.17 128750.38 94944.62 10644.66 105589.28
31 March 2018 9268.38 6675.89 2049.09 161468.41 110844.25 23161.28 134005.53
31 March 2019 11133.59 8232.01 2254.66 206603.61 123597.90 50334.78 173932.68
31 Sept 2019 6661.29 4946.50 1714.80 238366.45 135189.55 49442.10 184631.65

Total Income

Total Expenses

Profit for the Year

Total Assets

Debt Securities

Borrowings (Other than Debt Securities)

STASTICAL OVERVIEW

  Basic EPS(in ₹) RoNW(%)
31 March 2017 1.41 7.67
31 March 2018 3.14 15.71
31 March 2019 3.43 13.87

Basic EPS(in ₹)

RoNW(%)

References

  • IRFC DRHP
  • www.irfc.nic.in

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