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IRFC reported Q2 FY26 PAT of INR 17.80 billion, up 10% YoY, with H1 PAT at INR 35.23 billion (highest ever). Net worth crossed INR 560 billion and EPS stood at INR 5.39. Net interest margin improved to 1.55% from 1.42% in FY25. The company signed INR 450 billion in new business agreements in H1, a nine-fold increase, diversifying into renewable energy, transmission, coal mining, and industrial infrastructure. Management maintained its INR 30,000 crore disbursement guidance for FY26, with Q3 expected to add INR 10,000-15,000 crore. The zero NPA record continues. Risk: Diversification into non-railway assets, though management asserts a whole-of-government approach with quasi-sovereign counterparties keeps risk negligible.
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Guidance to track
- Management confirmed the guidance of INR 30,000 crore disbursement for FY26, with INR 7,000 crore already done in H1, INR 10,000-15,000 crore expected in Q3, and the balance in Q4.
- Management stated that PAT should grow in double digits annually and quarterly, as mentioned in TV interviews.
- Management aims to achieve a 75:25 mix between railway and diversified assets over the next five years.
- CFO stated that due to unabsorbed depreciation of INR 3,000 crore and future depreciation from project assets, no MAT liability is expected for 5-7 years.
Risks flagged
- Moving beyond sovereign-guaranteed railway lending to other government entities introduces credit risk, though management asserts a whole-of-government approach with quasi-sovereign counterparties.
- Lending at 100-120 bps margin to government entities may be considered thin compared to peers, but management views it as attractive versus the historical 40 bps from railways.
- Building a team for underwriting and monitoring diversified loans is a challenge, but management is hiring laterally and adding consultants.
- Though management sees no MAT for 5-7 years, the tax exemption from 2020 may eventually expire, impacting profitability.
Key quotes
- 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.
- 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.
- We don't foresee in the next five to seven years there would be any MAT liability on us.
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