Rationale

Indian Railway Finance Corporation Ltd's (IRFC) ratings factor in its sovereign ownership (86.36% held by the Government of India (GoI) as on March 31, 2021) and its strategic importance to the Ministry of Railways (MoR). IRFC was set up as the sole agency for funding the MoR's extra budgetary requirement, the other source being Government budgetary funds. With the MoR being the sole counterparty to IRFC on its own and via other public sector undertakings {Ircon International Limited (IRCON) and Rail Vikas Nigam Limited (RVNL)} under its direct purview, IRFC's loan book has maintained favourable asset quality indicators and a low credit risk profile. The company also maintains financial flexibility by virtue of its sovereign ownership. The ratings also factor in IRFC's adequate capitalisation in relation to its risk profile, supported by regular equity infusions by the GoI, and its adequate liquidity profile supported by the long tenure of its borrowings and its moderate earnings profile. IRFC came out with an Initial Public Offering (IPO) in January 2021 and raised Rs. 3,088.92 crore, which caused the gearing to decline and further bolstered its capitalisation. Nevertheless, given the planned capital expenditure by the MoR, IRFC would continue to increase its borrowings and would need regular capital support to maintain a prudent capitalisation profile. This could lead to further dilution in the GoI's stake in IRFC, though ICRA expects the GoI to maintain a majority stake in the company and IRFC to remain strategically important for the MoR. By virtue of its mandate, IRFC has high credit concentration with its business growth highly dependent on the MoR's expansion plans for the Indian Railways. ICRA expects IRFC to maintain a dominant share in the MoR's increasing requirement for funding rolling stock, given its quasi-sovereign franchise and demonstrated ability to mobilise funds at competitive rates.