IRFC to gain from soft interest rates despite higher borrowing in FY16

Analysts say IRFC's instruments carry "AAA" rating and it is able to raise money at 5-10 basis points lower than its peers

Despite a sharp rise in proposed market borrowings in 2015-16, the Railways will get to benefit from falling interest rates.

It raises funds through a 100 per cent-owned entity, Indian Railway Finance Corporation (IRFC). The market borrowing is projected at Rs 17,655 crore, an increase of 46.5 per cent over 2014-15, according to Budget estimates.

Market analysts said IRFC’s financial instruments carry an ‘AAA’ rating and it has been able to raise money at an interest rate which is five to 10 basis points lower than what peers pay. Ritesh Jain, chief Investment Officer, Tata Asset Management Company, said with sound financial health and being fully government-owned unit, IRFC is a most preferred issuer in the market.

In keeping with the soft interest rate environment, bond yields have fallen 75 per cent in this financial year. These are expected to fall further, in line with a cut in key policy rates by the Reserve Bank of India. This will help IRFC to contain the interest costs.

Borrowings in the current financial year were pegged at just over Rs 12,000 crore. IRFC has already raised about Rs 8,000 crore from the market and expects to do so for another Rs 4,000 crore before end-March, an official said.

According to CARE Ratings, consistently profitable operations, strong asset quality and nil non-performing assets, with demonstrated government support evident from lease agreements enabling transfer of interest & exchange risks to the ministry of railways are key strengths.

During FY14, IRFC’s total income was Rs 6,198 crore, with net profit of Rs 701 crore. In 2012-13 it had a net profit of Rs 502 crore on total income of Rs 5,552 crore.