Indian Railway Finance Corporation Limited

CRISIL has assigned its 'CRISIL AAA/Stable' rating to the Rs.176.55-billion non-convertible
debenture issue of Indian Railway Finance Corporation Ltd (IRFC), and reaffirmed its ratings
on the company's other debt instruments at 'CRISIL AAA/Stable/CRISIL A1+'.
The ratings reflect IRFC's strategic importance to its parent, the Government of India (GoI),
because of the company's status as the financing arm of Indian Railways (IR). The ratings
also factor in IRFC's strong capitalisation and asset quality and its adequate resource profile.
These rating strengths are partially offset by IRFC's average earnings profile.
IRFC is strategically important to GoI because it is the financing arm of IR. IR functions under
the Ministry of Railways (MoR) and constitutes a crucial part of India's infrastructure. Hence,
IRFC derives substantial business and financial support from GoI. The support is reflected in
IRFC's ownership by GoI (100 per cent as on March 31, 2015) and favourable lease
agreements with IR. The agreements protect IRFC's net interest margin, and transfer the
interest and foreign exchange risks on its borrowings to IR.
IRFC's strong capitalisation is supported primarily by continued GoI support. As on March 31,
2015, IRFC's net worth was Rs.86.9 billion and capital adequacy ratio was 294 per cent. GoI
has been infusing equity capital at regular intervals to support IRFC's capital structure; GoI
infused Rs.5.4 billion in 2014-15 (refers to financial year, April 1 to March 31). The
company's gearing stood at 8.2 times as on March 31, 2015 (9.2 times as on March 31,
2014) and is expected to remain below 10 times over the medium term. IRFC has strong
asset quality as most of its exposure is to IR. IRFC has an adequate resource profile
supported by its ability to raise long-term funds from diverse sources at competitive rates.
Its borrowing cost of around 8.0 per cent in 2014-15 compares well with that of its peers.
Furthermore, IRFC's liquidity is supported by its ability to receive advance lease rentals from
IR should it fall short of funds to service its debt.
IRFC has an average earnings profile; as it is a funding vehicle, enhancing profitability is not
the primary objective of IR. IRFC's profitability is, however, maintained by way of a mark-up
over its borrowing cost. CRISIL, therefore, believes that IRFC will continue to generate
adequate return on its assets (0.9 per cent in 2014-15).

Outlook: Stable
CRISIL believes that IRFC will continue to derive business and financial support from GoI
because of its strategic role in channelling finance to IR. Support from GoI ensures that IRFC
will maintain its strong credit risk profile. The outlook may be revised to 'Negative' in case of
any reduction in IRFC's strategic importance to, or any significant decline in support from,
GoI.

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