Future Outlook: IRFC eyes major upside with low cost foreign debt and strong FY26 pipeline

Synopsis: IRFC​‍​‌‍​‍‌​‍​‌‍​‍‌ is going to use less expensive international debt, mostly in yen, to diversify its fund. The management is optimistic about exceeding the FY26 targets ahead of time, as they see the margins gradually increasing and profit growth becoming ​‍​‌‍​‍‌​‍​‌‍​‍‌stable.

The shares of this leading Railway financing company is back in focus after the company announced some key future aspects that can significantly impacts its business. In this article, we will dive more into the details of it.

With a market capitalisation of Rs 1,50,418 crore, the shares of Indian Railway Finance Corporation Ltd reached a day’s high of Rs 115.90 per share, up 1 percent from its previous day’s closing price of Rs 114.75 per share. Over the past five years, the stock has delivered a robust return of 364 percent, outperforming NIFTY 50’s return of 97 percent.

About the Guidance

IRFC’s​‍​‌‍​‍‌​‍​‌‍​‍‌ top management revealed several important changes to the company in a recent meeting. Manoj Kumar Dubey (Chairman, MD & CEO) pointed out that due to the long relationship between the company and Japanese banks, IRFC now has a very good chance to bring yen borrowings as a part of its funding mix. 

He cited that IRFC is already in the process of opening bids for a $400 million yen loan and aims to slowly raise the proportion of External Commercial Borrowings (ECB) to 25-30 percent, mostly in yen. Management believes that even after the hedging is done, the cost of a yen borrowing for 5-10 years can be only 6-6.2 percent which makes it a very attractive source of funds. Besides that, IRFC has planned to initiate US dollar borrowings in the future.

The firm also disclosed that it has recently raised Rs 3,000 crore through zero-coupon bonds at a sharply priced 6.8 percent rate and has already signed asset deals worth Rs 50,000 crore till the end of the second quarter. The management team has confirmed their fiscal year 2026 target of more than Rs 30,000 crore and added that the company may be able to go beyond the Rs 60,000 crore sanctions target as early as the third quarter. 

IRFC’s turning point in profitability was another major announcement that the company made. Though the margin it had with Railways was only 40 basis points, the firm has been able to incrementally increase its net interest margin which is now over 2 percent. The executives believe that NIMs will keep growing for the next 25 quarters on the back of lower borrowing costs and a stronger asset ​‍​‌‍​‍‌​‍​‌‍​‍‌mix.

Financial and Other Highlights

IRFC reported a core revenue of Rs 6,372 crore in Q2 FY26, a decline of 7.7 percent as compared to Rs 6,900 crore in Q2 FY25. Additionally, it declined by 7.9 percent from Rs 6,915 crore in Q1 FY26. 

Regarding profitability, it reported a net profit of Rs 1,777 crore in Q2 FY26, a 10 percent growth from Rs 1,613 crore in Q2 FY25. Additionally, it recorded a slight growth of 2 percent from Rs 1,746 crore in Q1 FY26.

Assets Under Management declined slightly by 0.7 percent from Rs 4,62,283 crore in H1 FY25 to Rs 4,61,973 crore in H1 FY26. Its AUM has grown by only 5.74 percent CAGR between FY21 and FY25.

Indian Railway Finance Corporation Limited (IRFC), founded in New Delhi in 1986, is a non-banking finance and infrastructure finance firm. IRFC mainly leases Indian Railways’ railway infrastructure and rolling stock assets. IRFC mobilises funds in the financial markets to fund these assets and the expansion and modernisation of India’s railway network

Written by Satyajeet Mukherjee

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