Indian Railway Finance Corporation LimitedCRISIL 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 'CRISILAAA/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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