Currently almost half of book is in moratorium. Consider this example, you borrow 10 lakh from bank and assume you are only borrower, so AUM is 10 lakh, you start paying emi from month 1, so after 1 year that AUM might have reduced to 9 lakh, but if bank lends a same loan with 2 year moratorium, then you no need to pay emi for 2 year, but interest will accrue on that loan, say for example, 1 lakh interest is accred on year 1, bank will add this 1 lakh interest to original loan of 10 lakh and will show AUM as 11 lakh, but actually bank haven’t lent any money at all.
This is what happening in IRFC, nearly 50% of AUM is under moratorium and so in these loans Indian railway not paying any lease, they simply add back expected lease to AUM. This is the reason why Project assets AUM grows very rapidly than rolling stock AUM.
You might have heard this in concall for some past quaters “we
are in the process of signing the agreement for our project funding assets also.”. This is the trigger where moratorium ends and will stop the current AUM growth. Trust me, we have huge negative surprise on PnL statement, AUM degrowth and ROE once this moratorium ends. But my personal view even considering this negative trigger, valuation is still cheap.
Equity dilution might add pressure to stock price, but considering this dividend payout ratio, FII and insurance companies will buy as much as they could. We can refer REC and PFC’s institutional holdings.
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