Anantam Highways Trust (ANANTAM) Earnings Call Transcript & Summary

10% to 12%, the IRR, the IRR of the entire capital that is invested in this -- if you can tell me on the equity, that is the InvIT IRR basis, not on the entire EV of the InvIT, but just on the equity of the InvIT that is being deployed into these assets, current 4 and incrementally also, I'm sure it will be in a similar band, current 4 and the incremental that we'll be planning. So what would that equity IRR come to roughly?

So a static portfolio basically in the 10% to 12% level, but our objective is that over a medium term, basically generate a 12% to 14% or maybe even a higher return for investors through a combination of distributions, combined with DPU and NAV accretive acquisitions.

Yes, 100%. So just -- that is absolutely fair. So basically that because it's a shorter period, the yield might actually shoot up to much higher levels in the interim. And as you keep adding more assets, there will obviously be a return of new capital, which will keep getting deployed. But basically, the yields on the core will keep on rising till a certain point till they obviously, they reach the end and then you will be keeping on being replenished. So the IRR of whatever is being added will be 10% to 12% and the yields of that as the time passes would only increase actually go towards a much higher number.

Sure.

And also, if you can -- I mean, if you can just give any guidance on how -- what is the asset drawdown guidance we are having for FY '27. You mentioned that you are looking to double AUM by H1. And I understand that I think after FY '27, you will basically be able to lever. But till then there might be basically a swap that you will look to double the AUM. So what is the guidance you're having for FY '27? And then incremental, obviously, once the flexibility of leverage will come in, it could pace up more?

So as I mentioned, currently, we have visibility of doubling the InvIT AUM by H1 FY '27. I also mentioned earlier that our target is to almost increase the AUM by around 5x by FY '29. Obviously, the period between H1 '27 and FY '29 is where we need to implement the acquisition into the InvIT. We have the benefit of ROFO assets of DBL. In the first lot, 7 assets came. The details on the ROFO where there is an offer document. But just as a reminder, there were 11 identified assets of DBL, which are in the ROFO. There are 4 identified assets which Alpha Alternatives has, which will also be offered to the InvIT. And the team continues to pursue multiple different acquisition opportunities. So we feel pretty confident in the FY '29 target.

Also, just on the NDCF bridge. This quarter, the debt servicing component is unduly high maybe because of the prepayment. So what would be a general normal steady state plan that we would be having with regards to the debt servicing component and the operating cash flow? I mean, how would those ratios work on a normal quarter basis, on a static basis?

The debt servicing basically -- so obviously, the total debt is around INR 2,100 crores. The cost of debt is given. So there would be interest servicing, regular repayments, which basically are there are around INR 125 crores to INR 150 crores per annum. We will maintain the balance. We do not want to have volatile distributions. We want to ensure consistency and growth in distribution. So we will adopt the combination of meeting the distribution philosophy while ensuring that there is sufficient flexibility that is available in the capital structure to be able to be ready to pursue leverage acquisitions as we move ahead in the journey.

Correct. And yes, when we talk of any acquisition being DPU and NAV accretive, is there any -- when the debt will come in, how will we look at it? Because NAV -- will there be a difference between NAV and AUM because of debt coming in? And then because of that, should we say that the accretion to NAV or DPU will be relatively lower once leverage will come in compared to without leverage acquisition?

I mean, why would it be lower?

So mainly because debt that will be -- when debt will be coming in, that will also accrue a cost. So while there will be an overall accretion, the percentage of accretion might be a little lower. Is that the right understanding? Or...

I think it will be the other way around. You can avail debt at a significantly lower cost. Because there are lots of other optimization possibilities in the context of the InvIT, in fact, pursuing acquisition through leverage would be highly accretive for the investors.

Okay. Okay. Sure. I'll just take the math on that offline. And just finally, the main risk, in my opinion, lies also in tracking the maintenance expenses that will be incurred in this asset. How do we propose to do that? And what sort of structures we have thought around that? And what rules of thumb are we looking on the maintenance front?

Sure. This is where the differentiated business model that we put together positions us in a very, very competitive and superior position. First of all, Dilip Buildcon basically is undertaking the maintenance. These are all fixed price O&M contracts for the duration of the InvIT. These are not -- the amounts are frozen. You need to remove volatility out of the cash flows. We basically have clear visibility on what the amounts are. So that is what we've done from a risk mitigation perspective, we have frozen the amounts. So fixed price contracts are much better than contracts which are floating in nature. Secondly, there is also a complete alignment of interest. Dilip Buildcon also is a large unitholder. We are building this platform together. So even from that perspective, there's an alignment of interest in terms of ensuring the O&M activity sustains and performs very well so as to keep quality assets for the entire duration of the concession agreement. The other thing which I would like to say is that Dilip Buildcon is an exceptional player as far as all the sectors are concerned, but taking road, because you're talking about roads, their track record in collection of annuities over the last several years is phenomenal. So we feel that the fact that they are undertaking the O&M, they are excellent in that regard. And the fact that their track record is exceptional. There is complete alignment of interest. Basically, we are very comfortable as far as the maintenance activity of our assets is concerned.

Next question is from the line of Anant Mundra from Mytemple Capital.

Sir, so on the investment manager fee and the project manager fee, I mean, it appears to be slightly higher than what our peers charge. So any reason why it is slightly higher in our case?

We believe we are pretty much competitive with the marketplace. I don't think we are higher than what the peers charge. I think what is important, Anant, essentially is to kind of -- at the end of the day, we are -- the objective is to generate and maximize total return for the investors. If you want to achieve that and you want to have the best-in-class team growing the InvIT and translating into superior returns for the investors, then a small slight differential, even if it's there, should be fine with the investors.

Got it. So where I was coming was that we've disclosed our NAV to be about INR 120. And if I see all our peers are typically trading around their NAV valuation, we are at a significant discount to where our NAV is. The only reason that could explain that probably I thought was that there are some more expenses at the InvIT level and hence, the returns to unitholders are getting slightly diluted there. So just wanted to understand from that perspective.

I think the difference between the market price and the NAV is -- in our opinion, that's a buying opportunity for the investors. But I don't think the IM fee and PM fee, basically even if there's a small difference, would result in such a heavy difference between the market price and the NAV. We are confident that as investors basically see our performance in the coming quarters and they see the differentiated approach that we are following in the InvIT, the InvIT price should migrate closer to the NAV in the coming quarters.

Got it. Got it, sir. And sir, so can this be taken as a benchmark? Our NAV is about 120, whereas our IPO was at about 100. So can we take this as a benchmark for future acquisitions that there will be about 20% or whatever that number is about 16% discount to NAV is what is the acquisition price that we'll be looking at for future assets?

I wouldn't want to give a generic benchmark. See, sometimes acquisitions -- each acquisition is different. If we are able to bring a transformative acquisition, which basically changes the entire character of the InvIT, then setting and keeping a benchmark that it has to be at an X percentage discount to the NAV and all won't lead to achieving the stated objectives. I wouldn't’ want to zero down on whether it's 16%, 20%. Obviously, if we pursue acquisitions which are lower than the NAV, then they are accretive to the investors. We will be pursuing accretive acquisitions to the investors.

Got it. Got it, sir. Sir, you also mentioned that I think to one of the earlier participants that the IRR is about 11.3%. Did I hear that correct? It's about 11.3% for someone who entered at the IPO price if we don't add. So is this just pre-tax or post-tax?

This is basically pre-tax. SPV cash flows are obviously post-tax, but part of the income streams in the hands of the investor will get taxed, depending on whether the investors choose to take the returns in the form of capital gains or primarily through distributions.

Got it. Got it, sir. And also one of the earlier participants asked that our cost of debt is slightly higher. If I look at the other two HAM InvITs that are listed, like there's Indus Infra and Capital InvIT for them, I think for Indus, it's about 6.85% right now and Capital InvIT, the incremental borrowing has been about 6.85%, whereas we are at 7.5%. So the spread is quite high. So is there a scope to get this down?

Absolutely, as I mentioned, in the coming quarters, you will see us basically trending this debt cost down. You also mentioned that it is incremental borrowing. This is our first quarter in our journey. So as we scale up, you will see the efforts being made to introduce a different composition of borrowing into the mix, with the objective of bringing the overall cost of debt down.

And sir, this debt of 7.5% is linked to repo or MCLR?

It is linked to T-bill.

It is linked to T-bill. And the annuity that we -- the interest on annuity that we get, that is linked to MCLR or bank rate?

It's a combination. There are a few assets which are MCLR and few assets which are linked to bank rate.

Okay. Got it. Got it. And sir, just to understand this calculation for NAV better that you've disclosed of 120. If I take the AUM is about INR 4,500 crores and our debt is around INR 2,157 crores. So if I just subtract that...

It was net debt.

Okay. Okay. So what's the cash, if you could help with that figure?

I think the net debt is around a little over INR 2,000 crores.

All right. Got it. And so we have about 15 identified ROFO assets. When you say that you plan to go to INR 25,000 crores from the INR 5,000 crores currently, how much would the contribution from these identified 15 assets be?

I can give you guidance for...

A rough figure.

Only for FY '27, as I mentioned, H1, basically we'll be doubling the size of the InvIT. And other than that, I've already given guidance that we are targeting to take our AUM to around INR 25,000 crores by FY '29. That's the guidance we can give at this stage.

So I just wanted to basically understand, so the incremental INR 20,000 crores, how much would be from the non-ROFO assets? Because the ROFO one is like a low-hanging fruit for us, which we will do. But the non-ROFO where third-party asset acquisition would be required. Just want to understand what's the size of that acquisition that you are thinking of?

Sure. The ROFO assets basically -- the ROFO assets that we have right now should translate into roughly an AUM of around -- between INR 11,000 crores and INR 13,000 crores. We will need to work the exact numbers, but I'm just giving a broad guidance. And the balance basically is what we will need to pursue acquisitions, which I also mentioned. The team is at it in terms of pursuing acquisitions.

Understood. Understood, sir. Also, I think Alpha Alternatives and Dilip Buildcon -- I think Dilip Buildcon also has some association with some other InvIT, Shrem, and I think Alpha Alternatives are also running some other funds. So at the promoter level, because there are multiple funds available, how do they take a call on which asset to be deployed to which of their fund or to which InvIT?

Trust me, we have appropriate guardrails to ensure that there is no conflict of interest. We are very clear that whatever falls in the ambit of the InvIT -- we have a publicly listed InvIT. So publicly listed InvITs have defined criteria on the kind of assets which can come into the InvIT. If the acquisition opportunities which fall in the ambit of public InvIT comes about, then you can be rest assured that the InvIT will be the vehicle where the acquisition will be pursued first. We are very, very mindful that conflict of interest needs to be appropriately handled. We do have sufficient action steps in place to ensure that we basically manage it appropriately.

Got it. Got it. And sir, are Dilip Buildcon and Alpha Alternatives a related party?

No, no, they are not related. So just to understand this better...

So then if any asset is coming from the Alpha Alternatives side, will Dilip Buildcon be able to vote on those assets?

Absolutely, if any asset is coming from our side, Dilip Buildcon is not related to us. So they will be able to vote on assets that we offer to the InvIT and the public investors will be able to vote. Dilip Buildcon is classified as a public investor.

So the vice versa is also true, if Dilip Buildcon's...

Vice versa does not apply because in the Dilip Buildcon assets, some of the assets, we have a minority stake. Like the 7 assets which went into the InvIT in the first round, the stake composition was 54% with Dilip Buildcon, 46% with Alpha Alternatives. In some of the assets -- in some assets it was 74% and 26%. So different assets, there is different minority shareholding of Alpha Alternatives. So in the assets that Dilip Buildcon has, in those assets basically the voting pattern would be different.

Okay. And sir, why has the tax rate been higher in this quarter?

Sorry?

The tax rate seems quite high for us at the consol level. Any reason?

Go ahead.

So actually, if you see the tax, basically we are in the old regime. So effectively, there is some impact in the deferred tax, okay? Again, we have recently got the budget. We are in the process of evaluating a few things. We'll analyze and finalize our tax positions maybe in the March quarter. So effectively -- it is a current number. Being in 5 of our SPVs are in the old regime. So that's the reason. It's a MAT liability, which is coming for these 5 assets, okay? That's forming my basically tax liability. And deferred tax is because there are certain positions which we have taken. It's a one-time deferred tax asset -- deferred tax expense, which is created in the profit and loss account, okay, which is not expected to be a very recurring one. But in case if we take up certain positions, there may be chances of reversal also subsequently.

I think, I would urge you to wait for the fourth quarter to form a view on this. This is the third quarter. We are still deliberating on our strategy in light of the budget, and things will get clearer in the fourth quarter.

Got it. And sir, one final question. In the NDCF bridge that you've given, there are certain reserves that we've created. This could be DSRA reserves or MMR reserves. So I'm assuming if it's a DSRA reserve, and these are primarily one-time or they're going to recur?

The reserves that we have created bass essentially -- primarily a couple of things. One, it's for tax. So depending on the strategy that we decide to pursue, either this will result in a payment or this will get unbounded. There is also a reserve which has been created for a certain claim which has been received on fly ash pertaining to the construction period, which is a pass-through item to the EPC contractor Dilip Buildcon. So because this came in the December quarter, that has to be set aside because that is not actually NDCF of the unitholders.

Okay. So this kind of indemnification is available across all the SPVs for all nature of claims that might arise in the future. Is that correct?

Whatever basically where the claims raised by the contractor during the construction period, and if these come about the cash flows, then essentially, there's a pass-through mechanism, which has been agreed with the contractor. These have not been taken into consideration in the projections as far as the unitholders are concerned.

Next follow-up question is from the line of Nilesh Doshi from Prospero Tree.

Sir, any InvIT or REIT, the distribution is the composition of interest, capital repayment, other income, and dividend. And the investor likes the exempted or tax-free distribution. In this distribution, the InvIT Anantam has not issued -- declared any dividend. And five of the assets, just mentioned that five of the assets are under the old tax regime. So I think the dividend -- the part -- the distribution received from that SPV is tax-free in the hands of the investor. Is it my correct understanding? Or will you maintain the only composition of interest and capital repayment?

Distributions basically will vary on a quarter-on-quarter basis, the composition of distribution, I mean right way of saying it. Dividends can only be declared if there is income available after adjusting for accumulated losses, right? So in this quarter, the possibility of dividend was not there. That's why we have given out distributions through a combination of interest and capital repayment. But this will varying on a quarter-on-quarter basis.

Sir, composition may change, but the tax-free component, suppose any dividend received from the SPV to the trust and trust to the investors, unitholders, will it be exempted or will it be taxable?

So if the SPVs are following the old regime, then you are correct that the dividend declared by the trust will be tax exempt. Even the capital return basically is exempt in the hands of the unitholders to the extent of the -- to a certain extent. So to that extent, there is parity between tax-free dividend and the return of capital.

So this quarter, there is no dividend because there was a carryforward loss, and it was not completely set off. And once that will be set up, then the receipt may come in the form of dividend also. And if this is from that five assets, five SPVs, then it will be exempted in the hands of the investor. Is it correct understanding?

Yes, that is the correct understanding. As I also highlighted in one of the earlier questions that we are deliberating the tax strategy in light of the budget and basically making internal deliberations on it. But to the extent that if the old regime continues in these five assets and dividend is declared by the SPVs, then you are absolutely correct that the dividend declared by the InvIT will be tax-free in the hands of the investors.

And sir, you insisted in your continuous remarks that you are looking for the total return. And the total return is the composition of the distribution as well as capital appreciation. But all our assets are the HAM assets. Then how the capital appreciation can happen because there is no growth because in the BOT project, there is a volume growth as well as the value growth because in the BOT project, I think the government provides the escalation up to 3% plus 40% of the WPI. In HAM project, there is -- the annuity rate is fixed. So how the growth comes and how the capital appreciation can come?

Sir, I have seen degrowth in toll assets, and that leads to volatility as well in the toll assets. While one can say that toll assets provide the potential for upside, it also comes with the potential of downside as well. We are talking about long concession lives, 15 to 20 years, and alternate routes can come about. Anything can happen, right? The government can come out with regimes on toll rates, which might not pan out the way we would like to be. I'm not saying that toll projects are not good. I'm just saying that they come with their own set of risks. On HAM projects, how do you create value? If you are able to acquire HAM assets basically either at higher IRRs than what the InvIT is quoting at or through a combination of higher debt because when you can scale up the leverage in the InvIT and then acquire the assets at a higher IRR, obviously, basically when you bring in assets at a much higher IRR than what your InvIT is quoting at, that leads to accretion for the unitholders. So we will be doing all of that. As I also mentioned that we will -- we are also looking at toll assets. We're not saying that we are close to it. It needs to make sense on an absolute risk-adjusted return basis for investors. And if we find assets, then we will certainly pursue those opportunities.

Next question is from the line of Subhasis Mondal from Zuno General Insurance.

Sir, I have just -- I need to understand, as per the SEBI regulation, till the six continuous distribution your leverage cannot be 70%, right? So I can assume till like upcoming 18 or 24 months, there will be no leverage headroom. So what will be the -- so I can expect there will be no further acquisition till the timeline, right?

No, that's not true. I mentioned earlier that we will be bringing in the next round of assets basically in the next 6 to 9 months into the InvIT. So I have kind of given guidance that we should be doubling the size of the InvIT by H1 FY '27. There are ways to pursue acquisitions. One is that you can bring in assets through a swap of InvIT units like how you do in the formation transaction. So both Alpha Alternatives and Dilip Buildcon are completely open to that construct. It will also lead to giving investors confidence that the sponsor and a pretty large unitholder are open to increasing their stake in the InvIT by bringing in and swapping their assets for InvIT units. We also have the ability to raise further capital because if we are bringing in the right quality assets at the right value, then there are enough investors who will be wanting to put capital into the InvIT to help us make those acquisitions. And then as we go ahead in this journey, we will also be able to increase the leverage on a much larger AUM base, which also will then facilitate growth in the InvIT. So there are multiple levers which are available, and we will use all of those levers as we move ahead in the journey.

Okay. And for the next question on the NAV part, like till the further acquisition, if the repayment is also part of your DPU, we can assume that 120 number is not -- like it will decrease gradually, right, till the further acquisition?

See, NAV -- obviously, these are fixed life assets. Logically speaking, by the time you kind of come to the end of the concession life and no further additions happen, NAV needs to reduce and ultimately get to 0. What matters is that vis-a-vis the NAV where the units trade at and working on the business strategies to bring the price closer to the NAV. And that's basically what I mentioned earlier in the call that we are basically very, very clear in our objectives for the InvIT. And we believe that as we start delivering, you should see basically the unit price getting closer to the NAV price.

As there are no further questions, I would now like to hand the conference over to Mr. Jignesh Shah for closing comments.

Thank you, Nirav, once again. Thank you. Thank you, everyone, for the detailed discussions. We really thank you all for taking this time and for asking the right questions. It's always good because that helps the management team as well, the questions coming from the investors. As we discussed, I would just like to kind of reiterate that we remain firmly committed to achieving our long-term vision of creating a stable yield-generating platform with sustainable growth. We really deeply value your support, your trust. And what I would like to also mention is that we are committed to maintaining transparent and timely communication with all of our stakeholders. We will be proactively sharing all the material developments, ensuring that there are no surprises as we move ahead in the journey. And as we pursue future acquisitions, we'll be in touch. If there are any follow-on questions which any of you have, the team is available to answer the questions. We will try to be prompt in our responses. From the bottom of my heart and from the team out here, a big thank you to all of you once again. And we are looking forward to our continued engagement and support from all of you in the weeks, months, and the years ahead. Thank you. All of you, have a good day.

Thank you very much. On behalf of Anantam Highways Trust, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.