Indigrid Infrastructure Trust (540565) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the India Grid Trust Q3 and 9 Months FY '20 Results Conference Call hosted by Edelweiss Securities Limited. [Operator Instructions] I now hand the conference over to Mr. Swarnim Maheshwari from Edelweiss Securities Limited. Thank you. And over to you, sir.

Thanks, Alan. Good evening, everyone. We welcome you all to India Grid Q3 FY '20 Conference Call. At the outset, I would like to thank the management for giving us the opportunity. Mr. Harsh Shah, CEO, would be there on the call. And I would like him to extend his opening remarks first, and then we'll have the question-and-answer session. Over to you, Harsh.

Hi, Swarnim, and hi, everyone. Thank you for joining our call. I welcome you all on the 11th quarterly investor call for IndiGrid. I would just take you through the investor presentation and a summary and outlook. And after that, we'll open for the questions. I'm on Page #1 of the presentation, which -- where we have described our vision -- overview and vision. Our vision is to become the most admired yield vehicle in Asia. And we do envision to achieve INR 30,000 crores of AUM while distributing predictable and growing distribution and focusing on best-in-class corporate governance. To introduce us, I just said, we are the only power transmission focused yield platform. Our AUM today is approximately INR 11,000 crores and we own 18 transmission lines and 4 substations across 11 states. We are rated AAA by all the 3 reputed rating agencies and our [indiscernible] residual contract life of the agreements we have is about 32 years. However, we continue to own the assets beyond that as well. On Slide #7, I'd just take through a few seconds to describe the shareholding and who are we. So IndiGrid at the center is majority-owned by KKR with 23%; 15% by Sterlite Power, the sponsor which started the IndiGrid as an unit and 62% by other unitholders. Sterlite Power has also agreed to sell the 15% to KKR, which would translate KKR holding to approximately 38%. This is subject to approval from SEBI as well as some other guidelines. The investment manager, which runs IndiGrid, KKR owns 60% of that and 40% is owned by Sterlite Power. So on the second anniversary of the May transaction, KKR would acquire another 14% and would acquire 74% holding. Axis Trustee as stipulated by SEBI guideline has a trusteeship role for IndiGrid for the investors of IndiGrid. And below are the assets which we've acquired since IPO, which is numerated in the gray and blue boxes below. On Slide #8 is our shareholding as on 27th, December, you can see our shareholding is very well distributed across long-term [ FIIs ] between KKR and GIC and other investors as well as retail mutual fund and life insurance companies, amongst others. Today, we have about 7 life insurance companies owing IndiGrid and 4 mutual funds. And value of retail and HNI investors [ has increased ] approximately 2x since we listed in June 2017. Coming to quarterly results, quarter 3 financial highlights, our year-on-year EBITDA has increased by 102% for the quarter. Our availability has remained greater than 99.5%. Our debt-to-AUM is below 49%. Our rating is AAA. And one of the key updates that has happened in the quarter is that SEBI has enabled the rights issue guidelines for InvITs, and we'll talk about in detail in the subsequent slides. And we have continued to distribute INR 3 unit interest. And this time, we have distributed our interest. On Slide 11, I'll elaborate the key positive regulatory development that has happened in this quarter. And before I delve into the specific right issue guidelines, which are published, I would like to take pause and describe what has happened over the last 4 quarters. Over the last 4 quarters, there have been significant changes by regulatory authorities to provide conducive environment for InvITs and REITs starting with, in April 2019, SEBI issued a circular, which enabled InvITs to have higher leverage than 49% under substantially strict regulation and monitoring as well as the InvIT would be maintained in AAA. This has enhanced the attractiveness of InvIT as an investment option, considering the fact that you can generate better returns and maintain a stable rating. Subsequent to that, SEBI came along and also reduced the lot size from minimum INR 5 lakh to INR 1 lakh. Our lot sizes have reduced from 5,103 units to 1,701 units. Believe the liquidity has improved because of that. And I'm sure, in general, the participants have seen the benefit of that. Third change, which has happened now is rights issue, which I believe is a very important impetus to InvITs, considering the fact that InvITs are perpetual platforms which is going to raise capital and acquire assets more than normal companies and therefore, rights issue being the most efficient and flexible way to raise capital, we believe is a very important enabler for InvIT's for future capital raises. Besides that, this will also enable us as managers to offer opportunity to participate in every capital raise to all classes of investors as against in preference issue where some of the investor class was not allowed. And the last, RBI in quarter 3, early part of the quarter 3 also enabled banks to lend to InvIT's, subject to certain criteria. So the last 4 quarters, we have seen good amount of regulatory thrust, which has -- which makes the environment conducive and level playing field for InvITs and REITs in India. Coming to operating performance for IndiGrid. We have presented both YTD FY '20 as well as quarter 3 '20 financial performance. As you can see in all the assets, we have maintained a substantially higher availability. In some cases, slightly lower due to force majeure events, and we believe that we'll receive a force majeure availability certificate policy. Coming to the financial results for quarter 3 FY '20, as presented in Slide #13. In this quarter, we have recognized INR 339 crores of revenue, and earned approximately 315 -- INR 314 crores of EBITDA. This is slightly higher than 2x the same period of quarter 3 FY '19. This is largely on account of the acquisitions we did in quarter 1 and quarter 2 of this year of NRSS and OGPTL. In the quarter, we are receiving the full impact of both the acquisitions. We have maintained our distribution at INR 3. And with this distribution in bag, we have done INR 30.56 a unit distribution since listing approximately INR 1,135 crores. On a quarterly basis, we have distributed -- we agreed to distribute INR 175 crores this quarter, INR 3 a unit, which will be paid out as interest. The next slide describes our waterfall from EBITDA to distribution. As we said, we earned INR 313.9 crores of EBITDA in quarter 3. We have had net interest expenditure of INR 107.5 crores. We have repaid loan of INR 3.9 crores. There are working capital changes of INR 48.1 crore. Out of this, a significant number is about INR 14 crores is the value, which is on account of onetime insurance payment as advance for the rest of the financial year. There is approximately INR 6 crores of IM and PM fee, which are paid. And there is approximately INR 23 crores of slippage on receivables, which translates in approximately 6 days, so we have ended the quarter with 96 days of receivable outstanding as against the normal of 90. We believe that on a quarter-on-quarter basis, this is a small modification -- a small movement that continues to happen, and we provide capital reserve to adjust for this. We believe in quarter 4, the collection will be better, and that has been the trend over most of the years in past quarter 4 and we would end the year with the planned 90 receivable days. We have spent INR 3 crores of CapEx as well in this quarter. This has gone towards restoration during one of the force majeure events. We have filed the insurance claim for that, and believe we'll be able to recognize -- realize the cash for this event. The basis for tax expenditure, largely on the interest income that we earned. In all, we have earned INR 154 crores of NDCF. And on account of the specific onetime expenditure of insurance for the advance year as well as some small working capital changes, we're using the INR 10 crore and INR 1 crore [ reserve this quarter ]. And we have distributed INR 175 crores of distribution for the quarter. Next slide, Slide 15. There, we've provided the distribution amount INR 175 crores, translated into the distribution per unit INR 3 entirely paid as interest. The ex-date would be 27th of Jan 2020. The record date is 28th of Jan 2020. And we will be paying the distribution on or before the 6th of February 2020. Next is the liability side on our balance sheet. We believe we have contained the interest rate as well as refinancing risk till now. As you can see, our repayments are staggered across the year. And we have fixed our interest rate. On account of that, we -- our weighted average cost of borrowing is 8.75%. Our weighted average maturity of debt is about 7 years. And we do not have any material refinancing coming in the immediate next 10 to 12 quarters. The first refinancing amount -- large amount is coming in FY '23. And we believe we are adequately capitalized as well as debt right for this [indiscernible]. On Slide 17 is our performance since listing. As you can note on the bottom chart, we are at 0.07 beta, which is one of the lowest in the indices in comparison to any other indices as well as stock. This signifies that we remain a low volatility stock. On Slide 18, we are representing our total return -- our total return as on January 17 last week when we issued this call is 24.1%, which signifies that about INR 27.6 is distributed as dividend. 3.5% is the negative price at 96.5. In comparison to most indices, we have outperformed the market, and this is something which we have been tracking over the last several quarters. This is while maintaining a beta of 0.07. We believe that with a focus on delivering majority of total returns via distributions, over a period of time, a substantial part of our return would come from distribution, and it would continue to improve on a compounded basis. On Slide 19 is a small comparison of how globally yield platforms have performed in fact. And as one can see that while we are small in comparison to the global platforms, however, it is a significant size in terms of a market cap. And in terms of a yield, we are trading at a substantially higher spread versus the GSEC, which we believe is fairly attractive. And globally, these platforms have traded from 2.5% to 4.5% based on the rating liquidity growth as well as stability. And we believe that in India, we have a better, stable -- better and stable platform with the highest rating. We believe over a period of time, this should improve. I would go to Slide #22, where there is a growth pipeline for which we have signed the green spot. The first 4 projects on the left for which we have signed exclusive agreements, including framework assets as well as right of first offer and this put together is approximately INR 7,500 crores. And as per our earlier guidance, we intend to execute these agreements and M&As in the next 12 to 18 months as and when the projects are ready. There are other projects with the sponsors as well as there are third-party projects. We will continue to expect to be a relevant player in acquiring that going forward. With this, I would like to just take a pause and open up for the question/answer, which -- then we can go in detail to the specific tradings that the investor may have.

We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Mohit Kumar from IDFC Securities.

Yes. Sir, 2 questions. So first is on the -- I think the total revenue for the quarter compared to the Q2 has declined. Also the EBITDA, I think a decline of INR 40-odd crore. Am I right in saying that?

You're right in saying that. So this has happened because in quarter 2, there was approximately INR 40 crores or INR 44 crores of onetime revenue and EBITDA that was generated based on arrears received of one of the earlier petition. On a comparable basis, the EBITDA has increased.

So this is normal, the rate should continue, right, with the current EBITDA for the quarter?

Yes, that is correct. This is about INR 313 -- INR 300 crores of approximately run rate, which will continue.

And second is given the fact that we have to keep on a cash reserve to meet the DPU guidance for the Q3, getting similar risk enhancing because of the fact that this year the [ DISCOMs ] are not paying in time and our working capital increases?

Yes. So I don't think that this has happened materially on account of working capital increase. I'll tell you there are 2 anomalies that exist in a business if you come to quarter-on-quarter. In quarter 3, we make onetime payment for insurance for the entire year, approximately INR 16 crores to INR 18 crores, and which comes as a quarterly -- it looks as a quarterly dip, but then it subsequently balances off for the rest of the year because that payment is made annually. And there are some other onetime charges also that have been made. In addition to that, usually the second, what we have seen over the last 5 years, quarter 4 has got the best correction when the quarter 1 is down, then quarter 2 is better, and quarter 3 is down. So there is this quarterly cyclicality that exists. And we are very confident that this 96 days of this year, will become 90 days in quarter 4. And we're already seeing those trends in the subsequent collections.

Okay. So my understanding is that most of the PGCIL receivables are supposed to get paid since the penalty starts getting levied on DISCOMs post 45 days. Am I right, so for us this 90 days is in the higher side, isn't it?

Sorry. So 2 answers -- 2 questions in this. One is, yes, the penalty gets levied around 45 days, and we also receive the same. Second, the comparable number for 45 days is 75 days. Because in the 45 days, the unbilled amount is not included. Whereas when we communicate, 90 days, it includes at the end of the month, the unbilled amount. That is the, I would say, greater accounting difference between the 2 processes. So I would compare it versus 75 and 90 days to compare the same.

Last question, what is the cash on the books right now? And what is the debt on the books?

To be honest, we have not disclosed the cash on the books in the financials, for us to communicate that would not be possible right now. Having said so, we have net outstanding of about INR 102 crores at any point in time, equivalent for 3 quarters -- 1 quarter of interest service, and we always maintain higher than -- substantially higher amount than that in cash. Our debt outstanding is approximately INR 50 to INR 100 crores as of the quarter end. To answer your question on that -- one more question. We also received approximately INR 5 crores of late payment surcharge in quarter 3. So I think that works. The difference between 75 days and 90 days keeps getting paid in many ways.

The next question is from the line of Aditya Sanghi from ADD Capital.

Congratulations on a solid set of numbers yet, again. I wanted to ask, basically 2 questions. One, is that -- for the 3 projects that you have a framework agreement on with Sterlite Power over the next 18 months that you seek to acquire, what kind of monitoring you have in place with them where they're sticking to their commitment of completing the project on time and therefore, for you to acquire it.

Yes, thank you, Aditya. That's a good question. Under the framework agreement, we have a very comprehensive monitoring rights starting from inspection, audit of both financials, nonfinancials, technical parameters. And for most of the projects, we have already appointed technical as well as financial advisers to work on monitoring those projects. And I would say that we not only monitor the progress, but we also monitor the beyond progress, qualitative factor as well, which enabled us to finish the due diligence in a more efficient manner in the end. So yes, we have already appointed advisers to monitor those projects.

And are you seeing any sort of delay as you stand today with respect to any of the 3 projects from the timeline that you're expecting?

No, I don't see a delay at the moment on any of the projects that we had expected. To be honest, one of the ROFO projects, ENICL was planned to be commissioned in the quarter 3, and that has already been commissioned. ENICL has already been commissioned and charged so the force majeure event has been mitigated there. So at the moment, we're not seeing delay in any of the projects.

But that's not -- the ROFO project is not part of the 3 that you are seeking to buy first, right?

Yes. So it's not about first. I mean, we have 4 projects on which we have exclusive rights. So ENICL is a ROFO project, plus 3 is a framework project, all of them are exclusive to us. So the Sterlite Power to approach anyone else, they need to take our approval first. And therefore, we consider all of them as a target asset and monitor all of them in parallel.

Understood. Second related question, how is your O&M structured with Sterlite Power. Do they bill you at actual to the delivered quarterly? Just wanted to get a sense of how that is progressing, and whether you are seeing any sort of increase in O&M costs as now that you have a few years of these projects under your control.

Okay. So I would first answer your question in terms of the structure in which we are operating, and then the performance of O&M. I think there are 3 parties involved over here. First, at the investment manager level, we have our Chief Operating Officer; Mr. Satish Talmale in our team who monitors and who has all the authority to make decisions on O&M. So he is the final authority on O&M matters. To support him, there is a team as manager to ensure the O&M is overseen well. Second, within IndiGrid itself, we outsource our contracts to third-party O&M contractors in which the purchase orders are given directly by the IndiGrid subsidiaries by the specific SPVs. And all the cost is directly booked in the project SPVs. Third, stakeholder is Sterlite Power, which is acting as a project manager under the statutory capacity as required by SEBI. And the fee that they get is 10% of O&M expenditure that we incur under IndiGrid. So it is a 10% -- over 10% of the O&M expenditure that we do at IndiGrid. The decision-making remains in the hands of the manager. This number on an annual basis is approximately INR 8 crores to INR 10 crores. The fees that Sterlite Power gets as against the total INR 90 crores of O&M expenditure that is done directly by the SPVs to the third parties.

Understood.

And answering the second -- over a period of time, our O&M contracts have matured and improved. So rather in some of the cases, we have seen O&M cost improve as well. So we haven't seen any O&M cost increase materially over the last 3, 4 years.

That's good. That's all from my side, and all the best for the coming quarters.

The next question is from the line of Ravi Srikant from Muthoot Family Office.

I had 3, in fact very basic questions actually. So one is on the presentation, you've mentioned that the revenue model for IndiGrid is based on 3 revenue line items which is the fee availability and then there is one small [ availability ] [indiscernible] [ nonescalable ] part of the tariff and an escalable part of the tariff. Now this availability in '20 earnings, is it basically only 2 lines are available or the -- I mean, does there need to be any actual electricity flow through the lines as well?

Okay. So to answer very simply that question, electricity flow is not a criteria to calculate availability. Availability is just a measure of availability -- ability to transmit electricity and not actual transmission of electricity.

Okay. Okay. And for the escalable as well as nonescalable part, so these -- I mean, as per the evaluation model that you had published last quarter, so is that the actual number? Or I mean, that is subject to change?

Okay. So the nonescalation component is an actual number mentioned in the contract. The escalable component that is mentioned, the first year, which is the valuation year, which we are doing is the actual. Subsequent is compounded based on the inflation assumption disclosed by the valuer. In reality, the same valuation -- the escalation happens based on PRC published escalation numbers on a semi-annual basis.

Okay. Okay. So out of these 3, which would be the biggest chunk of revenue?

So nonescalable. So we have -- if I look at our entire revenue stream, about 95% will be nonescalable; 2% to 2.5% will be escalable and about 3% will be incentives.

Okay. Okay. So that sort of answers my first question. The second question I had was, so from what I understand the trust sort of gives funds to the underlying SPV either as an interest or equity. And based on these flows received, it is given out from the trust either as interest or dividend. So now the flows actually have all been in the form of interest. So I mean, is there any specific reason why the entire investment has been made through loans, I understand there is taxation part of it, but after the reduction in tax rates, does it make, I mean, I'm not too sure, but does it make sense to have some part of equity as well sir, there's a dividend component to the cash payout as well.

Yes. So I think Ravi your question is very pertinent, but eventual flexibility in the hands of investors is substantially different in India between foreign investors, domestic institutions, domestic family office, retail investors, et cetera. So there's a variety of taxation that is levied in India on the investors. So what we really resolved for is that if we earn, let's say, INR 100 of EBITDA, our attempt is to distribute entire INR 100 as much as possible and leave the taxation on the investors because that is where there are varied rates. In the absence of that, we believe that there'll be inefficient tax treatment that may happen. Having said so, I think it is different from different perspective. So we will not be able to answer in absolute manner.

Okay. But going forward, I mean, is this how it will stay in the sense that primarily the distribution would be in the form of interest payouts only?

We believe so. For a substantial period, we believe that is better for our overall value chain, and we will be distributing a substantial part of interest.

Okay. And the last question was actually related to the -- I mean, amount of the payers. So assuming that, I mean, you do not acquire any further assets through your ROFO clause. So this INR 3 per unit, I mean, how long will you be able to sustain this payout numbers?

Okay. So let's say, a scenario where we do not assume -- do not acquire -- first of all, I would urge you to not think like that, that we will not be able to acquire other projects, but let's say in a scenario we do not acquire any other projects then we'll be able to continue this for another 10 years. So there's a substantial visibility of this year.

Oh, okay, okay. So for 10 years, I mean, even without the ROFO assets, you would be able to maintain the INR 3 payout?

No. The ROFO and framework assets, which are visible to us for acquisition, for which we already signed the agreements. Beyond that, if we don't pack it up, we'll be able to do for another 10 years.

The next question is from the line of Santosh Hiredesai from SBICAP Securities Limited.

[indiscernible] in terms of the growth strategy.

Sorry, we missed you...

Santosh, can you please repeat your question?

No, I was just trying to understand -- get some color in terms of the pipeline of assets that we have. Where are we on that? And are we also open to look at, let's say, intrastate projects in terms of acquisitions as and when, let's say, the sponsor is bidding for those assets and bidding those commissions?

Okay. So we see our pipeline in 2 buckets. One bucket is the assets in which we already have an exclusive agreement. So that is approximately INR 7,500 crores whether it is a ROFO or a framework asset, the 4 projects that we see in the presentation. That is our immediate goal where there's high certainty of acquisition, and we are fully capitalized for that. The second group of asset is any future assets with inter-counter parties like [ ICS ], et cetera, so that's a future, be it Sterlite Power or other completed projects. And the third, as you mentioned, about the intrastate projects. Now to be honest, whether it's a Sterlite Power projects or other projects, we would evaluate intrastate projects as well. However, we recognize the fact that they are, I would say, they are one notch lower than the interstate transmission pool. And therefore, we would ensure that it does not become a substantial part of our portfolio. It will be very small in size and would be resulting in a better [ usage ] accretion as well as we would be evaluating the contracts in a far deeper way and different intrastate assets would have a different answer, to be honest. So to say specifically, would we acquire all intrastate assets? Maybe no. Would we reject all intrastate assets? Maybe no. The answer would lie somewhere in between based on the contracts and the states in which the contract is made. And directly speaking, it will remain a very small percentage of our portfolio if [ at all we ] convert such opportunity.

Sure. Does it mean that we're also open to, let's say, diversify into, let's say, renewable assets or something like that? Or we'll stick to [ transmission ] assets?

So I think, yes at the moment, our charter is focused on transmission assets. And as and when, if at all, there is an opportunity that comes along, we would come for investors for their views and approval before any such step is taken.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Sir first question is on the current assets that outside of the ROFO and the framework assets, what kind of project IRR or what kind of IRR that you are able for you to acquire?

So thanks, Sarvesh. I think the -- let's say -- I mean, it's not available to acquire [ IRR ]. I won't be able to answer that question to you. Most of the M&A, I think I would say transmission assets are fairly stable, liquid and sellable assets. And therefore, most of the transactions that we have seen, there are 2 or 3 bidders that compete for a particular asset. So I would say that there are some assets which are available at a particular IRR and we'll get it, which is, I would say, a very high-level statement. So we -- I mean, I don't know the number. We evaluate every opportunity on a specific merit in terms of capital structure, financing, credit rating, counterparty. And therefore, it's a variety of factors that contribute the eventual yield that you buy. Having said so, what I can -- I would say, direct towards is that we look for one most important factor in the acquired projects, is that after acquisition, with or without dilution, the incremental project must result in accretion or IRR accretion on the IndiGrid portfolio. So that is one of the, I would say, the bare minimum criteria that we apply, that as long as the IRR returns are improving, after cost of financing, the debt or equity, that will be an accretive acquisition.

And that, I understand. But let's say, you have INR 100, some asset is being sold at INR 100. And what is the IRR that will accrue to you if you buy it given that it's a stable market? What is -- what are the current rates going on in terms of IRR?

Sarvesh, in terms of [indiscernible], there are no current rates. It's a private market. If it was listed market, I would say that the price is trading at a particular price. In a private market, when we buy project in a long-term cash flow, the price discovery is subject to many facts: interest rates, liquidity, quality of counterparty and a lot more. So unfortunately, there is no one answer available for me to provide to you, that INR 400 acquisition, what we would get.

Okay. Understood. Now secondly, on this receivable part, I could not understand related to [ 100% tax rate ] you just called out that you have [ seen that TCIL ] has 45 days kind of a time window around this, they will charge payment. And in your case, you explained that if you subject the account, it becomes 75 days. So what is the 30-day difference? And can you just explain that part a bit more?

Sure. Sure. So first of all, even for us, the 45 days applies as is. It's just a way of looking. In our books, we recognize the -- when you say 90 days, on the 30th of the month or the last day of the month, we recognize that the unbilled amount is new to us, even though it is not billed because we are recognizing revenue based on a contract, whereas our grid as a process of billing on 5th of the next month and therefore, we recognize the revenue the next month. And therefore, for the same outstanding with the power grid, accounting and communication philosophy, it would be communicated 60 days outstanding, whereas we will communicate 90 days outstanding. So that is just a way of communication, the same receivable days. And the other 30 days power grid show as a separate unbilled amount, and that is how it is separately shown. Is that your question?

Yes. So my question was that -- and now I understand how cost it collects. After that, you would collect from power grid in some manner, right? How much time exactly?

That takes about a day or 2. We don't need to collect power grid as a CTU within power grid has a responsibility to distribute the money that they receive within about 48 hours to all the transmission licenses. So on an average, I would say, about 48 hours gap is there.

Okay. Okay. Understood. And with regard to penalty, whatever the power grid collects, that penalty is also collected in case there is delay beyond 45 days.

That's correct. For example, in this quarter itself, we collected about INR 5 crores of penalty on late payment surcharge.

Okay. Okay. And what can be the norm for this penalty as a percentage of overall receivables that you collect over a cycle? What kind of a augmented number?

Sure. Yes. So I think it's a good question. I think it's tough to communicate the number. I'll give you the parameters. Their charge were 18% beyond 45 days. And on an average, let's say, if you assume 15 days delay for that, then we can do a math with respect to that. For example, for us this quarter, it was INR 5 crore over a revenue of INR 339 crores. So approximately 1.5%. On the other hand, there are also incentives taken by some of the people who pay early, right? So if one looks at late payment of charge minus the incentives, on an average, approximately 0.5% of revenue is something that we get.

Okay. And now my final question is with regards to this new rights issue framework, which has been announced. So now can we establish that going forward, we would always go for the rights issue for funding equity fundraising?

So I think you have a valid question. I think the decision of going into specific fundraising is taken by the Board and considering several factors. So I would say that, yes, the rights issue is the most favorable for several reasons. One, it is including all the investors. Second, it provides pricing flexibility to the management and the Board. And in a normal preference is the risk remains that if the new lease in the 2-week pricing gets modified, the capital raising itself can be jeopardized. So there is enough, I would say, flexibility for management or other incentives to go for both to go for rights issue. Having said so, it is tough for me as a management to commit that this is the only way we are going to use it in the future. But clearly, this is -- we are incentivized as well as this is a better way to go for the categorizing in future.

[Operator Instructions] The next question is from the line of Rikesh Parikh from Barclays.

Sir, can you just tell me what is the total reserve you declared a deficit right now at the end of Q3?

Okay. At the end of -- yes. So at the end of the Q3, we have a balance of INR 66 crores.

INR 66 crores of a deficit or not?

Not the deficit, the balance.

Okay. That is surplus or related basis for the distribution required? Okay. Secondly, in the past, we had been giving the table of indicative DPU considering. So last 1 or 2 quarters, we have been stopped. So that will be helpful if you can share that going forward.

Sure. We did that [indiscernible] as [indiscernible] give -- used to give it when their subsequent acquisition's happening. And after the last 2 acquisitions, we have stopped. When we are closer to the next acquisition, we'll certainly add that to provide a guidance on that.

Sure. Very helpful. And last, we have a meaningful addition to what I said in this calendar year. So all the -- I think my understanding is that we have already had a further debt component for the acquisition of the asset. So are the payments being made to the company on that post acquisition? Or it is made in advance as such?

Sorry, can you repeat the last part of the question? I didn't get it clearly.

Yes. We already have a pipeline or visibility for assets. So we have already agreed to acquire in the current year. So are the payment made in advance? Or we may make at the time of transfer of the assets?

Okay. No. So I think, one, we have made an exclusive agreement. We are not committed to acquire because we need to include the approval to do so. So we have not yet issued a notice of our approval of unitholders. Second, the visibility is for the next 12 to 18 months. So we're not acquiring -- I mean, there's no mandatory timeline to acquire in a particular calendar year. Third, we raised debt only when we are acquiring. And fourth, we pay the consideration when we are acquiring and causing the transfer. At the moment, we have not taken any economic interest in any of the SPVs, which is only an agreement to acquire subject to meeting several conditions, including investor approval. So we will be raising debt as and when those conditions are met, investors will approve and we are acquiring those assets.

So if I look at your asset pipeline visibility, so we have one asset available, [ GPTL ], in fact, 2020 indicative. So once that asset is available, we will take the shareholder approval and then arrange for that and make the payment decision. Is my understanding right?

That is correct. That is correct.

Okay. And then last thing, what is our current cost of borrowing right now?

Our current cost of borrowing is 8.75% [ weighted ] average cost.

The next question is from the line of Mohit Kumar from IDFC Securities.

Just 2 questions. First question is on the fact that we -- there have been no cost -- no acquisition on cost of asset in the -- in which -- sorry, [ any difference ]. Would you consider buying out -- buying out cost of asset at any point of time? And what are the regulatory challenges you foresee in acquiring good assets and devaluation challenges?

Okay. So to answer business-wise in direction, yes, we would acquire customers' projects. It is part of our mandate, and we are allowed to acquire. And we believe that it will fit in in our portfolio very well. Considering the fact that in the customer asset that distribution is provided there, the dividend is generated on a post-tax basis, and tax is also compensated. Such acquisition will enable us to distribute dividends to investors directly. So we believe that there is a merit in acquiring customers' assets, and we would look for it. Coming to your next question is on the challenge. I think we see, and again these are very high-level views, but we see some of the key challenges in acquiring a customer's asset is approval from regulatory authorities. Because most customer's assets are not in a particular SPV frame where it can [ retract ] data, SPV can be transferred post the [ lock-ins]. They need regulatory approval. So that's one, I would say, critical procedural risk, I would say. Second, in terms of -- depending on which year we acquire, is it the last 10 years of the customer's asset or the first 5, I think that would substantially defer in terms of value, the capital structure, et cetera. So basically, when are we acquiring the customers asset will be a critical input as well in that. And the third is, again, a counterparty, is this customer asset a central asset or a state asset would be another material differentiation between the 2.

Another question that I have is [ with the presence of ] capital structure challenges given the fact that [indiscernible] of we think this will have a relook at the entire [ corporate ] structure before approving the deal? Or is it -- or do you think regulators are more or less have understood the product?

No. I'm sorry, which regulatory are we referring to, CERC or SEBI?

This is CERC. This is CERC who'll go and take the approval given the fact that your capacity will be entirely different. Do you think it will have much more challenge -- it will be more challenging to convince the regulator to allow an InvIT to buy out the asset?

No, I don't think so. To be honest, I would put it that we are at an advantage in terms of acquiring customer assets because we can modify across our capital structure in a much more flexible manner. And CERC's concern is always on capital structure of the asset than of the parent. And when they evaluate the parent, the key criteria is that is it a first time transmission asset buyer or it's an established operator of transmission assets. And I believe IndiGrid considering its capability and INR 11,000 crores of assets based on transmission, we would meet that requirement in an [ Indian ] manner. So I would say that, that would not be a challenge for us to acquire a customer's asset.

Sir, one more question, sir. Given the fact that our acquisition is -- it will be 18 months away, all the assets are to be -- for us to acquire the assets. Do we have any plan to acquire the assets, meanwhile, given that all the [ recent ] leverage is only 49%. Secondly, what are the challenges do you see in terms of getting people a credit rating for increasing on leverage to 24%?

Okay. So question -- I mean, answer to your first question. It's not that we are going to acquire all 4 assets at the end of 12 to 18th month. As and when assets are completed, we are already monitoring them. And as and when they're completed and eligible for us to acquire and satisfactory building them after, we will look to acquire that. So it can happen earlier as well. Second, as we acquire, we would be increasing our leverage, utilizing our debt headroom to acquire those assets. And the third question that you asked is that we have been in discussions with the rating agencies with this subject. And to acquire all these 4 assets, we already conducted several analytical exercises. We are confident to maintain a AAA rating for that.

The next question is from the line of Hitesh Arora from Unifi Capital Pvt. Ltd.

Congratulation on the numbers. Sir, on the assets that you've acquired in the past, I want to get a sense of how many have you -- how many of those assets actually do you review, what are the proportion of the assets you review versus the proportion of assets you actually brought and deal with? Was it 100%? Or was it probably you left 1 or 2?

Okay. So I mean it's -- let me put it like that. It is not 100%, right? And second, I'm not sure we can use the conversion ratio of the number because there are some assets which are INR 200 crores and some assets which are INR 4,000 crores, right? So to put the acquisition opportunity as one opportunity, it's very difficult to compare the 2 transactions like that. Having said so, to answer your question in a strategic [ route ], we have let go a substantial number of assets on different considerations. And so therefore, it's not -- conversion is not 100% for sure.

Just on this ROFO asset, it's already -- the [ NICL ], that's already commissioned. So how long do you have this right for before we take it to somebody else?

So we have -- the right of first offer agreement is for 7 years since [ we decided ]. And the right of first offer agreement, the way it works is that Sterlite Power will send an expression of interest and then we can express our value, and then we will engage into discussions. So to answer your first question, it will take -- I mean, we have the right for 7 years.

Okay. And so you...

[ So under that ], 4 years left.

And that's 4 years left. But for your sense of timing, what is the timing to acquire it? Are you -- it has to be an expression of interest sent by them first, so only then can the transaction proceed? Or how is it going to work?

Okay. So one is, to answer your first question, as the asset is eligible to invest, we would be evaluating it. Second, as for the contract, when the asset is available to another commission, the counterparty is obliged to send us the expression of interest within first 12 months at least once.

Okay. So it's already commissioned? Or they should be sending it you in the first -- it should be in the 12 months -- within 12 months?

Entirely correct.

And then you'll make a call. Okay. And that is why you're already doing the [indiscernible] for that already.

Yes. So as I said, we keep monitoring all the assets for which we have rights. So we already track the progress as well as the details of the project as it is moving sir.

So question on NTL, you talked about deal availability. So what happens there?

Yes. So an NTL is approved, [indiscernible] has happened. One is a rooftop flew and fell onto a line, and therefore, we had to restore it. It took about 3 days off on one of the lines. And the other one was a tree fence, which caused the lines to loop. Both the cases were completely a case of a very heavy wind. And it's like 0.5 kilometer flying the roof with that kind of incident. And we are confident that we'll receive the availability certificate on the deemed basis for that.

Okay. Okay. And so the CapEx that you mentioned, INR 1 crore was related to that?

No, Capex [Audio Gap] [ JTCL ] [indiscernible] happen in quarter 2 for which we are gaining [ first major certificates ]. And that happened -- the CapEx happened in -- CapEx were booked in quarter 3. For these 2 events, the CapEx were hardly few lakhs for NTL.

The next question is from the line of [ Kunal Agarwal ], individual investor.

I have 2 questions. One was your cost of debt today is about 8.75%. Where do you see that cost of debt moving in the near future? And how are you guys thinking about diversifying your sources of debt? And the second is there's been a lot of commentary going on these days about the financial health of the power sector in general. And I think in the current [indiscernible] call with the quarter talking specifically about the health of the power sector. I understand in IndiGrid, we have a lot of vintage built-in, we are supporting that mechanism. We have power grid monopoly sort of protection behind us. But I just wanted to understand from you as a qualitative point, how do you see the financial health of the sector translate into any roll-on effects for IndiGrid going forward?

Sure. Let me go to the pertinent questions, Kunal. Thanks. To answer your first question on cost of debt, I think we have a strategy of locking in the cost of debt at different intervals. And therefore, in our portfolio, cost of debt is ranging from 7.85% to 9.1%, and we communicated a weighted average of 8.75%. Now going forward, I think we are in a unique macroeconomic scenario, where the G-Sec has come down, the spreads were widened in India and the global scenario is substantially liquid, providing good cost of debt as well. So at the moment, the way we are looking at it, the scenario is liquid. There is a good amount of sources available for us to borrow, both in India as well as externally. And therefore, directionally, we see a conducive environment to raise capital, especially for a platform like us, which is focused on Indi, I would say, operating projects as well as rated AAA. So we [ revolutioned ] that. Whether that has resulted in immediate cost saving or not, it is very difficult to communicate because we have locked in the cost of debt at the moment. So that's one, directionally. Second question you are [ on that was in ] diversification. At the moment, in our portfolio, we have NCDs, we have bank loans, we have ECBs. So we have tapped into all types of assets, all types of, I would say, lenders and debt capital. Having said so, we keep evaluating many such options. And as and when something materializes, I think that is one of the key criteria because this contributes 70% of our balance sheet, which we track and try to optimize. That's the focus for us both in terms of cost as well as long tenors.

Got it.

Second question you asked is on the health of power sector. Now I would just take up a very important question. And so I think I'll step back and let's say, it's valued at a macro level, that is the role of power transmission, right? The role of power transmission in India, especially where generation and distributions are done across different location is to provide an efficient grid. An efficient grid is the backbone of an efficient power system because the consumers or the distribution company will be able to source the power from the cheapest sources, right? Now unfortunately, if you think about the investment in power generation were privatized in 2001, in last 20 years, about 85% of capacity addition has happened at private sectors, which means substantial amount of hands and capital both are contributing toward building the generation side. But the transmission side, what private is about a decade later. And therefore, since then, incrementally, substantial capacity addition has happened in transmission, but it is still catching up the investment in generation that happened over the last 20 years. So one is that is to under invest it. And if you go to distribution, it is even worse off. There have been selective privatizations that have taken place and the backdrop of regulation for prioritization for and efficiency of power sector, which is separation of conductor from the power is something, which bill is still pending in the parliament. So coming to my commentary on that, to have an efficient power sector, the distribution sector would need to be reformed, which would not only include increase in prices, which has already taken place. And if you look at it incremental, I would say, downgrade the incremental deteriorating position has slowed down. But the structure and change would only take place if the distribution companies are allowed to be more profitable on a going concern basis, which will happen when they can really buy the power from where we want, break the PPAs, of legacy PPAs or at least prioritize the infrastructure, which enables them to start making money on a unit basis. So we see a lot of move happening, but it's a decade-long reformation story that we see over here and transmission will play a key role. Now coming to how we are impacted by that. Until now, we are not impacted. And leaving aside all these strategic advantages of a grid and monopolistic nature of power grid, the fundamental economic factor for which transmission has remained safe, and we believe it remains safe, is that the entire country's interstate transmission charges is hardly about 3% of the entire power sector. And that acts as a bad backbone. So for most others, the best of the distribution companies or generating company is act as a lifeline and it costs very less. That is one of the critical reasons for transmission sector, I believe, to be remaining healthy.

The next question is from the line of [ Ruben Masalia ] from [ RNA Associates ].

My question is pertaining to net distributable cash flow. At the current DPU rate of INR 3 per quarter, it's -- the amount is around INR 175 crores. And on an annual basis, it comes to INR 700 crore. And as alluded by you in an earlier question, due to seasonality in quarterly performance, would it be fair to estimate that for the financial year as a whole, there will be a sufficient [ end this year ] that is around [ INR 700-odd crore plus ] to take care of [ INR 12 ] with you for the whole year without growing into the capital or resource?

So I think, Mr. [ Masalia ], very apt question. On an annual basis, we would have higher NDCFs than what we distribute.

The next question is from the line of Hitesh Arora from Unifi Capital.

I think I got disconnected while we were talking about the diversified sources of funding that you were looking to raise, including [ dollar ] funding maybe, perhaps. I was wondering if you could kindly repeat on that.

Okay. So what I'm saying is that we already do borrow from several diversified sources starting from banks, mutual funds as well as we have a CD in place of one of the SPVs. So we already are tapping into several sources of capital. And we keep evaluating all debt-raising opportunities available. So as and when, when we do the next phase of capital, we would come back with the specific update on that.

Okay. And as for the acquisitions, looking today, I think the timing was available as an option for you.

Yes, that is correct. Because as we see in last year, enabled ECBs for refinancing rupee loans, which in the past was not allowed. So that is something which allows us to look at ECB [indiscernible].

The next question is from the line of Swarnim Maheshwari of Edelweiss Securities.

Yes. I have a couple of questions. So firstly, I mean, going beyond the sponsor pipeline, can you give us some color on the recent project [ intensity ] bids and the competitive intensity? I mean we understand that the last 4 or 5 bids were quite competitive. So can you throw some light over there?

Okay. So Swarnim, I think, as a competitive base there and looking from outside, it's always very difficult to communicate whether a bid is competitive or not. But I believe the players which are competing for this [ PVCD ] pipeline, which is largely players who have got substantial experience in transmission, the power grid organic transmission select power to name a few. I think more or less, people have bidded reasonably. For me, because we are not present in the under-construction bid so I would not know the exact competitive status. But from a track record over the last 5, 6 years perspective, I think most of these bidders have bidded reasonably. And from our perspective, I think we only evaluate to be [ on a ] EBITDA line, which is the cash flow that the project generates from the project CapEx. So I think we do not get into the efficiency of the bidding at the time of bid because the construction company or other developers is fully incentivized to ensure that they make good returns. Because they know that in terms of the cash flow, the valuation is pretty much known based on what transaction taken place. And I think large capable players being placed, but we have seen the bids to be fairly [ renewable ].

Fair enough. And sir, secondly, I mean, just on this -- the framework of it. If you can just give us some timeline indications, when are we looking to kind of acquire GPL -- [ GPTL ], KTL and [ NTL ]. So some timelines are [indiscernible].

Okay. So I would just say that as we are not issued [indiscernible] notice. So until the time we are fully satisfied with the project and the dividends and it's difficult for us to do specific timelines. Having said so, there are dates provided over here. So [indiscernible] is already commissioned as well as [ GPTL ] is on its line to get commissioned in Feb. So I think by considering that we'll buy commissioned assets just to become the first assets for us to evaluate.

Oh, that's great. So -- and we would have -- the dividend process is already underway, right?

So as I said, we keep monitoring the project in parallel. So the diligence is concurrent for us.

Okay. Okay. And sir, finally, if you can just quantify the incentive income for this quarter.

Okay. Just give me a minute, Swarnim, for that. So the overall income is about INR 7.50 crores was booked in -- as incented for this quarter.

INR 7.50 crores?

Yes. [ That is correct ].

Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.

Thank you. Thank you, Swarnim, for holding the call, and thanks to all the investors who joined the call. I think it's -- as I see through the questions that have been asked, we are very happy to know that you listen and take a deep interest in our business and to understand as well as ask specific questions. We appreciate that. We see a substantial amount of growth in our business and both in terms of immediate pipeline as well as future. And we believe that we will continue to be able to deliver a superior total return in comparison to other indices on a risk-adjusted basis. And the substantial part of asset return would come from a consistent distributions that we make. And I look forward for your support as we continue the journey for IndiGrid. Thank you.

Thank you. Ladies and gentlemen, on behalf of Edelweiss Securities Ltd., that concludes this conference. Thank you for joining us, and you may now disconnect your lines.