Indigrid Infrastructure Trust (540565) Earnings Call Transcript & Summary

Good day, and welcome to the Edelweiss Securities Limited Conference Call on recent announcement and business update. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Swarnim Maheshwari. Thank you, and over to you, sir.

Hello, everyone. I welcome you all on India Grid Trust call to discuss the recent announcements and business development. I hope all the participants and their near ones are in the best of their health. From the management, we have with us Mr. Harsh Shah, CEO; Mr. Satish Talmale, COO; and Ms. Meghana Pandit, Head M&A and IR. I would now like to hand over the call to Mr. Harsh Shah for his opening remarks. And post which, we'll have a detailed Q&A. Over to you, Harsh.

Yes. Thank you, Swarnim. And first of all, deep apologies for the delay. We got stuck because of some technical glitch at the call, but we would like to just start as soon as possible. And just to open the call, I would like to wish you all a safe homestay, and I'm sure you're all remaining at home, and I hope all your near and dear ones are safe. To start with -- on the call, I think we will go ahead about the presentation, which we have disclosed along with the AGM notices. We would go about the overview of our business and vision quickly. We'll update about the business slightly deeper, and a few decisions on M&A, which we have come for voting, we'll detail out -- that out. And subsequent to that, we will address question and answer. Considering that we have started a little late, if we have to extend the call for question-and-answer by that amount, we will be doing so. Coming to Slide #4 of the presentation. After the last acquisition, today, IndiGrid is India's only power transmission yield platform. We have about INR 12,000 crores of assets under management now and asset pipeline of another INR 6,500 crores. As a portfolio, we have about 20 transmission lines and 4 substations, encompassing 5,800 circuit kilometers and 7,735 MVA of capacity of transmission across 13 states. We are AAA and our rating agencies have affirmed our rating in the current markets, and then that's something which is available publicly. We do have perpetual assets with a long contract life. And therefore, 32 years of residual contract life, which is still there. On Slide 5, to briefly touch on our vision, our vision remains to be the -- remains to become the most admired yield vehicle in Asia and by ensuring that we follow solid fundamentals of transparency, governance and provide superior risk-adjusted returns to our unitholders. And the 3 base for that remains that we have a vision to achieve INR 30,000 crore AUM by 2022, while delivering a predictable DPU and growing that while following best-in-class corporate governance. Now coming to the business update, on Slide #6. We haven't earlier provided business update before the quarter end results are published. However, considering the extraordinary situations related to COVID, we believe that it was important for us to share some of the key facts on our business operations and financials before the year-end results are published. And therefore, we have come up with this interim update regarding our business to provide you more information about the business, having up-to-date information. Considering the COVID scenario, there has been -- I would say, our audit calendars are slightly slow. And therefore, unlike our usual practice of closing the quarter and the year in the month after the quarter ends, and this time, we are expecting slight delay, and we would have our year-end closing meeting sometime in the month of May. And therefore, this call is to provide the interim information upfront at the quarter end. On the left hand side of the slide is about the business update. I think -- we announced the closure of acquisition of ENICL worth INR 1,020 crores. This acquisition happened on 23rd of March amidst the lockdown. With our entire team stationed at home, we could conclude such a large and complex acquisition. This is owing to the fact that we had tremendous preparation before the COVID kicked in, and therefore, we could go ahead with our business as usual and even acquired the projects. Our business model is robust. We -- our contracts are based on availability-based revenue which is independent of quantum of power flow. And therefore, even if the power demand has interim come down, we do not have any immediate impact on our business model or in revenue. And besides that, transmission is declared as an essential service. And therefore, we do not have any local restrictions of travel on our maintenance team. Our corporate team remains safe at home. However, our maintenance team, including some of our channel partners are working round the clock to ensure that wherever there is a transmission availabilities to be maintained, they are there to make it available. The next point on this point is that this section is -- there was some news articles about a couple of weeks back, which spoke about moratorium, which we believe was caused by confusions of some press releases. Now it has been made amply clear by an order of CERC as well as a circular issued by Ministry of Power, that there is no moratorium on transmission charges. The only waiver, which is provided to customers is that late payment surcharges, which was earlier 1.5% a month, 18% per annum, has been reduced to 1% per month, which means around 12% per annum. This is also clarifying that since 1st July onwards, the LPS, which is late payments surcharge, would increase back to 1.5% per month or 18% per year. In addition to that, Minister of -- Ministry of Power in their circular also clarified that they are making all the efforts to ensure that liquidity to the sector or DISCOMs is going to be provided. While there is no such announcement at the moment. However, at least that gives a directional message that there are no moratoriums in this business. Coming to financial update. Our operating performance for quarter 4 has remained in line with our expectations. Our availability is greater than 99.5%. And most -- we are going to earn the maximum incentive for our portfolio. On the financial performance, which is based on quarter 4 numbers, provisional and unaudited, our collections in the quarter 4 is 108% of our quarterly revenues. Our quarter 4 revenue is about INR 328 crores. This is a large quarter because in this quarter, most of the projects are achieving -- all the lines which were acquired mid-quarter are achieving full performance as well as the collection is 108% of this number, which should make it the highest gross collection quarter in our history of last year's. The next point is about cash generation. So after paying our financial obligations, liabilities as well as change in working capitals, our net distributable cash flows that we have earned on a consol basis, I would call it a consol cash generation, is greater than INR 200 crores in this quarter. This also remains one of the highest quarterly cash generation that we have seen over last 2.5 years, specifically owing to the fact that we have grown our portfolio as well as this has been one of the strongest quarter collections. Closing cash balance, net of all other financial obligations to date remains at INR 475 crores. This is something which is important number. Because it strengthens the balance sheet and provides substantial amount of cover. To give you a perspective, our quarterly interest outlook is about INR 129 crores. So this would mean that we have enough cash cushion for 9 months' worth of interest outflow and slightly more than that. Our net debt-to-AUM remains at 49%. I would say on a financial side, we have had a phenomenal quarter in quarter 4. We have closed the year with a very strong balance sheet, both in terms of lower leverage and higher cash available. As we enter the quarter 1, where we will have slight impact of COVID in our business. I believe that would be minor considering we are an essential service and to be very little dependent on the quantum of power. However, the billing cycle has been delayed slightly by a couple of weeks, rather 3 weeks for most of the transportation customers. And therefore, we believe that in the month of April and May, there might be slight delay because of the billing cycle getting delayed. However, we are confident that, that would get caught up in -- as the quarter ends by quarter 1. And in any case, we are exiting the quarter 4 with substantial amount of cash cushion in the balance sheet. Coming to the next section of my presentation, which is the M&A update. As we have been consistently communicating that we have a large asset pipeline for growth in our asset base and also increase the NDCF and overall returns for investors. This slide depicts what is our portfolio today and what are the lines and substations, which -- on which we have a framework agreement in place with Sterlite Power. Of this, there is the acquisition of GPTL has been announced for voting of investors. Once the investor voting completes and the definitive agreements and condition precedents are completed, we would look to acquire sometime in quarter 1. The other 2 projects are on track, and they are in the process of commissioning. As and when over the next 12 months, they get commissioned, we will look to acquire them. On Slide 9, just to give you a bit of a recap on ENICL, which we completed -- acquisition completed on March 23. This is a strategic line, which we decided to acquire from Sterlite India, we have a right of first offer on that. This acquisition did not require any dilution because we had already funded, in the last preferential issue, equity required for this acquisition. And the rest of the capital has been raised by debt. We have raised debt from about INR 900 crores debt from Axis Bank at about 8.1% rate. And especially, we closed this acquisition on March 23, which was, I would say, at the beginning of the lockdown period. The next slide is about the GPTL acquisition, which the Board has approved and is subject to vote -- positive vote from our investors. GPTL is a very important asset for NCR region. It is going to provide the 24/7 electricity required for Gurgaon, which effectively may make Gurgaon DG set-free and it is a line which will be able to provide reliable power supply to Gurgaon and the entire Greater Gurgaon region. In addition to that, what is unique about this line is that this is India's first vertical GIS substation. What it means is -- GIS substation is a gas-insulated substation. It is practically put in the place where there are real estate constrained and the land is expensive. A vertical GIS, which is a very unique concept, and I would say, in India, it is the first one, ensures that the space used or the land footprint is further reduced. And therefore, it is one of its kind substation. There are 3 substations in this line. All of them are vertical GIS, and we have acquired -- we are proposing to acquire this line. The details about the acquisition. The enterprise value we may acquire up to INR 1,075 crores on 0 cash and normalized current assets basis. On the FMV discount basis, this would be approximately 8% discount to the FMV. This is the same method, which is used to calculate our NAV and published by the valuer. The valuer report is also available for evaluation with the investors. Upon acquisition of net -- of this asset, our net debt-to-AUM would still be approximately 53% only. And we have substantially growth headroom available for further acquisitions. Directionally, the -- net about INR 35 crore to INR 40 crore per year will be the net distributable cash flow accretion on account of this acquisition, after paying the financing cost, after paying the working capital change and operating costs involved in this acquisition. ENICL acquisition would also add approximately similar number in terms of accretion of NDCF per year after paying the financing cost. The Board has received -- Board approval has been done and the postal ballot approval in which electronic voting can be done by all the investors is open till 10th of May, and we would look to acquire this asset subsequent to the positive vote. The next section of our M&A strategy is very important and a new one. So with about 3 years, almost 3 years of track record, robust operations and I would say also increasing our DPU and consistently acquiring assets as well as growing our shareholder base and raising capital, the Board had several sessions to evaluate what are the further avenues of growth for creating value for IndiGrid unitholders. We focused on -- largely on areas which has adjacencies with our existing business as well as has similar risk return profile where IndiGrid would have a competitive advantage. And therefore, we focused on assets or other sector where there will be, I would say, no price risk because you are entering a long-term price contract and very limited volume risk if at all because when you acquire a project with a track record of generation, the resource variability is relatively lower. On the left hand side, a key rationale. We believe that higher the pipeline of assets available for IndiGrid to acquire, the better chances of IndiGrid to acquire accretive projects, and therefore, we'll be able to focus on projects and create pipeline opportunities, which are more accretive for our investors. Renewable sector has been maturing in India. From the first few assets till now, there's about over a 15-year experience now. And we are seeing that there are strong growth drivers in place for this sector. We see an attractive opportunity to acquire good quality projects with high predictability of cash flows from operational assets, which has long-term contract and good counterparties. I think all of these words are chosen carefully and also making part of our strategy, which is presented on the right side. And we also focused on adjacency with our existing business or the core business of transmission, which we can leverage to have a competitive advantage in terms of asset management as well as financial credential or industry networks. On the right side is our strategy. Our strategy is going through focus on only solar projects with good quality power plants, and good quality means Tier 1 quality modules and -- built with impeccable quality, et cetera, projects with long contracts, which has greater than 20, 25-year contracts, strong PPA frameworks and financially strong counterparties, which would mean that counterparties like SECI or NTPC, which are central government counterparties or one of the very good paymaster states like Gujarat. So our business plan would remain focused on these kind of counterparties. In addition, it's important to note that our diversification strategy will be executed gradually. We remain primarily a transmission utility. And about 75% to 80% of our assets and our EBITDA would remain largely transmission projects. Even our expansion around the diversification into solar would be executed with new care and gradually as we look for the highest quality products. Our focus will also remain on ensuring that these acquisitions are substantially accretive to IndiGrid cash flows without taking too much incremental risk. And without delving much into detail, our focus is to maintain our AAA rating. And we have done several rating analysis exercises in which we have committed and ensured that we would acquire about -- we would ensure that our interstate transmission assets would remain 75% to 80% of our portfolio, which is giving a greater comfort in maintaining the rating. Next slide is about IndiGrid's focus on stable solar projects. [Technical Difficulty] we've said in the earlier part, assets having Tier 1 equipment; counterparties like SECI, NTPC, GUVNL; long-term PPA life of 20-plus years; assets with good PPA framework and strong framework and strong legal framework is important. We would focus our expansion in the solar in these categories fully. The last slide is about -- more about what are the risks involved in solar projects, and how we believe some of these risks are already mitigated or can be mitigated by choosing the right set of projects and right set of contracts. So to add it up, I would say that we have -- we are choosing to expand to solar sector in a very careful framework, while our focus remains on operating solar projects with long-term contracts, and with strong counterparties like SECI, NTPC and GUVNL. We believe that the solar projects also presents very low operating risk, especially when they have a track record and at the time of choosing, we are picking up projects with very good quality equipments with such low risk and stable cash flows, synergies with IndiGrid's core business model of owning transmission assets and synergies with IndiGrid's financial profile and ability to give sponsorship. We believe we'll be able to identify good quality solar projects, which would create value for IndiGrid investors. To sum it up -- the call and open up for questions, I would reiterate starting from the business update for the call. Our business is robust, availability-based revenue, and therefore, we do not see a material impact on account of COVID on our business model. On maintenance side, considering that transmission is declared as essential service, our people on ground are maintaining the lines, and we are not seeing any risks out there. No moratorium of transmission charges have been provided by either CERC or MOP. Rather, MOP has disclosed that they are going to provide liquidity and inject liquidity in the distribution companies if there may be a need. On the financial update, quarter 4 has been one of the best quarters in terms of the highest revenue, highest collections and highest consolidated cash generation. We are ending the year with a substantial amount of cash in our business. And therefore, I would say we have a strong financial profile to see through a blip, if at all, that is to -- on account of COVID. On our M&A acquisition pipeline, we closed an acquisition of about INR 1,000 crores in a tough environment. That also speaks of financial investors trusting our ability to maintain our risk and acquire projects. We are recommending to acquire the next project or approve the next project acquisition of Gurgaon Palwal Transmission Limited of approximately INR 1,080 crores. We are looking to diversify into a new sector in a gradual manner, which results in value creation for IndiGrid investors. So that was the summary from my side. I would request Swarnim to open up the call for question and answers.

[Operator Instructions] First question is from the line of Mohit Kumar from IDFC Securities.

Yes. Sir, 3 questions. First, sir, the valuation of Gurgaon Palwal, if I remember correctly, in the framework agreement, was INR 10.25 billion. Why has it changed to INR 10.8 billion? Is there any particular reason? Secondly, since you're going to fund through -- this acquisition mostly through debt, has the credit market tightened post the COVID? And what kind of rate -- how do you see -- how do you look forward to tying up the debt for this particular asset? Second is on late payment surcharge. I think we are governed by our own TSA. So we are not governed by CERC. So I believe our late payment surcharge would be in the range of 1.25% to 1.5% depending on the contract to contract. And thirdly, sir, how do you plan to acquire the next 2 assets? Given the fact that our -- the leeway we have right now is around INR 30 billion. And both these 2 players put together, Khargone and the other one NER the valuation is roughly around INR 40 billion, INR 47-odd billion.

Yes. Thank you, Mohit. So to answer your first question on GPTL valuation. GPTL valuation was in the framework agreement, INR 1,025 crores at the cost of debt of 9% raised by IndiGrid. If we are able to raise debt at a lower cost, we will be -- we would be required to pay INR 25 crore for 25 bps of savings. And if we were to raise cost of debt at 9.25, the valuation will reduce in that manner. Considering where we are seeing the market today, we believe that we will be able to raise the capital at 8.5 or lower than 8.5% cost of debt. And therefore, the approval is for up to INR 1,080 crores, INR 1,075 crores and not at INR 1,085 crores. So as we raise capital after the approval, those numbers would rather come down is what I would suggest. So I think it was -- it is done exactly as per the framework agreement. And that also partly answers your second question. Yes, credit markets, per se, have, I would say, credit capital markets are seeing the squeeze considering the redemption and the overall issues. Having such a credit, markets are supported by banks, and we being AAA and offering a very good credit, we believe that we'll be able to raise debt at the right cost antenna. So as I gave you that, we are -- the reason why we have kept INR 1,075 crores as up to value because we are confident to be able to raise debt at 8.5% or lower than that. Having said so, if we are going to raise debt at a higher than that, the valuation would reduce correspondingly. Your third question, I believe, was regarding our growth of assets and INR 30,000 crores. I think with the current capitalization, we would be able to grow up to INR 18,000 crores or INR 19,000 crores, which means Khargone as well as NER project plus INR 1,000, INR 1,500 crores of other projects we would be able to acquire. Anything beyond that, beyond INR 19,000 crores, we would look to raise capital by rights issue. Now whether the new asset acquisition and rights issue is sequential after acquiring NER or as and when we see the opportunity of other assets would be dependent on the markets as well as when we see a strong pipeline beyond the framework asset, what we have capitalized for. I hope I've answered your questions.

Sir, I think, just on the late payment surcharge. I think the late payment surcharge is governed by our TSA, which is a higher rate compared to CERC rate.

Correct, correct. No, I think you are correct. So what happens is, Mohit, in this case, that the TBCB assets are about 6%, 7% of the entire portfolio, right? And therefore, while the billing happens as per contract, typically, this differential of LPS gets reconciled at year-end, right? For all practical purpose, people follow the power grid method on late payments surcharge, at least while raising bill and paying and therefore, whatever is the minor difference between 1.5% and 1.25% or 1% and 1.25% gets into reconciliation at the year-end and gets factored into a new billing if there is anything over recovered or under recovered. But these numbers are fairly small. And therefore, it doesn't move our particular P&L in a material way.

Next question is from the line of Sunil Kothari from -- sorry, from Hitesh Arora from Unifi Capital.

I just wanted to check, at the end of this financial year, where -- what would be your working cycle how many days would be? And then on the -- on your new strategy, just -- see, you've been talking about increasing your AUM to INR 3,000 crores in the past, but that didn't include the solar assets. So what is the motivation now to include solar assets as part of your expansion strategy? And the other thing is, it requires a certain amount of expertise, most of the management has worked in transmission assets, management has worked 10, 12 years in transmission assets. So your sponsor is a strong player in the business. So there's a lot of expertise that is built over the years which you sort of now deploy in this -- in the business. So from an expertise perspective, what gives you the comfort that in a business area that is relatively new, you wouldn't come up with obstacles that you would probably not thought of earlier?

Okay. So thank you, Hitesh. So to answer your first question, our working capital debtor days are 55 days at the quarter end, right? This does not include the unbilled revenue, but pretty much 55 days would mean that we are pretty much at a contract outstanding. The next question is about why solar and INR 30,000 crores. So as we've been saying, INR 30,000 crore is a large number, which we aspire to reach. Having said so, our focus has always been on accretive acquisition. So if we have to choose between size and accretion, we would always choose accretion. And what accretion means is that after paying for the operations, the finance cost and if at all, dilution is involved, after dilution, that acquisition needs to result in higher NDCF for each unitholder, right? So our focus remains on accretion. Now our expansion to solar assets has nothing to do with, I would say, INR 30,000 crores, right? Solar to -- our expansion to solar assets is based on the strategy that today, we, in the market, have a strong balance sheet. We have a strong presence in the power sector and we have a strong presence in the power and financial sector in terms of networks and credentials. We see a lot of consolidation happening in the renewable market, or let's say solar market. And we believe that there would be attractive opportunities to acquire solar projects at better returns than what you make in transmission and overall add better accretion for our unitholders. So I would say we are not doing this for the size, we are doing this to ensure that we leverage our competitive advantage in operations and financials to be able to take advantage of the market situation and overall result in a better value creation for our investors. The third point that you mentioned is an important one in terms of capability building. I think before we reached this decision to bring it to investors for vote, I would say that in our management team, including myself, Satish and the M&A team, all of us have -- in our earlier careers, have dealt with substantial amount of renewable energy either in financing it or in acquiring it or in operating it. For example, Satish, who is our Chief Operating Officer on the call, has been leading O&M of far more complicated sector, which is wind, for GE across India. So that experience and expertise exists in our management team today. Besides that, we have over last 6 months before we reached to this stage, have built significant capability in terms of setting our own standards, diligence processes, hiring some people to ensure that, as you rightly put, we need to have specific operating capability in house. And we believe that with the top management having experience in either financing, operating and acquiring solar assets or renewable energy assets, and over last 6 months of preparation in -- by investing in terms of developing frameworks and evaluation as well as hiring, we believe that we are in good place to acquire and operate some of these projects.

Sir, just a last question on the time lines for the dividend payouts or the payout whatever it's, dividend term, DPU payout. Is that going to be in line with earlier quarters? Or did you mention that there could be some working capital impact on account of the COVID shutdown on that payout time line?

Yes. So I would say that we have earned -- so the quarter 4 distribution gets made in quarter 1 of this financial year. Distributing INR 3 a unit, we need to have INR 175 crores of NDCF to be created in quarter 4. We have the NDCF, which is more than INR 200 crores. So -- in quarter 4. So we have enough of cash that we have earned in quarter 4 to make the dividend payout. However, the dividend payout gets done after the Board meeting at the Board's decision at the end of every quarter. Because of the COVID and the lockdown, our Board meeting is going to happen in May instead of April, which has been the trend in the past. So the decision of dividend payout would be made by the Board in May. And after Board meeting, it will be about 15 days of dividend. So I don't have the exact date to be provided for now. Having said so, I can tell you we have got enough cash in quarter 4 against INR 175 crores of NDCF. We have earned more. So unlike some of the earlier quarter where we had used the reserve, in this quarter, quarter 4, we have added to our reserve. But the specific dividend, when it will be made and the payout is a Board decision and would happen in May.

Does it have to be in-person Board meeting?

No. It need not be in-person Board meeting, Ministry of Corporate Affairs and SEBI both has given us an exemption. But for Board meeting to happen, we need to complete our audit, right? For the year-end. And considering this is a full financial year-end audit, where our annual report and everything would be based on this, the audit calendars have got stretched.

And assuming that there is an impact this quarter, for reasons other than cash flow, the subsequent quarter, are there cash flow implications that might impact time lines for dividend?

Okay. So I think time line for dividend and the cash flow are, to be honest, substantially different items. I think time line for dividend is only linked to our Board meeting, and Board meeting plus 15 days is something which we target every time. So I think that is something completely different than the cash itself. Now if -- considering the fact that we have been maintaining reserves for ensuring that any quarter if there is a blip, we can use out of reserve. Quarter 4, rather, we have built up the reserve. And therefore, if this lockdown ends in May, and I would -- I won't call it complete BAU, but things open up in June onwards, I don't see material impact on the subsequent going forward quarters.

Sir, my just 1 final question, sort of a layman's question. So a year or 2 from today, when you have the other 2 projects that you're thinking about within the fund and maybe some more accretive solar projects, the aim is to get this 3 up to a higher number. Is that right?

Okay. So I would -- the question is about accretive measure. Our aim is to increase our NDCF. The aim of increasing DPU is backed by more acquisitions and more NDCF, right? So certainly, we would look to do that.

Pardon me, I'm not familiar with all the jargon, so I'm sort of oversimplifying my question and simply asking you, can 3 become 4, when you get done -- these things done, 350 or whatever?

Yes. So I think we have not given a formal guidance. So for me to say 3 can become 4 is not appropriate. Having said so, if -- whatever we earn out of our cash flow, 90% has to be distributed. See -- with respect to INR 175 crores a quarter and therefore, INR 700 crores per year of cash that we generate, then it is the INR 12 that we distribute. If we earn more than INR 700, we would be looking forward to increase the DPU. Now whether it will be 4, whether it be 3.2, whether it will be 3.5 and the time line for that, it would be difficult for me to provide today. But as and when we complete these acquisitions and as our quarter 4 Board meeting happens, we would be providing a guidance for subsequent 12 months. And we would look to include our strategy of increasing DPU in that annual guidance.

Next question is from the line of Sunil Kothari from Unique Capital (sic) [ Investments ].

Congratulations for good cash flow and good cash balance during March and year-end. Sir, my question is how big opportunity is power transmission. Is it more than to make us cross our asset to INR 30,000 crore? Or you see there is some limitations? Some broader thought process on opportunity in power transmission only.

Okay. So I would describe -- Kothariji, I'd describe the opportunity set in transmission market into 3 buckets: Bucket #1 is -- which is a framework asset, which we already signed. And therefore, that is something which is available and visible for us to acquire. Bucket #2 is assets that are getting bid right now, right? So for example, if COVID was not there, in the month of April, there were about INR 10,000 crores to INR 12,000 crores of assets, which was coming for bidding in auction. Those would be our second bucket of opportunity, which would become available in 2, 3 years' time as and when they are commissioned, right? So that is the second bucket. And the third one is assets available with people who are not consolidators. And when I say consolidators, it's people who are not utility, pure developers. So for example, let's say Sterlite Power is one of the developer who will look to monetize some of the projects. Similarly, there are other developers or conglomerates who have acquired transmission lines at certain point in time, and they would look to monetize. So that's a third set between that. Between these 3, if I were to sum up, the visible pipeline or, let's say, visible projects that we see, the number would cross about INR 25,000 crores. Having said so, when they will come through the pipeline, when we can acquire them, et cetera, is based on which bucket matures first. But it is a sizable opportunity for us to acquire and grow. That's how I would put it.

Right. And Harsh, in your opening remarks you said that this solar category is also having a similar risk and return ratios. And I think just now to replying to somebody, you said that is an accretive opportunity. So just wanted to understand -- it seems that it is a better return giving opportunity, but which are the additional risks we are taking. And we, as a unitholder, always try to convey that risk over and above this INR 12 DPU is -- sometimes can hamper long-term return ratio. So if you can cover this -- my point and my worry, I'm trying to sort of understand why this decision we are taking because it is doing -- because I'm talking to some other investors also and people are little -- because when we met in this last AGM, there was no talk of any other diversification or [indiscernible] and now suddenly we are talking about a generation asset, not just transmission. So that's why we are little concerned. Please, I mean, if you can explain?

No, I think you have a valid point. And I would just address it into a few buckets, right? So if you go to the last slide, which is Slide 14, right? Like any other infrastructure business, there are technology risks, there are operation risks, there are contract risks and there are regulatory risks, right? So it's about our ability to manage these risks in a professional and -- in this manner and after addressing these risks, our approach to acquire them at a better price. So let us say, for example, the technology risk, right? Which is that are your module going to last long? Would you have enough warranty? Do they have enough new modules available, et cetera? So I would say this must be addressed by acquiring projects with top-quality modules, which has got track record across the world, not just in India. And therefore, that addresses this risk. On an operating risk, to be honest, I would say that solar projects are slightly low in terms of riskiness of operation. Reason being they're modular, right? In your common panel, let's say, the 100-watt panel, let's say, right? Or 300-watt panel, in a 100-megawatt plant, there are thousands of such panels. So if a few panels fails, your generation doesn't become half, right? It goes down by a very simple percentage. In comparison to a transmission line, if your tower -- out of 1,000 tower, 1 tower is down, your revenue can be 0, right? So from an operating risk perspective, I would say solar power projects are far more diversified or rather less easier to manage because they are in the same premise and they are modular, and they impact your revenue in modular manner, if at all. So I would say the risk of -- operating risk of solar is far simpler and easier versus what we are already used to manage, which is much bigger in cross country. Third is commercial. So I think this is a very important risk. We have kept large part of our portfolio, as you already know, with the PGCIL-backed POC contracts, and we plan to continue to do the same substantially even in the solar. So for example, SECI or NTPC contracts have also got similar receivable days and therefore, we haven't seen delay in them, and they have been backed by the central government entities. So we have been seeing that track record very carefully and choosing the right set of solar projects, which does not have a receivable risk, right? That's the next one. And the last one, which is already covering whether your regulator is strong. So in this case also, we are focusing on largely CERC government projects, and therefore, we are getting the same kind of safety. And the last one is on the accretion. So on an average, if a transmission project goes for a particular EBITDA multiple, or an IRR, a solar project, we are acquiring at a lower multiple and lower IRR. So we are getting compensated for this slight bit of extra variability that we are taking, right? So I think the way to look at it is, we are not doing this for size. We are seeing a good opportunity in the market right now to add to a similar kind of risk return profile to our business, which, by the way, across the world people look at it as a great synergy between transmission and renewable energy. And therefore, most part of large InvITs and REITs even in the U.S. or elsewhere, mix these 2 asset classes because of the same operations and corporate synergies. So I would say that at the end of the day, we are not changing our thesis. We are maintaining 75%, 80% of our portfolio in solar -- sorry, transmission, which has been our core. We are only looking to diversify in a gradual way, in a safe way to strategic assets, which will add to yield accretion to our portfolio.

So Harsh, can you first...

Sorry to interrupt you. I will have to ask you to come back in the question queue for a follow-up question. [Operator Instructions] Next question is from the line of Elesh Kariya from Axis Capital.

Harsh, 2 questions. Most of -- I mean both of them might be theoretical. One is that given the new tax regime for your unitholders, you might have to decide on which corporate tax that you need to go -- I mean go by, whether it's a 25% or the 35%, given that we still do not have dividend component in our distributions, but going ahead, we might have after a few years. So that is one. And the second question is a little bit more theoretical, whereas the trust we receive interest, dividend and principal repayment. But when we pay out the interest, principal and dividend, does it have to be in the proportion which we have earned or you have to net off your interest against the interest payout at the trust, your principle against the principal payout at the trust, how does it work?

Okay. So -- yes, Elesh, I think both are important questions. I think your point number one, as we do the year-end financials and audit committee, we'll come back with specific assets in which we are taking 25% and specific assets where we are not taking 25%. And we are choosing it strategically based on particular asset cash flow and whatever is the best optimal choice of tax regime that we are choosing. So we'll come back to that with the quarter end results and publishing financials and valuation reports. But we are choosing selectively, to answer your question directionally. The second question that you asked is with respect to interest, principal and dividend. So over here, there is a principle of nexus that is applied that portion of the interest is backed up against the interest cost. The principal cost is also backed up against the principal, which is amortized. And the operating cost is used for the operating cost. So we try to do the same color in which IGP has received. So for example, as you put in, IGP has received interest, once interest will be taken out of that. If IGP has received principal and the principal is paid, then the principal will be paid out of that. So principle of nexus is applied in line with the tax used.

Okay. And just a follow-up on the first one. I mean can you have a mix of both? I mean some assets having 25% as the tax regime and some have 35%? Wouldn't that confuse the investor in terms of on which component he needs to pay tax and on which he doesn't?

Okay. So point one is that all of them are different legal entities, right? And therefore, we need to look at what is most optimal for investors to get best cash out of that asset. Second is yes confusion, I think -- I don't think from the existing assets, there is going to be a substantial dividend component for a foreseeable future, right? And therefore, I don't think it will be a confusion. Having said so, as and when we do it, it will come with appropriate disclosure of what asset it is and how will it be applied so that investors don't need to think beyond that. For example, right now as well, we clearly give articulate in our distribution advice that what is interest, what is principal, what is dividend, then we may have to classify dividend A and dividend B, right? So as and when there is a scenario, there is an easier way to avoid the issue with that.

But you can have a mix of both? That is what I just wanted to understand.

Oh, yes, there are separate legal entities. So all legal entities can choose different structures, yes.

The next question is from the line of Swati Mehta (sic) [ Khyati Mehta ] from Tata AIG General Insurance.

I have a couple of questions. One is, was GPTL completely funded by debt? And the second question...

Yes. Go on, sorry.

Yes. And second question will be what was the tenor at ENICL Axis Bank loan of INR 900 crores?

Okay. So the first question, GPTL would be funded by debt because the equity required for that at 30% was already came in May 2019. The next question on ENICL loan, the tenor is 5 years.

Okay. And what tenor we'll be looking at for GPTL?

We are evaluating anywhere from 4 to 10 year or 15-year kind of structure, right? It's a month early. So as and when we close in May, we would look at anywhere from 4 to 10 years kind of structure. So a longer term structure.

Next question is from the line of Sarvesh Gupta from Maximal Capital.

First question is that 2 projects that we are acquiring, you are saying that the NDCF accretion would be around INR 35 crores to INR 40 crores. So I assume that together, they are INR 75 crore additional. So that is around INR 1.25 additional DPU, which is possible in the coming years. So hence, isn't that guidance that should be increased now from INR 12 to like INR 13.25 or something around that?

So -- I think Sarvesh, it's a very right question and a valid question. We have just acquired for ENICL right now. And second is we have not yet acquired GPTL, right? So I would say, as I answered earlier, the guidance for FY '21, we would issue in May after the Board meeting. Looking at when GPTL is closing and when it's going to be the final NDCF plan that we will approve for FY '21, directionally, what you have said is right, INR 700 crores, we have INR 75 crores, INR 80 crores more that we are earning this year, if we close it in a particular time frame. The answer is yes, we would earn more than INR 700 crores with these two, and that is what NDCF accretion is. Having said so, the DPU guidance is something which is after a lot of deliberation and review, looking into 3 and 4 years of plans, right? Of all acquisitions. And that is something which, as a company, will be able to give in the quarter for Board meeting sometime in May.

And what is the project IRR for these projects? I mean I can see EV/EBITDA, but what is the project IRR specifically? I think one of the projects is with a very low time line. I mean you have said that it will have a likely extension, but I'm hopeful that you are not including that likely extension in your project IRR calculation. So what is the project IRR for the 2 projects?

So I think the simple way to look at it. And again, project IRR definitions keep changing between different people. I think our EBITDA projections are available for everyone to look at it. Most of the projects that we have acquired till now are higher than 10% to 10.5% kind of IRR, right? -- project IRRs or unlevered IRRs, let's put it like that. So -- to avoid confusion. So that would be a directional number. Now there can be some of them, we have acquired at 11%, some of them at 10%. It will be different by different projects. But directionally, that's how it is there. Second is that you mentioned on the extension, I think I would say that we do believe in the extension even beyond 35 years. There is a credible business case regulatory backing for ensuring that the contract gets extended beyond the period. And therefore, we do factor that in. The impact of that in today's terms will be 30, 40 bps, but we do factor at it. So I think that's just a clarification.

Okay. And regarding this new diversification, I understand that, of course, this can be more accretive from a lean perspective. But then it can also induce a factor of variability in the DPU going forward, which is something which some of the [indiscernible] investors may not like. So is there a way -- I mean now the postal ballot is already out, but if you would have worded that this will not go beyond the percentage of AUM. Of course, you have mentioned that in your presentation, but I think if you would have hard-worded this, then probably it could have been an easier decision for a lot of unitholders.

Okay. No, I think it's an important point that you highlighted, and I'll just highlight the difference of why it is not there in the postal ballot and why it is there in the strategy. So point one, on the variability that you mentioned, and that is one of the reasons that we have guided that we are going to do maximum 20%, 25% of all the projects, right? This means that even if at the highest level of 25%, if you look at 10%, 20% big variable -- variations in your revenue of your plan, you're looking at 2%, 3% variation on the entire 100% revenue, right? So the idea to keep it low is primarily to keep the risk on both variability and collections lesser on the overall portfolio. So that is the main reason to keep it less. Second, there are natural barriers on the percentage of acquisition that we can do. For example, for us to acquire our assets competitively as well as strategically and maintaining our balance sheet and financing, we would look to maintain a AAA and we would be giving such covenant to rating agencies, which will also be publicly available that this company has stated that they are not going to cross this percentage, right? So as and when we come to actual closure of the assets and ratings, we would be announcing policies which will clearly outlay that this is the headroom that we are maintaining for any other assets. And they'll also be publicly available and as a covenant provided to most of our debt investors and also rating agencies, right? The reason why not to include it in the charter documents is the charter document amendment is a long-term process, if at all, we need to do. And therefore, charter document, as you would know, naturally captures broader enablements, but the business strategy will be far more narrow, and you will see more communication coming from us to rating agencies and covenants which would give adequate comfort beyond just the presentation.

Okay. And finally, one question, you have been saying yield accretive, but when you're looking at yield accretion, are you looking at the yield at the market price or are you looking at INR 100?

Sorry, can you repeat the question?

Since you have been mentioning yield operative acquisitions, are you looking at yield at the market price or are you looking at yield at INR 100?

Okay. So we look at yield at 2 levels. We don't look at INR 100, we look at our NAV, right? And NAV can be higher also, NAV can be lower also, right? And the second is that the market price as well. We look at both. It changes with respect to the cap structure with which we are looking to acquire that asset, right? For example, if beyond INR 19,000 crores, we are going to acquire a project, which requires new capital raising, then that becomes the base that after raising capital at that price, would it be accretive? So that becomes the fundamental base. Having said so, if for a capital raise, which is already completed, and we are only doing it as a funding for third-party or other growth, which we did not factor in, for that we look at both the current market price as well as NAV. But 100% it's not a debt instrument for a principle, right? So the association with INR 100 is not true. Association with, I would say, a reference price would be NAV and a trading price, and we look at both.

Understood. Operationally, at least the power transition is...

Sorry to interrupt you. I will have to ask you to come back in the question queue for a follow-up question. Next question is from the line of Kunal Aggarwal, an individual investor.

I had a couple of questions. So the first one is simple one. So I know you guys have to distribute 90% of the cash you guys get in the form of DPU. But is that accounted for on a cash flow basis or on a C&I basis? So if you not -- if you got that lying around in accounts receivable, do you still have to pay out 90% of it? And if so, do you need to borrow to make that happen? The second question I have, which is more of a general commentary for you, is your counterparty here is Power Grid, essentially, Power Grid's pooling mechanism, but they've got to talk to the DISCOMs too. What is the general state of health with the DISCOMs? And where do the DISCOMs get liquidity, especially if their customers stop paying them? Is there support from the RBI or from the central government or from other financing entity, which would help these guys pay money? Or do you expect most of them to just delay payments and keep paying the delay payment fees?

Okay. So answering your first question, the net distributable cash flow formula is approved by Board and -- for the IT document and SEBI approved. It is publicly there. It is not a P&L number. It's after -- after the working capital changes, basically, all the noncash item adjusted for and the exact cash generation that has happened between the period is the NCR. So I think that's something which is not a P&L number. It's a mix of P&L and balance sheet. This is the cash flow that is earned in the period. So that's to answer your first question. Second question is with respect to our eventual customers. So yes, the Power Grid is just a pooling mechanism. They collect from the eventual customers. Eventual customers at DISCOMs, I think there is enough said about DISCOMs and their financial health is not great. And I won't say that the financial health is phenomenal, and especially over the last month or so, the collection would have gone down, right? So that's the reality. Having said so, to put things in perspective, interstate transmission charges are a very low single-digit percentage of their P&L. So it is a smaller number. Second, it comes in the waterfall before the interest, so it is an important money to be paid by them. Third, CTU, which is the Power Grid, have LP as a security against this payment for a couple of months. And fourth is that CTU can actually regulate power in case they want to recover the money. Now simply put, during set, they pay the essential services. And within essential services, transmission comes on the top, one, because it is payment towards the central utility. Second, because it is a very small payment, right? So these 2 principles keeps us higher in the value chain, right? Point one. Point two, where do they pay from? I mean it is difficult for me to comment on liquidity of which DISCOM will pay from which liquidity sold. Having said that the operating cash flow is not there, most of them are borrowing and they will be borrowing at a higher rate, right? But if they don't borrow at a higher rate, the net rate at which they are deferring the payment is 12% or 18% a year, right? So the penalty on main issue of CTU is substantially higher. And the last one is there is always mix of people, okay? There are people who pay early even in the current market, there are people who pay late. On a balance level, we have received on an average 55, 60 days receivable till now, even in the election year, let’s say, so-called [indiscernible] year. So I think we are confident that they'll keep honoring that.

All right. I guess Power Grid may not be seen to crack its whip in times like this, right? And probably would have -- probably give a little bit more forbearance to its debtors?

So I would not say, so Power Grid is also a commercial body. And at the end of the day, when Power Grid goes to quarter 4 and quarter 1 calls, they are held accountable for any delay. And we have seen an extremely professional behavior from Power Grid to ensure that the collections are done. They are not working like let's say, a body that they can give forbearance because they have to. They fight tooth and nail, and that's what you saw -- we saw in this case as well. In the Ministry of Power Order, Power Grid fought with us and saying, we are not going to give any moratorium. We can only reduce late payment surcharge. So I would say that they would maintain that.

Next question is from the line of Rushabh Sheth from Karma Capital.

Harsh, can you hear me?

Yes. I can hear you. Thank you, Rushabh.

I think you guys are doing a wonderful job on the transmission side, and I've been a long-term shareholder in this. The only thing is I really can't understand for, money's worth, this diversification into solar power. I mean I can understand that the -- you think it's an efficiency and it kind of adds value, hopefully, over the long term to the investors. But to be very honest, I think there is a graveyard full of people who tried their hands at solar power and have not succeeded for various reasons, and the reasons are out there for everyone to see. Considering that we are doing so well in the transmission, it kind of really is a fuzzy logic to say that you want to get into solar power right now, and there is significant opportunity on the transmission side. Why to take a risk on something and in an environment like this? Had it been a pre-COVID environment, we could have still thought maybe you can put 5%, 10% of the capital. In an environment which has become so fluid and so risky on its own and then there are issues on -- as the previous speakers are pointing out in terms of existing payments from DISCOMs and Power Grid. Why you want to get into another space, which is completely different and has its own challenges? And as I said, there is enough and more literature out there to say that you have to be very, very careful with solar power. Despite of it, I can understand what you're saying, that you're going to take all precautionary step in terms of who the counterparty and all that is. I really can't understand why the company at this point of time, at this juncture, when there's so much uncertainty out there in the world, wants to get into solar power.

Okay. Thanks a lot, Rushabh, and I think you made all the valid questions, and I would now just try to address that from our side. I think, as you rightly put it, we are a long-term platform and most of the decisions that we take are for long term. We are not getting into solar for 20% in next 3 months, right? It is an enabling resolution. That's one. Second is that we have seen this crisis of COVID as an opportunity at this point in time. Considering our, let's say, financial sponsors and their ability to contribute more capital, considering where we are in terms of our leverage and balance sheet, I believe that when the rest of the market is substantially stressed, there would be few opportunities which would be available at a very attractive price, right? And beyond that, I think it's difficult to comment on that at this point. Second is that within solar, as you rightly put it, a lot of people have made large massive business plans and may not have worked out. I would say that only difference that we are working on is that our choice of projects is limited to a few counterparties and operations. We are not getting into under construction, fresh bid of solar growth as and when the bid comes in. We are very selective. And I think as well, I don't see a portfolio which has been so selective in the country, in selecting the right set of counterparties, right set of operating risk and right set of capital structure at a consolidated level to have failed, right? Most of the people who have not worked out have been either, I would say, not conservative in 1 or all 3 of them, right? And the last one is that business enabling resolution, we are not getting into 20% threshold tomorrow, right? We are evaluating. And as and when we get opportunities, we would make to, let's say, a particular decision of acquisition, right? But I think all the points that you made are fair. We are looking at it as a long-term business. We are not making any decisions to necessarily grow aggressively tomorrow. But we are looking at this as an opportunity where a player like us with a strong balance sheet, strong financials and strong access to capital and operations would find good projects to acquire in this current market. So I think that is the strategy, I would say, but strategy is not to suddenly reach 25% and change the color of the project in the business.

No, I understand and I appreciate. All that I would say that with the kind of uncertainty, which we are seeing in environment right now, not just in India but globally, I would say that -- I would advise the Board and the operating management to tread with great caution because the problem with all these things is that it's like it's a one-way ticket. You can get in, but you can't get out of it very quickly because these are structurally long-term assets. So I would really urge great caution when you kind of make this decision and go ahead with it, that's all I would like to say.

No. Thank you, Rushabh, and I definitely take your message. We are a cautionary or have a very cautious Board and company and management team, and we will take all the points that you made and take note of that. And we would act with a tremendous caution. I would just say that, yes, there is a crisis, and we don't know where the world is heading probably. Whether COVID is temporary or permanent, we don't know at the moment. And therefore, I also agree we are acting in abundant caution at this point.

Next question is from the line of Jignesh [indiscernible] from Samvad Financial. Line for the participant dropped. We move to the next participant. Next question is from the line of Sriram Modi from [indiscernible].

Yes. Can you hear me?

Yes, please.

Yes, Harsh. Firstly, I wanted to understand if there's any upside to the operating cost assumptions that we take for the medium to long term in terms of operating expenses may go down due to automation or any other reasons?

Okay. No, very interesting question, and thank you for asking this question Sriram. Yes, we do expect not in a year's time, but in 3 to 5 years' time, we do expect and rightly that you put in, we expect savings on account of 2 things. One, on account of technology involvement, a good chunk, about 25%, 30% of our overall O&M costs rather actually more goes into services cost, which is supervision and monitoring. We believe that and we are already evaluating several technology which exists across the world, right? We don't want to -- we're not saying we'll make something new, which is doing path-breaking work in reducing supervision cost, it involves either robots on a conductor or a drone or a satellite imagery. We believe it will come to India. It may take slightly longer time. But I would say in a 3 to 5-year horizon, we would see that we will be beating inflation and saving cost. However, we'll have to evaluate and invest in that. We are doing it. And Satish, who is the Chief Operating Officer, is working with our engineering team deeply to see what kind of opportunities that can be created in the medium term.

Sure. What would be the cost of equity and cost of debt for solar plants? And what kind of project IRR would you expect over there?

Okay. So I think all the 3 questions that you asked are, I would say, I would not like to publicly state those numbers before we've acquired projects. And I would say that it will be 100 bps or higher than 100 bps of return than what we see in solar -- on a transmission projects. So I would say 100 to 200 bps higher than what we do in transmission projects. That's how we would look at to acquire higher return. But I think to give away the exact numbers is something which deals with our competitiveness in the marketplace. So we'd avoid doing that right now.

Sure. That's pretty fair. And finally, if you could just mention some developers on the utility scale solar front. And -- I mean if you could clarify if Sterlite Power has any significant presence over there?

Sorry, can you repeat that question?

If you could just mention some developers on the utility-scale solar front, and if you could clarify whether Sterlite Power has any significant presence over there?

Yes. So again, I would refrain from naming developers in solar power sites. But I would say that, yes, Sterlite Power at the moment doesn't own any solar project, neither I am aware of any plans to bid, right? So this is not done for Sterlite Power solar power projects.

Okay, okay. Sure. Thanks a lot. I really think that a steady dividend yield in present environment is obviously a great thing. So complement you and the team for that.

Next question is from the line of Divesh Shah, individual investor.

I'm in line with all my fellow shareholders who have shown a little bit of concern about our solar project. And I think our company is in good hands of you. And my fear is that I feel that you are fearing that since you have given the justification of solar plant is 100 basis points better than our core business of power transmission line. So do you foresee after some future 3 or 4 years that your income from transmission line may be reducing and to compensate that INR 12 DPU, you are going for some risky assets to compensate that, the risk part, and you are buying -- enabling resolution you are passing for a solar park. That is my biggest concern. Because until now, we were -- as shareholders, we were under the impression, it will be a pure transmission -- power transmission business. But first time we hear that our 20% to 25% will be solar power. And it may happen that after 3 years, 4 years, this 25% may go to 40%. So our fear as a minority shareholder is a little bit of concern that just to preserve INR 12 DPU, we are moving from secured and since we have the best transmission, power, power transmission assets, we are moving from and we are diverting from transmission assets to the solar. Really, we feel very much concerned. So you have given the justification that you are getting 100 basis point better than -- but our fear is that it must be because after 3, 4 years, you are seeing that your power transmission income might be reduced.

So Diveshji, I would put it -- I would put it into 2, 3 buckets, right? [Foreign Language] are we doing it to cover up something? I don't think that is the right interpretation. I think from our perspective, from our existing pipeline itself, we have given in June 2019 guidance that with our existing framework assets itself, we can maintain INR 12 for 10 years, right? So this is not getting done to fill up the call after 12 years -- after third year or fourth year, right? So that is factually incorrect, so just clarifying that. Second point that you mentioned is can it increase from 25% to 40%? I would say no, because at the end of the day, there are rating considerations, there are covenants which we are going to agree with rating agencies and provide that. So it will be publicly available, what is our strategy? Third is that at the end of the day, right now, you feel that transmission assets are very good because 3 years back, there was IndiGrid that was formed with the focus on only good customer base, right? I would urge you to believe us. We are still focusing on the more safer cash flows. NTPC cash flows and SECI cash flows are, I would say, almost in line with Power Grid cash flows, and they also carry a good long track record. So I wouldn't say that we are taking additional risk on that account. But I think I can give you comfort that what is most important for us, what -- is a AAA rating, which is a hallmark of safety. And as long as -- if we have to be only 15% solar to maintain AAA, we would do 15% solar. So I think the percentage is less important. Our focus is to ensure that we remain a stable platform. Rating does add value and does justify how safe we are, besides what we publish and disclose our financials and track record. So I would say that our focus at no point in time is shifting from taking higher risk and changing the color of the platform. We are focused on delivering a robust yield, growing that yield without taking -- without losing the yield, becoming a risky platform.

But Harsh Bhai, I will in simple language, in layman language, I will put it in one word, it is the greed. So we, as a shareholder, conservative shareholder, we feel that we should not take that path, if possible. I think it is absolute greed to get a higher DPU. We are moving to solar. What is wrong with power transmission? We don't mind if you don't hit the target of 30,000, suppose you go to 20,000 or 25,000, and you maintained that INR 12, instead of buying a risky assets. So in a common -- layman language, I will feel -- we as a minority shareholders feel that it is a greed on management side to go for solar because solar has many problems rather than transmission -- power transmission.

So I would -- Diveshji, I would answer it in a very simple way, right? Just to address, we as a management team, unlike a normal company, has a fiduciary role to ensure that unitholders' interests are at the highest of importance, right? And we take decisions based on that. Second is unlike a normal company, right? Where there are promoters and the decisions are taken for promoters, it is -- there is no majority or minority over here. Everybody -- every investor is a financial investor. And therefore, from our perspective, as a management, there is no promoter for whom we are working, right? We are working as an asset manager, and our role is fiduciary. And therefore, I don't think you should be worried about as a minority investors. There is something getting done in favor of majority investors, right? It is a platform where every investor has a similar right and return. And every investor has -- no investor has a specific promoter tag over here. So I would urge you to look at from that lens. And I would -- I mean you have been a long-term investor in IndiGrid. You have seen the worst of the times when the market didn't understand transmission also, right? So I would request you to continue holding trust on that. We will remain conservative and ensure that you are not having any surprise over medium or longer term in terms of your return.

Harsh Bhai, I am a long-term investor with IndiGrid and I want to remain a long-term investor unless you take a safer bet. So just convey my concern over the Board about this solar power, please?

Yes. We understand. We take your point, Diveshji.

Next question is from the line of Atul Share from [indiscernible].

Yes. I just had a question in your opening remarks, -- hello?

Yes, please.

Yes. In your opening remarks, you mentioned that the -- since you are in the essential services, there will not be a significant impact on lockdown. But if you can give -- throw some light based on numbers, like what kind of impact whether more or less will there be on the sales and the net profit margin? And my second question is that our distribution that the IndiGrid Trust does is in terms of dividend, then if it is in terms of dividend, then why is it subject to TDS? I mean is it not that interest is subject to TDS and not dividend?

So first question, to answer that, I think I would say that we -- when I said that there is not material impact on our operations, that is to cover that we operate in about 11 -- sorry, 13 states, okay? And we needed approval to operate because we are in essential services, if there are any shutdowns or maintenance requirements, we have to be able to do it. And therefore, that point covers that we have approvals even in this lockdown, for our people and their cars to go and restore lines. So there is no risk on our availability to be able to maintain because of lockdown. And the moment there is no risk on our availability, our profitability remains intact, right? Because we are not losing any revenue. So that is what it meant that we do not have an impact on account of that. Second is we distribute, in any case now, now it doesn't matter because even dividends need to have TDS, but we distribute most part of our income as interest. And therefore, there is a TDS. If at all we issue dividend, based on the amount of dividend and investor classification, there may or may not be TDS in that as well. So now that has changed. So if at all the dividends are higher, if at all we may also do TDS there also. But at the moment, we are only paying as interest and therefore, there is TDS for the individual investors.

Next question is from the line of Manjeet [indiscernible] from Solidarity Investments.

This is Manjeet Buaria. I had one question related to solar. Yes, just on the picture of the risk perspective, which you mentioned some time back, I wanted to understand, let's say, there is a certain level of technology where the solar power is today and the technology costs have been going down over a period of time. So how confident are we that we have kind of bottomed down there? Because if there is a future aspect of these costs going down still further, the tariffs come off and on merit order dispatch, our solar projects get pushed back more on the back. So I'm just trying to understand as I don't understand this very well. So what's the risk where our technology becomes more outdated and the newer ones going to be priority?

Correct. So I would give you a high-level directional view in sort of very specific. What -- one of the key factors that we evaluate when we look at the solar project is to see that we are not acquiring projects whose tariffs are higher than APPC tariffs of a particular state, okay? Or a counterparty. Why is that important? That is important because that says that we are remaining below the APPC price of a particular [indiscernible], right? And therefore, we remained in a, let's say, order of priority. Now having said so, as you rightly put in future, there may be a reduction in solar power cost. And therefore, the incremental capacity may come cheaper, right? Would that put us behind the priority order? It's the question. So I would say that we do region-specific analysis when we enter into this project. And we run that analysis and do comfort ourselves that there are less likelihood of that happening, then only we pick that up, right? The second thing is at the end of the day, you have a contract, right? Which is independent of new projects that are coming at the new price. And therefore, you do have a significant important strong contract with a kind of a counterparty of SECI and NTPC, that incremental tariff may not impact. For example, while the incremental tariffs are today at INR 2, INR 2.5, there have been projects which are at INR 5 as well, right? And they are getting serviced very well even today by the same counterparties. So I would say that's slightly -- it's an important part, but it's not a material part, which will change the return dynamics. Second is in the long-term evaluation of a project, large part of the financial returns are made in the first 10 years, right? And beyond that, the NPV impact of the small changes is relatively lower. And therefore, the next 10 years matters more. Third is unlike other projects or other technologies, solar has an ability to, obviously, at a certain cost and a certain tariff and mechanism that you can actually buy new modules, which are at a cheaper price, and replace your old one and overall get a productivity benefit, right? So it requires the active asset management. But over a period of 5 to 7 years, it's in wind, it's called refarming. There is a possibility of actually attracting better yield than what you envisaged, right? So to just compensate, if at all, there are any other issues. So I would address it at that level because beyond that, it is very, very project specific.

Got it. And just one more question. What are the project-level IRRs you think you can get because you're going after probably the best-in-class solar projects in the country today, right? So what is the kind of -- is there a cut-off project IRR or I don't know if you want to use an EV/EBITDA, which will acquire a project -- which you have to internally put out, beyond this, we won't really bid for anything?

Yes, I think it's an important point. But as I mentioned in the earlier call, I don't like to mention our commercial -- without the deal because that impacts our -- let's say, that throws away the price at which you're buying, right? So I think it will be a confidential number at this point in time to disclose. Once we acquire, obviously, it will be publicly available, and that can set a benchmark. But today, it would be difficult to provide that number. But as I said, it would be substantially more accretive than transmission projects.

Thank you very much. Ladies and gentlemen, due to the delay, the call was extended for 15 minutes, the time is over. I will now hand the conference over to Mr. Swarnim Maheshwari for closing comments.

Yes, thank you so much, Harsh, for addressing the questions. And thank you once again for giving us an opportunity to host. Thank you so much. Would you have any closing comments over here?

Sure. So I would -- yes. Thank you, Swarnim. So as a closing, I think I would reiterate that our business is robust to us. COVID is a -- at least for now, is a temporary crisis. Our balance sheets are strong. Our business model is strong, and we believe there's not going to be material impact on our business, our balance sheet, our cash flows. We are continuing to focus on our business strategy, which is to acquire accretive acquisitions. We closed ENICL in March. We are looking to close GPTL in May. And the last set of diversification is a long-term strategy, which we are taking enabling resolution today. As we have said, we are cautious ourselves as management, as Board and as our investors. We would be expanding and executing this strategy very carefully as we have done for the rest of the strategy of IndiGrid as well, and we'll be picking up projects which make sense for us without adding risk and add accretions to our investors for value creation. So I will just conclude there from our side, Swarnim. And thank you for such a wide participation from our investors and asking the right questions. So thanks very much.

Thank you very much. On behalf of Edelweiss Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.