Indigrid Infrastructure Trust (540565) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the India Grid Trust Q4 and FY '20 Results Update Conference Call hosted by Edelweiss Securities Limited. [Operator Instructions] I now hand the conference over to Mr. Swarnim Maheshwari from Edelweiss Securities. Thank you, and over to you, sir.

Thank you, Stanford. Hi, and good evening, everyone. On behalf of Edelweiss, I welcome you all to the India Grid Trust Q4 and FY '20 Conference Call. From the management, we have with us today Mr. Harsh Shah, CEO; Mr. Satish Talmale, COO; and Ms. Divya Verma, Head, Finance and Accounts. I would request Harsh to start with his opening remarks, and then we can have a Q&A session later on. Over to you, Harsh.

Swarnim, thank you, and thank you, everyone, for joining today. It's our 12th quarter results as well as third financial year completion results. As you've seen we have circulated the investor presentation, which would be available to you. I would be referring to the slide numbers for ease of reference or -- so that you can be on the same slide. As we see in the contents, we would start with reiterating our vision and journey since inception and listing, I will take you through the financial highlights or the key highlights for FY '20, and take you through the overview of IndiGrid, industry outlook that we see and the operational and financial highlights for the year and what we look forward ahead. That's the sequence of events for today. On Slide #4 is just talking about now our vision and journey. Since the time we launched IndiGrid, our vision has been to become the most admired yield vehicle in Asia. And there are certain elements of our strategy and business plan, which are been highlighted over here. And these are the pillars on which we plan to achieve our vision. A focused business model, which is dependent on long-term contract, no operating risk projects and stable cash flows. This is something which is the first and the most important parameter of our strategy to achieve the vision. The next pillar of our strategy is to the value-accretive growth, which results in DPU accretion year-on-year and creating growth pipeline for future. Third pillar for our strategy is to provide predictable distribution, which is quarterly. SEBI regulations require us to distribute half yearly, but we are doing -- consistently following quarterly distribution since listing. And 90% of the net distributed cash flow that we earn is what we will keep distributing. And the focus will remain on the sustainable distributions, which means that whatever we distribute, we look forward to continue that for a sustainable period. And that is something which is important part of our strategy. And the last one is more about our balance sheet strength and managing optimal capital structure. This is something which certainly in today's time is even more relevant, and we will talk about this a little more in the subsequent part of the section. Within that is we have a consolidated cap on a leverage to ensure that we -- the overall platform is delivered optimally, never too low and never too high. We are rated AAA, and we would continue to look forward to maintain this rating with a prudent liability management and selection of assets. And at the moment, we are well capitalized and being well capitalized is core part of our plan, and we'll look to ensure that as we grow, we will maintain our capitalization in order. That is the vision and strategy on which -- different parts of our strategy, which will allow us to achieve our vision.. The next slide, Slide #6 is about our journey till now. Considering that this is the third anniversary of our listing, I believe it is an important milestone and day for us to reflect back and see how we have fared, and also what we promised and what we are delivering. We listed in 2017 June as the first power sector InvIT at INR 3,700 crores of assets, with 2 assets at hand with a AAA rating. Subsequent to that in 2018, we acquired INR 1,700 crores of assets 3 from Sterlite Power and 1 from Techno Electric. This was funded by debt because on listing, our debt headroom -- debt capacity was open, and we were only levered at 25%. After this acquisition, our debt to AUM reached 49%, and therefore, for subsequent acquisition, we needed more capital. In 2019, we raised INR 2,500 crores of capital via preferential issue. And in the same transaction, we onboarded, KKR and GIC as one of the largest holders of IndiGrid. Along with that, we acquired another INR 5,000 crores of assets from Sterlite Power and signed up a pipeline of INR 6,500 crores of assets to ensure that our growth is also locked in. This transaction [indiscernible] period in 2019 allows us a security of pipeline till about INR 18,000 crores of size and a good marquee investments on board of the pipeline that we had signed up in 2019. In 2020 till now, in the last 4 months, we have announced 2 acquisitions of approximately INR 2,000 crore. One acquisition of ENICL, which we completed during the lockdown. And the second one, we had approval of which we circulated the post last month. Overall last 12 months, there has been also a substantial amount of regulatory evolution that has taken place by SEBI and RBI, which we believe is going to provide a lot of impetus during this [indiscernible]. 2022, so till now to the next 2 to 3 years, what we look is to, we tend to achieve our vision to become the most admired yield vehicle in Asia, with an AUM target of INR 30,000 crores on site, and maintain a AAA rating and a strategy of value-accretive acquisitions and provide predictable DPU and growth. So that was about the journey since we listed until now and how our evolution of IndiGrid as a platform has taken place. I'll take you through the FY '20 highlights on Slide #8. It has been truly a transformational and a milestone year in -- for IndiGrid and for InvIT, in general. IndiGrid has grown substantially in this year. We have acquired INR 6,200 crores of projects, NRSS, OGPTL and ENICL, which more than doubled our AUM in FY '20. Our EBITDA and NDCF, both has also doubled -- almost doubled in FY '20, and overall delivered a 60% compounded annual growth rate since listing in last 3 years. We also secured an additional pipeline of INR 6,500 crores of assets, which will allow us to grow up till to INR 18,000 crores. Another unique part over here is that IIM Ahmedabad has issued a case study on IndiGrid as building India's first power transmission yield platform. And this study is taught to the students who are in the institution about the infrastructure transformation that is taking place. The next is an important part of our year has been that we received marquee sponsorship. KKR and GIC contributing over INR 1,000 crores [ equity ] each is a substantial endorsement for the credibility of the platform and the potential and the growth possibility. Besides that, the deal that we did also got awarded deal of the year in the Infrastructure Investor conference. The unique part about this transaction is also the KKR acquired a majority interest in the manager and the change in control of the entire platform business, which our investors approved wholeheartedly. The next part is an equally important part of the resolution for IndiGrid and InvIT. The regulations have been evolving, but the last year was important because most of the landmark regulations, which enabled successful journey for InvITs were approved by regulators in last year. So -- and SEBI allowed up to 70% leverage for credible InvITs with a rating of AAA, which enabled better accretion and returns to our investments as well as it made us competitive in the marketplace to acquire products at that are competitive ones. Second major regulations that came into existence was reduction in lot sizes, trading lot sizes from 5 lakh to 1 lakh, which has improved the liquidity in the units, and I'm sure you'll see it tracking back in terms of our volumes in the exchange, and we have seen encouraging trend of improving liquidity. SEBI also encouraged new guidelines with respect to capital raising for InvITs, so they have published now the rights issue guidelines, both fast track and slow track as well as preferential issue guidelines for InvITs to raise further capital and growth. So among these 3 key changes, so they have impacted the profitability and competitiveness of InvITs, the liquidity has improved and the ability to raise capital has been easier. So I think there is a lot of changes in the regulations, which has enabled a lot more InvITs to come up. And the last one is RBI has also now enabled banks to lend to InvITs, which was a blip over last year, which has been corrected now. And the last pillar of the year 2020 is that we have continued to maintain our focus on robust asset management actions. Our availability across our portfolio is better at 99.5%. We have built our 50-plus operations team across functions to focus on sustainability of our operations. There are several ESG initiatives we have kicked off, and we'll talk about that in subsequent section. And our focus on long-term reliability of our platform has also been launched, and it has been successfully followed. What all these 4 parameters have allowed us to do is to deliver about approximately 24% total return, which includes the DPU plus the price change in FY '20. We have paid INR 12 a unit this year, which is approximately INR 700 crores distributed by IndiGrid. Our growth in NDCF is over 116% on a year-on-year basis. And we have a pipeline of INR 6,500 crore, which we look to capitalize as we move ahead. So that has been the highlight of FY '20. I'll come to a quick overview of IndiGrid and as an introduction to the company, and subsequently, we'll go to those sections. So IndiGrid today is India's only power transmission yield platform. And when I say yield platform that is focused on a committed payout, and therefore, it is one of the only power transmission and yield platform in India. We have INR 12,000 crores of assets under management across 13 states in India. We own 20 lines or 5,800 circuit kilometers, 4 substations and 7,700 MVA of transformation capacity. We are rated AAA and our residual life of a contract is 32 years, but we do own these assets forever. And just to provide a little more color on our portfolio, we -- in terms of towers, we have 9,177 towers under our management. And the amount of metal because these towers are fairly heavy in comparison to a telecom tower, the amount of metal between steel and aluminum that we own is about 350,000 metric tons. On the next slide, Slide 11, there is a more granular detail of each asset base, [ series ], lines, substations. Most of them have got more than 3 years of operating track record now. The revenue rate is also provided for each line and the AUM is provided for that. Along with that, we've also shared the metal quantity in each asset as is to provide the perspective in terms of what size of assets are there. Unique part about this portfolio is that today, we have high-voltage interest rate transmission assets, 100% with central counterparty of power grid in our portfolio. Our availability -- our tariff is availability based, monthly tariff. It's not linked to power flow or there is no price reset every 5 years with respect to any policy or regulatory change. We have a well-diversified revenue portfolio. So we have 22 elements, which carry different percentage of revenues, which are spread across 13 states. This is important in maintaining the, I would say, diversification and reducing the revenue risk on the overall portfolio with respect to asset management. Our portfolio build, own, operate and maintain. There is no transfer on the entire portfolio. And now we have a credible track record of maximizing our availability and incentives. All these points are captured below at a granular level for further analysis. On Slide #12 is our corporate structure. So today, KKR owns 23% of shareholding in IndiGrid. Sterlite Power the original sponsors holds 15%. However, Sterlite power has agreed to sell and KKR has agreed to buy this 15% once KKR becomes a sponsor, which will take KKR holding to approximately 38% and GIC holding to 21%, and the residual will be the public market capital investments. At the investment manager level, KKR is majority with 60% ownership, and they will acquire another 14% the [indiscernible] price in SIML. Axis Trustee is a trustee for InvIT under regulations. And the subsidiaries that you see are each individual assets as per the names that we described earlier. Slide #13 is about our shareholder base. As you can see, we have a robust shareholder base with over 55% owned by FII, including KKR and GIC. 15% is owned by domestic institutions, including insurance companies, mutual funds, pension funds and corporates. And both value and number of our retail investors have doubled since 2020. This shareholder base is important for us because it allows us to raise future capital and grow as well as it allows us to tap in the right investor base to appreciate the value of the yield and a stable yield as we grow. Going to the next section is about industry outlook. So we see that the transmission sector is facing tailwinds. And I would say that it's been fueled by tailwinds over the last several years, and this year is no different. Even during the overall downturn as well as the COVID impact that we talk about subsequently, there are certain key drivers to the industry which we believe that is going to ensure that the industry keeps growing. The first one is, on the left-hand side, there is a significant shift in supply and demand pattern that is taking place in the country. Most of the new generation capacity that could get launched would be renewable energy considering the fact that it has achieved great parity. This change on the supply side, along with the intermittent nature of the electricity supply from renewables would require greater investment in transmission projects. On the demand side as well, there is a substantial load shift that we expect over next decade or so. With electric vehicles, storage and rural electrification coming in, there is going to be a complete transformation of the load side requirement as well. So considering the significant shift on both supply side and demand side, the transmission is one sector which would be essential to invest more to, to ensure the grid great reliability and while maintaining the supply and demand pattern. The second big driver of this industry is also the need to have an efficient grid as your generation capacity grows. Historically, there has been a relative underinvestment in transmission in relation to generation because the generation sector got privatized about a decade earlier than the transmission. However, we believe that considering our substantial generating capacity already invested in, the incremental investment we would see happening in the transmission side to ensure that a better utilization, a well-coordinated utilization can happen of our existing generating capacities. Just to cite a number, transmission also ranked the first in CRISIL's InfraInvex Index of 2019 with respect to attractiveness to invest in [indiscernible]. This was owing to the fact that the sector does provide a very robust and regulatory framework. As you can see on the Slide 15, bottom left corner, the amendment of Electricity Act is also taking place as we speak, and there are crucial reform measures with respect to efficient dispute resolution, payment security mechanism, direct transfer of subsidies and encouraging more renewables. So all these policy initiatives, we believe, are the steps in the right direction and will set the sector growth in the right direction. There is also a very high focus on private sector participation, which we believe is good for companies like us, which increases the market that we play in, and therefore, indirectly, we get benefit out of it. There are also a lot of arrangements happening in the new tariff policy, which will focus on streamlining several procedures to incentivize and dis-incentivize DISCOM for the right measures. And the liquidity support during COVID-19 is also one of the signs that the government is working towards supporting the incentive. And the last one is the historical structure policy and measures with respect to DDUGJY or UDAY and IPDS schemes, we've seen at a working level, the investment that these schemes have attracted, and we are very confident that it will add to the overall sector's benefit. Coming to Slide #16. And this is something which is very relevant in today's context with COVID. On the right-hand side, we have given the chart of demand, and I'm sure all of us have faced all the hardships over the last 2.5 months. And as you can see on the chart, since the end of March when the lockdown was securing first through May, there is a swift and substantial recovery in terms of peak demand as well as power consumption. And if you compare versus the 2019 numbers, the peak the demand seems to be pretty much reaching its peak -- its past level plus consumption also is at least a few percentage down. So we believe that for the entire financial year, while electricity consumption may be down by a couple of percentage or more, I think, on a run rate basis, on a month-on-month and a quarter-on-quarter basis, as the government decides to open up the lockdown in country, we will see the power demand coming up. Ministry of Power has also been very supportive during the time. We have provided exemption to transmission companies as -- from the lockdown, and our teams are able to maintain our lines across the country with specific passes. As transmission tariffs are not linked to powerflow and only based on availability of transmission elements, it was important for us to receive these essential services tag, so that we can maintain our line and monitor our [indiscernible]. Ministry of Power also issued several circulars during the lockdown period, which clarified that there are no moratorium on the transmission charges. Only reduction of late payment surcharge from 18% per annum to 12% per annum for any payment which is made beyond 45 days. So there is no moratorium provided, only the late payment surcharge have been margined and reduced. In addition to that, as you would have seen in the newspapers and the announcement by the government, there is a INR 90,000 crore liquidity injection into electric distribution companies which is being proposed and approved, and -- especially to clear the dues of generation and Transmission Company. We believe that liquidity will ensure a smooth recovery in terms of the receivable payments and will support the sector in the end. So essentially, from a power sector impact on the COVID, we believe that the transmission sector has largely remained insulated till now and with the measures taken by the government in the sector, we believe that the sector would sale through the crisis in a healthy level. The next section takes me to the operational highlights of our financial year '20. To start with, I would say, we have achieved 100% safe manhours across our sites and locations. There are about 600 people working across 13 states for us. We have maintained a consistent track record of availability and maximize incentives. Our average availability is topping 99.6%. Our trips per line are at 0.4, which is in line with industry standards. Our focus on reliability centered maintenance with respect to rigorous prevention -- preventive inspection and maintenance, defect correction and life cycle management have increased in this period. We have decided to invest early in technology initiatives across drone-based operations, weather predictions or helicopter supervisions for difficult terrains, which would support us in our initiative to maintain reliable availability. We also saw several emergency shutdowns caused by events beyond a control like wind storms or other events, which we could, one, restore very fast; second, obtain majority of lost time as deemed available under force majeure of our company, and therefore, did not impact our revenue. On the right-hand side of the Slide 18, we've provided our availability track record and the incentive that we have found in the year. Besides that, we have reduced the number of trips per line in this financial year. We achieved the same percentage of successful 100% safe manhour. The near-miss reporting has increased for us, which we see as a positive sign because we are putting a lot of efforts in the education and training. And the solar power generation has gone up in our portfolio with respect to our self-consumption that we are using the solar power plant in our substations. The next part of our presentation of operational highlights is our technology initiatives. These are the 4 initiatives that we have taken in this financial year for different measures. We helicopter surveys during the winter to ensure that we are ready for any emergency reaction in the NRSS project in case of a slowdown region, there is an impact. We deployed a new tool called ClimaCell, which is developed by MIT specialist, which allows us at a power level, what is the wind speed data across our portfolio. And this provides the lifetime inputs for us to react and be ready for any natural calamity. For example, during Amphan, this tool was extremely useful for us to be ready and in case of an event, we would react very fast. Drone-based asset management or other supervision is being spoken about for a long time. We are doing that in POCs across our portfolio, while the country hasn't enabled yet that real visual light of sight enablement. As and when it does, we would be ready to utilize that to our advantage for both reducing our cost and increasing the reliability. We believe this is a technology in a 3 to 5 years would be commercially viable for India to follow. And there's also the largest cost item for us, in terms of supervision, which we can look to reduce the investment in technology. And we are looking to invest more in digital asset management, technologies to ensure that we can increase the reliability and reduce the cost. I think the highlights level, in COVID, we have no COVID incidents across 600 people working on our portfolio. Sufficient team are working day and night to ensure that assets remain safe, people remain safe, and we are in compliance with all the regulations and guidelines issued by the government of India. We also managed the 9 PM, 9 minute call on 5th of April successfully in coordination with the central regulator. The next section of our slide is about the ESG prerogatives, which is something which we have started doing it. And we feel that it is important to attend that. We highlighted the key aspect of ESG impact, which we may do on a business impact and which have a higher stakeholder impact. And we represented what we do in the subsequent slides. Environmental GHG impact, we own 2 small solar power plants on our substations, we invested some time back, and we're using it for auxiliary consumption. We are doing tree plantation drives for free electric [indiscernible]. And overall, substantial amount of costs have been paid for the forest land, which we use, which goes towards the forestation of the area. On the Slide 23 is about social aspects with the primary one being on health and safety which we have already covered in terms of achieving 100% safe manhour, but we go over and beyond that and provide more education to even people who work for us as a partners and contractors. 100% of our contractors have received that relevant health & safety training. On the right-hand side, we have provided the specific data about how much efforts that we are putting in increasing the training as well as reducing the risk of health and safety. Implemented a tool called Legatrix, which enables us to manage our compliances across the portfolio. And we do several community engagements across our portfolio to ensure that our right of pay doesn't result into a material risk as we move on. Our Board has remained the same since last 2 quarters. It's a robust Board with 3 independent members who have been there with us since we listed. There is one member from Sterlite Power. Mr. Sanjay Nayar joined after the investment in 2019, and I represent the management and the Board. Our Board on the governance side is fairly active. We've given most of the committee -- most of our important committees or even majority is represented by independent members of KKR or they have been chaired by independent members. And there's a very active and healthy participation that we wanted to do. It is also evident from our EGM results that for most of the voting that we have done, substantial amount of eligible investors have voted and voted in majority positively. We have a strong process for internal audit and framework, which was implemented by KPMG. And the specific business ethics policies are also implemented and followed by the company. Going to the next section of financial highlights of FY '20. This list captures our performance, I would say, on a quarter-on-quarter basis. We have increased our revenue, EBITDA and NDCF by over 90%. On a 3-year basis, we have delivered a CAGR of 60%. Large part of this is possible with respect to acquisitions of NRSS ,OGPTL and ENICL, which we saw over last year. The ENICL acquisition happened in the month of March. And therefore, while our revenue for FY '20 was at INR 1,242 crores, our run rate is at approximately INR 1,440 crores for FY '21. A distribution that the Board has approved INR 3 in limit, INR 175 crores, which we have distributed. Our EBITDA margins have improved at 91% versus 90% last quarter. That's it. Our receivable days, we ended the year with a very good healthy number of 55 days and collection at 97% in FY '20. The next chart is about the NDCF on Slide 28. Overall, in the H2, we have found INR 370 crores of NDCF. On the H2 level, we are distributing INR 350 crores of NDCF out of that by distributing INR 175 crores in quarter 4, which is provided below. This happens to be also one of the largest quarter in terms of our NDCF because of the acquisitions that we did as well as the working capital recovery that happened in quarter 4, and we ended the quarter with INR 256 crore of NDCF. So effectively, we are seeing more than 90% of NDCF for H2, and we are maintaining INR 175 crores and INR 3 as limit for quarter 4. As we discussed earlier, we are focused on managing a robust balance sheet. We are maintaining AAA. Our weighted average cost of borrowing is at 8.6%. We are still only levered at 50% net debt to AUM, and therefore, a substantial debt headroom available for us. Our EBITDA to interest cover is also at a fairly high level. We closed the year with INR 475 crore of cash, and therefore, which will allow us to maintain a robust balance sheet in the subsequent period during the scenario of COVID. We have a varied source of borrowing. We are borrowing from MLD, bank, NCD and ECB. So a variety of mix of both bank and capital market investments. And from our repayment and refinancing schedule, we do not have any material refinancing coming in over next couple of years. The first of refinancing is coming in FY '22. And we believe that with our size and rating, we would be able to mitigate. Slide 30 is about what we have promised and what we have delivered. When we listed, we promised a low volatility superior total return to our investors. And very happy to see that our beta is 0.07 in comparison to all the other indices and stocks that we are compared with, which highlights low beta, low volatility. But our total returns are substantially higher than the comparable indices. So we have delivered a 32% total return, including [ INR 3.5 ] of distribution and the price change. So coming to the next slide, which is looking ahead. Our outlook for FY '21 remains positive. We have a lot of pipeline assets, including Sterlite Power assets, which we are looking to acquire in FY '21. GPTL which is part of the framework asset of INR 6,500 crore, we've already taken approval, and our investors have voted substantially positive for that. We look to consummate that transaction. We'll evaluate select opportunities in solar as well with central counterparties. We will focus on creating more pipeline of transmission projects besides the existing ones. We'll work on maintaining a strong balance sheet. We'll maintain -- will keep on our focus on maintaining adequate liquidity to mitigate the current uncertainties in the country and any other unprecedented scenario that may come up. We have, at the moment, sufficient cash balance and working capital to sail through. We look to diversify further our debt sources and elongate tenures as we look to incremental facilities and reduce our cost in it. Our focus on robust asset management has remained as ever. We would ensure that we meet our commitment of highest availability. We invest in technology, invested in ESG during the year and ensure that we have delivered a world class EHS and O&M practices across our portfolio. We'll continue to play our role as an industry stewardship role by expanding awareness about IndiGrid as well as InvITs, in general. There are some policy initiatives, which we are working with regulators on this to increasing participation on debt security side, like insurance and PF regulators. And besides that, we are still working with SEBI and requesting them to reduce the lot size from 1 lakh, minimum 1 lakh to 1 unit at par with equity. So we believe that if we continue our focus on FY '21 on this, we would be able to deliver superior total returns, stable DPU and growth in NDCF, what we had done over the last 3 years. With that, I would take the pause, and Stanford, open for question and answer.

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

Congratulations on a good set of numbers. Three questions I have primarily. First is, are we guiding for any FY '21 distribution?

Will you ask all 3, and I'll answer that separately.

Yes. Secondly, on the date -- of course, the amount is INR 62 billion. And given that the rates are leased, do you think it's the right time to look at some -- reduce our interest rate on our bonds or on loan portfolio, so that we have more cash flow to distribute to our investors. And thirdly, given the fact that the -- how do you see the deal environment given the fact that we are trying to target from INR 120 billion to additional INR 130 billion of assets over the next 2 years, do you think COVID has changed anything for you? Do you think deal-making will become easier with time or become difficult with time?

Okay. Thank you. So -- Mohit, I'll answer questions. In terms of guidance, we believe that there is a lot of flux in the country today, both in terms of sector demand, lockdown, et cetera. So while we have a very positive outlook of the sector and transmission would remain a safe sector, we are just waiting to see the impact of COVID how it proceeds when the lockdown opens up. So we are cautious and watching the scenario, and therefore, we have not provided the guidance, formal guidance of FY '21. But we are positive, but this is just the first month that we are seeing -- first couple of months we are seeing after COVID, we have seen all the positive signs of recovery for the sector. We have decent collections in the first couple of months. We've seen the power demand coming back up, and we have seen policymakers supporting with liquidity. All 3 are positive signs, but we'd like to wait for a few months more before we firmly commit our guidance. So that's on the guidance. On the debt, I think we fully agree with you, the debt raising, our debt markets are good. We are seeing interest rates easing. But on the other hand, we've also been locking our interest rates for some period. But we do keep evaluating opportunities where there is a possibility to prepay certain loans and borrow cheaper. So as and when we do, it will come into our NDCF, but it's not that entire INR 6,200 crore can be refinanced on 1 day because we have locked in cost of debt. And therefore, we don't have an upside or we don't have a downside in many of them till the reset rate comes in. On the pipeline side, I think there are 2 questions that you asked. Do you see a pipeline? I think we see a very healthy pipeline. In my presentation also I showed of about INR 15,000 crores of transmission, which are taking place H1. There are several INR 10,000 crores of bids that took place in the last 6 months. So I think the pipeline is healthy. We will see assets coming in. But for us, pipeline is more on a year-on-year basis than on a quarter-on-quarter basis, right? Because our pipeline comes from completed projects, but we track them a couple of years ahead in schedule. So we see a healthy pipeline coming in the sector. And the last question that you asked about COVID impact. I think I would say, every M&A transaction is a new M&A transaction, and therefore, there are specific -- sometimes it gets easier, sometimes it becomes difficult. I would say COVID has more logistical impact than any deal-making impact, right? At the end of the day, all of us are working from home, and therefore, a speed does reduce in terms of logistical matters. But other than that, I think we are focusing on what we did defer. So there's nothing that has changed in the market. So we are fairly positive on that. But I think logistically, things have become slightly difficult to operate, especially in an M&A transaction, considering the lockdown, but we believe it will open up with the new signs coming in soon.

And sir, any comment on the collection part in April and May, which you can comment on?

Sorry?

Sir, any comment on the collection for the April and May?

Without any liquidity support from government, et cetera, as well, with a complete lockdown with such a low demand, we have received more than 50% collections in April and May already. And May is higher than April, so we are seeing an encouraging trend out there also.

The next question is from the line of Pratik Kothari from Unique Asset Management.

This is Sunil here. IndiGrid and -- led by Harsh bhai, just wanted to convey our hearty thanks and [indiscernible] during the last 2, 3 years so many accidents are happening in [indiscernible] in NBFCs and mutual fund, in some projects and all, the way you validated this journey is really commendable. So my hearty thanks and congratulations. And second, the trust you created, I think the IndiGrid units holders trust is because of the current management. So just wanted to say thanks all

Thank you, Mr. Kothari.

The next question is from the line of Dhruv from HDFC Asset Management.

Sir, if you can please share some light on the upcoming 3 deals, any time line if you can share on them?

I'm sorry.

On 3 projects that you are likely to acquire, any time line that you can share?

Sure. See, whatever is public is already -- like we applied for it. So we are working on closing it. We have received the investor approvals in 11th of May in our EGM, and that is positive. So we are going ahead with the execution. And I mean we will come to investors for approval only when we are fairly certain to close the transaction. So I would say that we are working on it, and it should be soon announced.

Okay. So all 3 will be large -- broadly should be completed within this year?

I think the question is KTL and NERSS?

Yes. GPTL and KTL and NERSS.

Yes. So GPTL will certainly be completed in this -- very early. On KTL and NERSS, they are still under construction. So we would, I mean, wait to comment on that till the time it's commissioned. So we would certainly -- we are monitoring those projects. We are doing diligence on those projects because they are our target projects. But as and when they are commissioned that would be a more appropriate time for us to commit a time line because at the moment, they are still part commissioned or under construction.

Okay. Okay. And sir, just to get a sense. So if a project is commission, how -- do you also, after that do a due diligence in terms of the operation of the line and then go ahead? Or it can -- is it an ongoing process that happens? So the point is if it resolves in September, do you probably acquire it in October or will it [indiscernible]?

So it depends on the type of arrangements we have for a particular project, for example, for GPTL, KTL and NERSS, we have signed a framework agreement, and therefore, we have access to the information and to the project. And therefore, we start monitoring and doing diligence much earlier before it's commissioned because that is already an agreed one between the 2 parties. However, for, let's say, a third-party project where we may not have a direct access early on, we have to wait and take part in the process as and when it opens up, we look at that.

Okay. Got it. Sir, secondly, any scheduled debt repayments in next 2 years?

Funding?

Scheduled debt repayments in the next 2 years? Or we are planning to refinance them?

Yes. We plan to refinance it, but the scheduled repayment that we have presented over here are INR 62 crores and INR 77 crores in FY '21 and '22 which are the scheduled one, but we would be looking to refinance it.

Okay. So broadly, if I'm correct, your -- the distributable cash flow should increase in the next 2 years, at least from the FY '20 levels given partly because of the acquisition that you have done, that is boosted and will come in FY '21 and the acquisitions that you have done.

Yes. I think it was not continuous. I think with the 2 acquisitions that we look to do, the NDCF should increase. However, as I said, on the guidance trend, we'll have to wait and see because working capital is part of the NDCF of how the recovery of the sector happens to really give you an exact guidance on that.

Sure. I understand. But sir, broadly, if I have to understand, of the NDCF, almost 90% has to be distributed, right?

Yes.

Okay. So that's at least the minimum that should happen.

Correct. On a half yearly basis.

[Operator Instructions] The next question is from the line of Hitesh Arora from Unifi Capital.

Yes. On the collections bid, just wanted to clarify, of your April and May revenue, you've collected roughly 50% of that. Is that understanding correct?

Yes.

Okay. And just as a rough sense, you closed the financial year with 55 days. Where -- how much do you expect it to get elongated now just as rough by -- for Q1?

No. I understand. So I think it is a rough estimate in terms of impact. We believe that there would be about 20 to 30 days of expansion of working capital that will take place because of this. And maybe with the liquidity measures kicking in, from July onwards, we will see a recovery happening on that. But I think that we'll have to wait and watch, right? But our initial estimate is an impact of about 20 to 30 days of working capital impact to start with. And we ended the year with sufficient cash balance to meet that require -- meet that kind of a expansion.

Okay. Fair enough. And just 1 more. On NERSS, your bigger assets in the previous presentation, you had mentioned that the completion date was around November of this year. Would you now post this COVID thing, is it on track? Or is it got delayed a bit? How was it looking there?

Okay. So I think it's tough for me to comment on behalf of Sterlite Power, but I would say that, certainly, there is 3 months of impact to everyone in the country, right, because we're not able to work. So I would expect couple of months of delay for sure on account of this, COVID. Having said so, the regulators have already awarded that extra time to all the sectors. Some have done explicitly, some have done implicitly. So that government has been very clear that this will be considered as a force majeure for extension of time. So I mean I can't comment on the behalf of Sterlite Power, but I would say reasonably, it's reasonable to assume that people haven't worked during complete lockdown. So there will be a couple of months of impact.

Sir, just 1 last question. On -- any guidance on your [indiscernible] change strategy for acquiring solar assets, anything in the near term, any visibility in the near-term for acquisition of solar assets? And what size would it be potentially?

Yes. So 2 answers, but I think it's very clear on our outlook, it's showing as 5% of our overall page, right? So it is actually a very small part of our strategy and not the core. We have taken the enabling resolution for solar expansion. However, we have been evaluating cautiously and tough to provide a time line of when we will acquire, but what strategy we gave clearly is what we can replace that we would acquire small, it will be a small percentage of our AUM. We would look for only central counterparties like SECI and NTPC, and we'll look to acquire good quality assets. So at the moment, I think these are the 3 things which we are focused on. There is no special goals for us that we have to acquire 1 solar project. We are more focused on risk management and acquiring what is right. That's what we have been doing over the last 3 years, and we'll continue.

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

Thanks a lot for a strong set of numbers. So I had 2 questions basically. One is on your guidance. I think what it appear to us that post these acquisitions, our NDCF was going to be much higher compared to what it was at the run rate in FY '20. So people were expecting a higher kind of DPU going forward. But nevertheless because money has got no color, and we are seeing some trouble because of the COVID situation, is it better to put a halt on acquisitions right now rather than not giving at least a minimum INR 3 guidance for the complete year. So why pursue acquisition over a minimum guidance, if things are looking a bit turbulent for you? That is number one. And secondly, the collection. So should I ask the second question? Or you want to answer the first?

No. Please go on. Please go on.

Yes. The second question is on the collection efficiency. So I think you've given the collection percentage for the last 3 financial years, and I think there is some sort of volatility in the same. So if you can throw some light? And also, you said 50% you have collected for April and May, FY '21. So how does that compare to April and May of FY '20?

Good question. So to answer your first question, Sarvesh, one is the balance sheet strength and the other is acquisition. I think we are looking for assets for which we have already raised capital. So for example, for ENICL, GPTL and other projects, we've already raised capital, equity capital last year. So at an acquisition level, we are still making it an accretive acquisition. The working capital changes gets adjusted along with the acquisition. So to be honest, these 2 are completely separate decisions. If we were -- if you would asked this question about 1.5 months ago, that what is the scenario of acquisitions versus balance sheet, I would say we would have been far more conservative because we would not know how the sector is going to react, how the collections are going to react in the month of April and May. Looking at where we stand today, we have all the healthy signs that we have seen in the sector, which is recovery of demand, collections coming even without liquidity support, which is promised. Liquidity support getting announced. So I think with these 3, 4 measures, I think we are far more comfortable for the planned acquisitions. Now coming to your question on higher NDCF and DPU announcement. I think what we are doing is not declining that. We are saying we would like to watch for next couple of months of how the situation evolves in the country and in the sector before we can be firm about our guidance, right? So I think at the moment where the country is and industry is, it's fair for us to reserve the rights for not providing guidance at the moment as we see for the next couple of months, how the things unfold. To your question, certainly, we would be conservative in terms of acquisition. But that is our base business, right? We look to acquire cash flow as long as it is an accretive working capital adjusted acquisition, which would only add to the DPU. But we are not seeing at the moment that the NDCF will not grow this year or DPU will not grow this year. So we're saying that we are going to watch for the next couple of months before we provide a firm guidance. So that's on the guidance bit. The second question was on collection efficiency. So I would say that the changes that you have seen between the FY '18, '19 and '20, I won't call it a volatile scenario. FY '19 is slightly lower because we acquired an asset in between with a slightly longer receivables at that time. So it is also impacted by overall, the asset portfolio, which was there. So they are not completely comparable because they are part of our assets, some assets have different working capital at that time when we acquired it. Having said so, I would say, 95%, 100% or other units in the average of 95.8% of collection is a fairly good collections in the sector, and we were fairly comfortable with respect to that.

Understood. And how does the number compare for April and May collection compared to last year?

Sorry, there's that question. So if I ask a very specific question. I'll give you a trend. So quarter 1 is typically the lowest collection quarter and quarter 4 typically is the highest collection quarter. And therefore, if you look at our NDCF in quarter 4, it's typically highest because of working capital. And you will see even in our Slide 28, there is a recovery of working capital that has happened in quarter 4. Now with that logic, quarter 1 is typically lower. What I gave you a percentage of 50% is of our revenue, so if you translate that to a historical track record, that number would come to about 60%.

Understood. Just one comment...

We collected 80%, 85% in this quarter.

Understood. Just 1 comment on your previous question answer. I think it would still -- I think some investors would still appreciate if you come out with a statement saying that for committed acquisitions, it is always fine. But for new acquisitions, first, you should ensure the INR 3 minimum payout per quarter, as we have been doing, before looking at any acquisitions. If you see any threat to INR 3 per quarter also, then you should first take out the INR 3 DPU over the new acquisition?

No, I think that's a fair, I would say, recommendation and suggestion. I think that's why we are also focused on that, that we'll focus on the distribution first, then acquisitions. I think that's a fair point.

The next question is from the line of Shirish Rane from IDFC Securities.

My question pertains to the collection part. This 50% of your revenues collection. I assume it is in the normative course of business. There is no sort of extra request by any DISCOM or POSOCO that you should not collect this amount for some time or anything like that? Is that correct?

No, there is no moratorium. There is -- yes, there is no moratorium. There is no request. There is no waiver.

It's the normal course of business, and you expect it to collect over a period of time?

Correct. Exactly.

And second question was more on the solar assets. Can you elaborate a bit in terms of what kind of assets are you looking and what kind of sort of financing and distributable cash flows you will be looking at? I mean some sort of direction in which you can point. I understand you cannot tell exactly till you have asset on table. But directionally, how are you thinking about solar asset acquisition? That would be helpful.

Sure. So directionally, as I said, we are looking for SECI and NTPC assets only. We are looking for, I would say, smaller acquisitions. So if you assume we have INR 12,000 crores, less than 10% would be maximum INR 700,000 crore of acquisition maximum. We are looking at assets which has an operational track record. And coming to your question on the NDCF, now that is linked to the overall size that we acquire and the way we finance it. But if we acquire INR 1,000 crore project at a reasonable valuation, it would result in a decent accretion. Obviously, specific numbers are difficult to provide, but that would result in a specific accretion to our portfolio.

Do you have anything on horizon at this point, the way you have sort of transmission assets lined up? Or is it more like as it comes, you will see?

Okay. So I think we have taken the enabling resolution at the moment for approval. Now we keep -- I mean this is kind of, let's say, first, we have developed a strategy of what kind of assets we want to acquire, which ensures that we can give guidance to both investors as well as to the markets of what are we going to evaluate. So we certainly keep evaluating assets. And we have some assets which we are looking at. But it's tough to comment on whether we are going to end up acquiring that or not because there's a long road, right, in terms of diligence and so other factors will be put into place. So we would be looking to acquire. But at the moment, there is no visibility on whether we'll end up acquiring in 2 months or 6 months.

Okay. And the last question, considering the interest rates fall in the market, are you looking to refinance your debt? And if yes, is there -- what kind of interest savings you can think you will get?

Okay. So yes, we are looking to acquire. We are looking to refinance our debt. But I mean the cost of debt would depend on the tenor and the terms that we negotiate with at a different structure. I would say the last week -- last acquisition that we did of ENICL, we funded with 8.15% cost of debt, that acquisition, at the project level. However, I would say -- I mean that's not necessarily the only benchmark cost, but it would range anything in between 8.15% to 8.5% is what we see in the market today.

Okay. So you're saying below that is not possible at this juncture?

Okay. I -- that we'll have to see as we come to close different acquisition. Below that, with a reasonable tenor, which fixes our rate for 3 to 5 years, would be difficult at the moment. And that's something which is important for us because we prefer not to take floating-rate loans.

And you don't have a prepayment option in the existing debt retention?

We do -- on certain portfolio assets, we do have prepayment options. And therefore, we will look to refinance assets where we have a prepayment option and if it makes sense in terms of interest benefit, both.

The next question is from the line of Abhishek Puri from Axis Capital.

Congratulations for a good set of results. Just wanted to check a couple of things in terms of conceptual understanding, we were looking at Power Grid numbers. And as per their call, their debtor days for March quarter is closer to 30, 35 days, whereas for us, it is closer to 55 days. So how would that pooled collecting mechanism work for you in this kind of a scenario? Would they -- whatever they collect will be equally distributed or how that distribution happens?

So good question. I think the first answer to that is that as per collection -- as per theory, it should be exactly same. However, there is typically a 3-day gap between the money coming into their account and to our account. So that's one. Second is typically when the year-end happens, in the last week, the lockdown got implemented and some of the payments could not be paid, but that will be probably 0.5 day or 1 day worth of revenue. And the Power Grid has also got other businesses, which adds to their receivable, which is difficult to reconcile for us. But besides that, ours and Power Grid receivables should match and we reconcile our books on an annual basis. There's an audit that takes place, both by CAG, that they reconcile with us or not, and by our internal auditors in tallying our books. So on an annual basis, it gets carried that if they receive 100, we got 100, but a couple of percent here and there on a month-end basis keeps changing because of payment frequency, time to transfer, et cetera. But besides that, it should be in the same line.

Fair enough. In terms of -- you mentioned CAG audits Power Grid book that we know, but you audit your books also to match your payments?

No. So CAG audits Power Grid books to say that you have an obligation to pay as per the PoC mechanism. Have you paid or not? Have you done reconciliations with the constituents of PoC pool and signed up reconciliation or not? So that's what Power Grid needs to do, as per the [ statutes in contract law. ]

Okay. And second conceptual question in terms of -- because you have -- you've seen 50% collection in, say, April and May, that will be I'm presuming for the bills which were raised for March and April. In that scenario, you are already at 55 days as of March. If it crosses 60, as you pointed out, it's maybe a timing issue for 20 to 30 days, expansion could happen until whenever liquidity really comes in and the money flows back to you or to Power Grid and then to you. In that scenario, would -- as soon as you cross 60 days would late payment surcharge be accounted for in your revenue item or P&L item?

Okay. So the late payment surcharge gets start accounted after 45 days, not 60 days. So that's just 1 correction. The second is we -- because the late payment surcharge gets levied and collected by Power Grid on our behalf, for late payment surcharge, we do cash accounting instead of accrual accounting because Power Grid is the one who is accruing it, collecting it and therefore, transporting it. To ensure that it is done conservatively, we do cash accounting on late payment surcharge as well as on rebates.

Okay. And if I look at your numbers, I think, for the last 2, the midyear and the current closing year, we have 55 days of receivable. In that case, does our other income contain any component of late payment surcharge? Or it is still not received and hence we have not accounted?

No. So we have received late payment surcharge during the year as well as we have given rebate on some of the parts. So our revenue -- or the detailed financials would include the net late payment surcharge we are collecting.

Okay. I just wanted to clarify because other income generally consists of that NPAs part or other operating income as other companies do, which I just wanted to clarify that. So it is a part of net sales?

Sure. So in the detailed disclosure in the financial statement, you will see the late payment surcharge separately accounted in provided numbers.

The next question is from the line of Manish Gupta from Solidarity.

Harsh, just 1 data point I just wanted to double check. Your net debt is INR 6,400 crores. And so INR 6,400 crores is your gross debt, right? Because you have INR 475 crores of cash with you right now.

Yes. Okay.

Okay. So I just want to confirm that. I had 2 conceptual questions. The first one is a very minor point, that when you look at the valuation report of all your projects, the cost of equity differs marginally by project. So I couldn't understand -- could you explain what the logic of that was? And a relational question again on the valuation report was, what is the assumption behind the terminal value that is being assumed in the project when the valuation report is done? And the third question was, that under the assumption that you don't acquire any additional projects from today, your DPU will gradually decline over time. I just wanted to check these 3.

Okay. So thanks. So to answer your first question, which was with respect to cost of equity, now the value -- your valuation report uses the cost of equity as per the WACC formula, and the WACC formula includes the CAPM model. The CAPM model includes the particular taxing that is applicable on that project. And that is linked to the overall tariff curve of the project. And therefore, the different projects have different tariff curve. The effective tax rate to calculate for CAPM model is slightly different, and therefore, you will see a very minor difference between project to project in terms of that itself, not just cost of equity. So I would say that's one marginal difference that can cause it. The second question that you asked was with respect to terminal value. We believe that these are permanent assets with us. And therefore, there are potentially 3 ways a terminal value gets looked at. One is to see that the contract has extended beyond 35 years, and if the contract is extended beyond 35 years on a cost-plus basis, when we calculate the project cost, multiplied by 30%, multiplied by 15.5% ROE on a regulated [ 63 ] model. And assume that is extended for another 15 years and do the NPV of that. So that's 1 method that gets -- of valuating. There has been precedents when people have filed for petition for clarification. The CERC Commission had told that we would look to evaluate closer to the expiry date. But in principle, we would look for the cost-plus kind of a model. So that's 1 way of valuing. The second way of valuing is to be a scrap value because at the end of the day, there is 350,000 tonnes of metal, which is owned by these companies. Now -- so the metal quantity is fairly accurate. After that, one needs to assume a particular inflation over 35 years and what will be the price at the end of 35th year, minus the extraction cost, et cetera, and services cost. That gives us the second potential way of valuing the asset. And the third one is to, let's say, call it replacement cost basis because the asset belongs to us. And over a period of time, the ability and the cost to build a new asset in the same corridor is going to exponentially increase. So for example, the lines where we have today if somebody was to build the lines today in the same locations is going to cost 50% more in these 5 years. Because of the inflation of manpower, inflation in the metal price, less corridors available, more metal going in the project, et cetera. However, that is potentially, I would say, an opportunistic way of looking at it, which is an upside case. But between the 3 cases, what I said, a very high tariff to a cost-plus tariff to a metal value method, whichever method one chooses, the impact of that today, after 35 years of discounting, is fairly small. So we are playing in the range of 3% to 5% of the FMV today in terms of the overall impact. But that should give you 3 proposed -- 3 ways that the auditor -- the valuer also looks at it. And what it effectively does finally is to put that Gordon's Growth Model at the end of it to match 1 of the 3 or the most reasonable or prudent of the 3. So that's the method that is used and the entire -- the valuer method is publicly available, but these are the 3 ones which we believe which apply. To your last question, if we don't do any more acquisitions besides the one which we've already committed, our DPU will remain INR 12 -- or can remain INR 12 for up to 10 years. And after that, it will start to decline.

The next question is from the line of Sunil Shah from Turtle Star Portfolio.

Thank you very much for continuing the DPU in this quarter, thank you so much -- to the expectations which are there. So my question first is on the NDCF, which is this -- for this quarter, we -- I think on your Slide 28, we are saying we have about INR 257 crores, which is there. And that the kind of distribution which has happened is about INR 175 crores, if I'm getting the figure correct. Does that mean that the difference of about INR 80-odd crores is something which is surplus to us when we started this quarter?

Okay. So I would say we have to distribute minimum 90% of the NDCF on a half yearly basis. And therefore, on the slide number 28, if you look at the top table, which is half yearly NDCF, so quarter 3, we distributed more than what we earned, right? Quarter 4, we have earned more, but we have slightly distributed less. So this INR 20 crores, INR 30 crores quarter-on-quarter is something which we stabilize based on the changes that happen quarter-on-quarter on the NDCF front. But therefore, the right way to look at it would be that on a half year basis how much is the cushion that we have created or on a full year basis, okay? So on a full year basis, we have distributed INR 700 crores and the NDCF is 720 crores. So on a full year basis, we have earned INR 20 crores more. On a half year basis, we have earned slightly more than INR 20 crores more, right? So it depends on which way you want to evaluate. But on a quarter-on-quarter basis, the NDCF distribution changes keeps on happening. Quarter 4 is high NDCF, quarter 1 and quarter 3 are low NDCF. So quarter 4, which is March quarter and September quarter are high collection quarters and therefore, higher NDCF. Quarter 1 and quarter 3, by that logic is slightly lower. I mean that's just the trend that we have seen happening in India. So therefore, we keep this cushion available to us within the 10% bucket to be able to distribute more or less as per the quarter collection or NDCF.

Fair enough. Okay. Sir, my other question is on the solar projects that we intend to look at or evaluate them. Sir, I have just one thought, which I would like to share with you, hypothetically, assuming that the solar project was acquired somewhere in the month of April, and we have gone through the situation which has happened, then at that point in time, the solar projects, their revenues would have got affected. So would that disturb our DPU going forward? I mean is there any -- the solar project, has their revenue been volatile in the month of April?

Okay. Good. So I'll tell you -- I mean, again, we don't own any assets or data may not be as accurate as we provide for our own assets. But the assets that we track, the solar generation numbers have not gone down in April. Both generation and collection numbers for the asset that we track, which is with central counterparties, have been fairly good. So I wouldn't say that for entire solar sector in India because there are different states and different PPUs. But the solar sector per se isn't going down in April, rather there -- generation numbers are at peak. And this season, I would say, which is the summer season, till monsoon is the peak generation season as well. So from the plant performance perspective, most of the solar projects are okay. So that way there is no impact on account of the COVID in the generation numbers. Now there may be specific -- state-specific issues. That is something which obviously would remain, right? That different contracts would have it. But there is no generation issues. Now coming to the second part of your question about impact on us, so let me give a very small sensitivity, right? As I said, we are looking to acquire a small value of the solar projects. Out of our annual NDCF, we have INR 700 crores, which we are distributing and quarterly INR 175 crores. Now as we said, let's say, there is a 10% portfolio of solar projects, and that would typically contribute about 5%, 10% of our NDCF, about INR 10 crore of NDCF may be incremental, right, on a per quarter basis. Now as you saw in numbers, we already keep pushing a sizable amount from our transmission revenue itself, right? So the ability of a solar project to materially impact our quarterly number is going to be very limited because we are acquiring that in a low size, right, first. So the possibility of that impacting our quarterly NDCF is limited. Second. We have still not acquired. We will in the future, but we are...

Exactly. Correct.

Just -- exactly. We're directing you how we look at that.

The next question is from the line of [ Ravish Narkar ] from Axis Bank.

Actually, my question is already answered. It was related to collection. I think lot of people already asked the same question.

So the next question is from the line of Rikesh Parikh from Barclays.

In general, I wanted to have understanding of what kind of IRR we would be looking at when we are acquiring the new projects, whether solar or transmission ones?

Okay. So the IRR keeps changing depending on the cost of debt and when we acquire, et cetera. Having said so, if I have to give you a broad guidance, we look for anything from 12% to 13% IRR in a transmission project. But that's only a guidance, that it can be higher also, it can be lower also depending on the size and different parameters. But on an average, we look at 12% to 13% IRR.

Okay. So that will be same for the solar?

Solar projects would come at a premium to that. So we would look to have higher IRR in solar panels.

Okay. Now just coming to our solar projects, so one comment that solar projects has certain amount of volatility and some amount of risk in terms of the litigation we have seen in the past with other project offers. So why exactly looking at a solar when we have a very stable line of -- stable revenue coming from the transmission line? So I wanted your thoughts on that.

So I think our thought is simple. We are -- your point is correct. There have been litigations in the past. There have been tariff issues in the past, but most of these issues have been on the state PPUs. There are very limited instances of central sector undertakings like SECI and NTPC doing that. So from that perspective, that rate is lesser in the -- so that gets filtered out when we evaluate a particular project. That's one. Second is, from our perspective, we are leveraging our existing skill sets and balance sheet to ensure that we can acquire projects at a better return. Today, as we see in the market, there would be a lot of people who may want to monetize their solar portfolio. And considering that we do have access to capital with our rating and the balance sheet, we may be able to generate superior returns versus, let's say, a normal holder of solar farms. And therefore, there is that much bit of financial arbitrage for us to leverage on, especially in the same sector where the regulator is same, the counterparties are central counterparties. So that is the reason to evaluate that. So common skill set. Again, fixed-price contracts, limited volatility, and you avoid the volatility in terms of collection by selecting the right counterparties. So that's how we are coming to that decision.

Okay. And last thing about, even in transmission, are we seeing a healthy pipeline of projects availability -- in terms of availability?

I think we are seeing that. It's just, as I said earlier, we don't look at pipeline on a quarter-on-quarter basis. We look at on a 6-month or 12 to 18-months period. So we are seeing a healthy pipeline. There is already INR 10,000 crores which got bidded last year -- last 6 months, and we are seeing another INR 15,000 crore projects getting bid out next 6 months, and we'll see those projects coming in the market, sold in maybe 3 or 4 years from now. So I think we do see good pipeline available in the market. And as and when we evaluate further assets, we will see. That in the sector, we'll see more people to throw the -- more and more assets coming to [ bid in auction, build and sell. ]

The next question is from the line of Rushabh Sharedalal from Pravin Ratilal Share and Stock Brokers.

Congratulations on a good set of numbers. I just had 1 question. Recently, there was a news item saying that the local electric gear maker are seeking a ban on the Chinese companies due to security reasons. So these gears are used by the power generation and transmission companies. So if such a ban comes up, what kind of a cost impact do we have on IndiGrid? Or do we have any or not?

Okay. So I think we don't do generation for import. I think only component which in our entire portfolio gets imported from China on the transmission line side is something called insulator and the connectors of insulator, the conductor, which is, to be honest, 5% value in the portfolio, okay? So that's one. Second is, we already imported those aspects, and they can be changed with the domestic content as well, if at all we have to do. So we are not impacted by any of this change in the country. And the second, on the substation side, we don't have any Chinese transformer, et cetera. And therefore, we are not impacted at all. So I think we don't see an impact of the supply chain because of import ban from China coming in. There is a huge domestic market and domestic manufacturing for [ components ] that we are doing. So that's -- so we don't see the impact of that, Rushabh, on the business.

The next question is from the line of Mahesh Shah from Edelweiss.

I just had 1 question regarding the length of the solar asset. So when we do acquire solar assets, what could be the typical PPA, like 25, 35 years are you targeting something? Or is it something that's open to evaluation?

So typically, the PPAs are signed in the solar what we are seeing is for 25 years. And when we look to acquire with some bit of track record, we can look to do 1- to 2-year of track record, then that will make it very clear. So I would say we'll look for assets in the range of 20 to 25 years of contract.

Got it. And post this contract life, how much is the equipment residual, is it similar to what we have in transmission lines in terms of residual value or whether the contracts may be extended or is that's it?

So I think solar projects are not boom projects. So typically, solar projects are limited life projects. And that we evaluate like that. And solar projects, on the other hand, are also lesser life, right? The cells have a lesser life. So we may use refarming to increase the return, but assuming beyond 25 years, the tariff will make sense.

Perfect. Okay. And just another question. Given that there's enough of a pipeline, as you said, in terms of transmission assets, are you going to continue to acquire those because from the calculation that you are looking to make about, say, 25% of the portfolio as solar assets, that would mean that 25% of the new acquisitions would probably be solar?

We don't have a particular -- the 25% is more like a guidance and cap that we'll not acquire more than 25%. It doesn't mean we have to acquire 25%. So we , as I said, are focused on acquiring good assets and a stable cash flow with operating track record. And therefore, we are happy even if we are 15%. There is no goal for us to achieve 25% of solar. So we are not working on that goal perspective. We will be focusing on selecting the right assets that fits the portfolio.

The next question is from the line of [ Manish Rajiv Shah], an investor.

Yes. Congratulations on a good set of numbers. I have 3 questions actually. There was a force majeure event earlier in the year, and the recognition of the same was in process with the authorities, has the claim been completed? Second question is on the Slide #23. The unsafe conditions have jumped by 15x and near-miss incidents have jumped by 6x, all the while the AUM has also increased. But is there any concern around this, is my second question? And the third question is, in a falling interest rate scenario right now and our debt is mostly at fixed cost, so is there any provision to revisit this or something like that?

So I'll start from the last question. I think there are some projects which may have a provision to revisit, which is a call option or a put option, which is always at cost, so it is the cost/benefit analysis that is done. But there are 3 options to prepay anybody at any time, right? So it's a trade-off. We believe in securing our cash flows, and therefore, we have been hedging our cost instead of keeping it open. So if the rate would have been the other way around, we'll be worried about that otherwise. So there will be an opportunity, and we'll keep evaluating that. The next 2 questions which you asked on the unsafe conditions and near miss. It's a good sign. Typically, when your unsafe conditions reporting goes up and near miss goes up, which means that people are feeling open to talk about it. So it is a cultural shift that we are pushing in the company. As you can see, number of training manhours have doubled. What that does is makes more people aware about what is an unsafe condition what is a near miss and as we invest more in the training, there would be unsafe condition reporting and near miss reporting increase and we like that increase because that means people are being cautious. People are watching what was not done rightly, and which builds a strong foundation of our organization. So therefore, it is a good sign, not a bad sign to see the reporting numbers going up. So that's the second one. And your first question, if you can repeat that.

So my first question was regarding -- there was a force majeure event in one of the transmission lines earlier in the year. Is the recognition and everything complete and there was certificate which was to be obtained for the maintenance of line or -- at 99% or something, so is that complete?

Yes. So the status of that is that we took 74 days to restore that line. This is Jabalpur-Bina line of JTCL entity. The respective authority has already approved certificates up to 60 days as a force majeure and we received the certificate of availability for that. And therefore, revenue has been recognized for that. The next 14 days, we -- for the 20% of that line, we did not recognize the revenue. However, we are still appealing at the central level to give 14 days of revenue to us for that component as well, which will be around INR 1.5 crores. And the amount of CapEx that we spent we have recovered with a confirmation from insurance company to recover a sizable amount of that also, we are talking about a couple of crores. So I would say we have concluded the force majeure incident in a very positive mode.

And the next question is -- the next question is from the line of Dhiraj Dave from Samvad Financial.

Yes, sir, 1 question on the -- basically, we are finding some kind of EBITDA, kind of basically it's shown INR 2,993 crore in 1 slide. And when you go into the last distribution slide, basically, if I were -- where we get to the NDCF, there we find the SPV EBITDA being different only by INR 10 crore or something. So can you just explain reconciling that figure?

Just a minute. So you are referring to the annexure slide and the NDCF slide. Is it?

Yes, yes. So basically, annexure will have financial highlights, where we are getting EBITDA quarterly. Okay. Slide 28, for example?

Yes. So the Slide 28 has got...

INR 306 crores EBITDA...

INR 670 crores of income?

Yes, INR 670 crores. Yes, I'm referring to Q4. That is H2. So we got INR 306 crore EBITDA. And when I go down in the next year, it's coming at INR 293 crores or something, that is also coming from your press release also. Yes. So when I go to Page 35, I get INR 299 crores. How you exactly reconcile? Is there something missing?

Yes. So there is an IGT expenditure that you see on the same chart on Slide 28. INR 6.6 crores.

Yes.

So that is first reconciliation. Yes. So you need to add that number as well to come to the EBITDA. So this is an EBITDA, I mean what you saw on the financials in press release a consolidated EBITDA on which the EBITDA percentage is calculated. What is getting represented over here, INR 306 crores is the SPV level consolidation? There are expenditure beyond this at the IndiGrid level as well, which are shown separately. And that is the reconciliation item that I can describe right now.

That would be majority, INR 6.6 crore would be extending majority and another a couple of crore would be there...

Correct.

Secondly, sir, I would just suggest that if you -- like in hour of question hour, you would realize that probably 15 to 20 minutes effort has gone into discussion on solar assets, which basically doesn't contribute and your submission, basically it's not going to contribute more than 25% of assets, even in your declaration on your disclosure? Would it make sense for management then -- the most critical thing for any organization to give so much time to an asset which is -- unless we see that, that can become kind of becoming a multiyear revenue-generating asset or something. I'm just finding if you've seen the kind of it, I think the [ digression from ] transmission, which account for 100% of cash flow as of now to solar, which is not contributing anything as of now except for new [ lease in the state ]. So should it not make sense for management also to focus and just say that we are not doing -- its enabling resolution is fine. Because I think even if not going to -- if you look at the kind of effort you will be putting at, at DPU level, it's not even going to add 10 bps or INR 0.10 or INR 0.20...

No, I think it's a very important point that you made. See from our perspective, we're answering because people are asking questions, right? As we have said also, we are not necessarily expanding aggressively into solar, right? And if it is not worthwhile for a multiyear revenue, why would we also acquire, right, it is very simple. And therefore, to answer your question, if we acquire, we'll acquire, which will make it worthwhile for a multiyear revenue, right? Now what does that mean that we will not be acquiring for 10 bps acquisition. So at the moment, we are already responding because we recognize our investors, some of the investors would have concern, so we are addressing that. But I would say we would certainly not do something which is not worthwhile, right? And therefore, if we acquire solar assets, which would be adding a good chunk in DPU, then only will look to acquire, right? And which will be sustainable, not for one time. So definitely.

Appreciate that. And then last question is just kind of -- I'm not -- I'm a layman, so I don't understand the sector, but we understand that Power Grid is going to do InvIT flotation for the existing lead asset [ which they are availing. Now just like the asset reconstruction company, which I work, which has also fare ] structure, basically, initially when the sector started, [ ERC was not allowed to have security with it or some ] certificate of another asset reconstruction company. But 5, 7 years down the line, RBI permitted it. So can -- theoretical question, can InvIT invest into say, IndiGrid wants to invest, if they find it attractive, can they invest into Power Grid in the InvIT unit, infrastructure InvIT unit?

Good question. Technically speaking, as per SEBI regulations, at the moment, an InvIT cannot invest in another InvIT. So that is one. Up to -- maximum up to, let's say, about 10%, et cetera. So we can't do sizable investment. However, as per our strategy, we would not like to necessarily invest in another InvIT, right? Because we are also the owner and operator of transmission assets. We are not -- we have extra 10%, we might as well give it for investors and they can buy either IndiGrid units or buy another InvIT units. That is their prerogative. That is not part of a business plan or a model to acquire another InvIT. So if the Power Grid or other state transcos are monetizing their assets, we would certainly look to acquire. But it may not make sense for us to invest in another InvIT.

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

Sir, 1 question I have. Sir, last year, there were too many regulatory changes which were in favor of InvITs. Are there something which is expected to come or which is under discussion in the next 6 to 12 months?

Okay. So from our perspective, we can tell you, I mean, what we know, so -- and that's publicly we are working on. It's to say insurance companies and pension companies to be able to invest in debt securities of InvIT, which will allow us to have longer tenor for loans. So that's one which we are actively working on. The second one is, which I would say we are working on, but we don't know, is reduction of lot sizes from 1 lakh to 1 unit. We believe that will be a big boost to the sector. However, last year, SEBI only reduced from 5 lakh to 1 lakh. But we would keep trying with SEBI and ministry to reduce it to 1 unit. So that's the second one. The third one is the -- with respect to ability to add sponsors, right, in a particular InvIT, so for example, KKR has already applied to become a sponsor of IndiGrid. And SEBI -- we are working with SEBI to come up with a policy guideline on how to induct a new sponsor. So I would say that would be the third one. So practically, these 3, we believe we are working on, whether they happen or not is obviously regulatory prerogative of different regulators, but we are working on these 3.

The next question is from the line of [ Manish from JayPee Investments. ]

My question is, you mentioned that the interest rate on late payment has been reduced from 18% to 12%. So how much it is going to affect going forward? And you have beautifully explained 3 residual scenarios. What is the minimum residual cost per unit you're expecting over a period of time, maybe at the end of the life cycle? And what is the maximum?

So I think to answer your second question first on the residual life. See at the moment, if I use the worst method, okay? Quickly to scrap the [indiscernible], that kind of thing. In today's terms, today's value terms, the scrap value of our assets would be about INR 2,000 crores, okay? In today's terms. Now -- and that means assuming there is 0 inflation for 35 years. In that scenario, you will get INR 2,000 crores at the end of 30th year -- 35th year, right? So that's INR 2,000 crores divided by whatever 58.5 crore units, right? So INR 40, something like that, right?

INR 40.

Now. INR 40. If you add 1% inflation, 2% inflation, 3% inflation year-on-year, right, the number will keep going up. Now what is going to be 35 years of inflation is something which at least we can't predict. So I think that is going to be your view, right? How do I look at it to calculate? So I would leave that to you to evaluate, but I would just say it's a sizable chunk, right?

Yes, in today's rate, it is coming around INR 40 per unit?

Correct, correct. So that's a simple way to look at it. I'm oversimplifying so that the message is clear, but that's what need to be looked at.

Because we heard somewhere that INR 7 it is going to be. So that's the reason, good you clarified that it would be around INR 40.

See at today's value. But when we value our cash flows, we don't take this value into account in today's terms.

Correct.

Right. So just to be clear, I mean we do discounted value of future cash flow, and this value is parked at the end of 35th year with a particular assumption and that gets discounted today -- right in today's terms. What your question was that what it would be at the end of 35th year? It will be today INR 2,000 crores plus the inflation assumption that we want to assume for 35 years, right?

Yes, got it. And the second question, it was about the penalty because you have 45 days of credit. And if you have this impact from 18% to 12%, what would be the impact to the profit and loss account?

Yes. It is a very little impact. For example, we have collected approximately INR 68 crores of NPAs, net NPAs in the entire financial year last year. So 12% to 18%, if we have to replicate for next year, it will be a single-digit crore impact. So it's a fairly small impact on the book.

The next question is from the line of [ Gopal S ], an investor.

Mr. Shah, thank you for your wonderful presentation and a great Q&A. This is definitely a great learning experience for people like me, a retail investor. I think most of the questions which I had were answered. I think simplest are these questions with -- my question is related to TDS on the DPU. Recently, the Indian government has given the relief on TDS to be reduced from 10% to 7.5%. Is this applicable to the DPU that IndiGrid is going to distribute?

Okay. Just a minute, I'll check Divya is also on the call, who is heading Finance for IndiGrid. Divya, would you like to answer that?

Yes. Yes. Thank you, Harsh. Sir, yes, on this DPU, the dividend -- the interest which will be distributed to the resident investor, [indiscernible].

Ladies and gentlemen, we take the last question from the line of Swarnim Maheshwari from Edelweiss.

Just one question. So if you can just help us with this breakup of INR 475 crores of cash and investments. So how much is pertaining to the investments? And just wanted to better understand that, what is the free cash reserve that we have which can be distributed? Because I'm sure there would be some part of DSRA also sitting over here.

Okay. Out of INR 475 crores, there is -- INR 125 crores is DSRA, which is debt service reserve account, and INR 175 crores is DPU, right, which we are distributing now. So that is about INR 300 crores, it's so-called, let's say, committed capital of some kind, right, either towards DSRA or towards distribution that we're doing. So the residual amount of cash would be -- one can assume is free cash.

Would you have any closing comments on here, Harsh?

Yes. No, thank you, Swarnim. We decided to have a longer call because it was an annual one and a 3-year (sic) [ 3-month ] call. So I think I would just like to thank everyone for the right questions and important questions. We're really happy that our investors are going deep in our business model and understanding our business model, the assets and our strategy. So it's very heartening to see. I think I would just reiterate our vision and strategy that our focus is to become the most admired yield platform coming out of Asia. And therefore, we would focus on acquiring stable assets with operating cash flow, long cash flow and ensure that we keep distributing the stable income that we earn and work on growing that with the acquisition that we've been doing. Thank you.

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