Indigrid Infrastructure Trust (540565) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Update conference call with the management of India Grid Trust hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumit Kishore from Axis Capital Limited. Thank you, and over to you, sir.

Thank you, Rithuja. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I am pleased to welcome you all for the IndiGrid Trust call to update and discuss recent acquisitions in transmission and solar sector. We have with us today, Mr. Harsh Shah, CEO and Whole Time Director of IndiGrid Investment Managers Limited, representing India Grid Trust on the call. He is accompanied by Mr. Jyoti Kumar Agarwal, CFO; and Ms. Meghana Pandit, Head, M&A and IR at IndiGrid. We will begin with opening remarks from Harsh on strategy and subsequently on the deal. This will be followed by the Q&A session. With this, I hand over the floor to Harsh. Over to you, sir.

Hi. Thank you, and thank you, everyone, for joining the call today. To start with wishing you all a great year-end and wishing a happy new year for the next year in advance. Today, we have gathered here to discuss a couple of updates on the business that we recently looked to acquire. So we believe that it is something new that we have done. And therefore, it is essential to have a call and explain on how this fits into our overall strategy. To start with, I'm on Slide #4 to reiterate our vision. Our vision is to become the most admired yield vehicle in Asia by keeping our focus on a focused business model, value accretive growth, predictable distribution and optimal capital structure. As you would have seen in most of our business and actions, we have kept these 4 principles in place, and most of our business strategies we do is on these principles to ensure that, that fit into our overall game plan. The next slide is a quick snapshot about our size and scale today. We are approximately INR 14,000 crores in AUM as on September, and the -- our presence is in 14 states and 1 UT in India. We own 28 lines and 7 -- 9 substations, or approximately 6,000 kilometers and 11,000 MVAs. We are rated AAA by all 3 key large rating agencies. And the residual contract life is still 33 -- 32 years. We own approximately 9,800 towers and having a sizable amount of metal in the portfolio. As you would have gone through certain press releases, we are -- our primary focus is to acquire, operating projects with long-term contracts, low operating risks and stable cash flows. We believe both these acquisitions that we have done is fitting that criteria. And both of them are new because neither are they from our sponsors, or not just TBCB projects. So both of them are unique in its own way. I would invite Meghana who looks after M&A and capital raising for IndiGrid, to brief on the slides from Slide #7 onwards on both acquisitions. And subsequent to that, we would go towards a Q&A session. Meghana, over to you.

Thanks. Thanks, Harsh, and welcome, everyone, on this call. So the first acquisition that we have captured in the slide is on Page #7, which is Parbati Koldam Transmission Company Limited, wherein we have signed definitive agreements for acquiring 74% stake. This project was awarded on a build, own, operate, BOO basis by the Ministry of Power, and it is in a joint venture between Reliance Infra and PGCIL. PGCIL owns 26% in this SPV. Another unique feature about this asset, this is a Section 62 asset, which means that it was awarded on a cost-plus tariff mechanism. This will be the first asset that IndiGrid is acquiring, which is of a cost-plus nature. It has been operational since November 2015, so a great operational track record that we have seen. Totally, in this project, if you look at it, there are about 2 tariff generating elements, spread across total 458 circuit kilometers. Again, this project is a very critical project for evacuation of power from hydropower projects of Parbati to -- and Koldam which connects with the downstream transmission network in Punjab. This being a build, own, operate project. Again, the contractual life of the project is about 35 years, which is in line with most of our other projects, which have been awarded on a TBCB basis. Again, from a tariff perspective, it becomes part of the point of connection mechanism, wherein the central transmission utility, which is PGCIL acts as a CTU and through a pooled account mechanism, the tariff gets distributed. I think as Harsh mentioned on the call, this acquisition fits in very well with our stated strategy of looking at assets, which provide long-term stable cash flows. This is a fixed return project, as I mentioned, since it was awarded on a cost plus basis. So a fixed ROE of 15.5% is provided through the tariff regulations by CERC for the period between FY '19 and FY '24. On the operational performance, we have seen that all throughout, there has been annual availability of more than 99.5%. It has been constructed by Tier 1 suppliers of Kalpataru, KEC and the like. Going on to Slide #8, just a few acquisition details that we have provided, the SPA has been executed in last week of November. The total enterprise value for this project works out to about INR 900 crores, and it is subject to customary closing adjustments with respect to the cash balance, the net current assets, et cetera. This is -- the acquisition is also subject to customary regulatory approvals, including from PGCIL from the existing project lenders. And with currently the -- underway on completing or conditions precedent, we are expecting that the transaction will get consummated by Q1 of FY '21. We do not envisage any equity dilution for acquisition of this project. We had raised about INR 2,500-odd-crores last year through the preferential allotment that. So those funds, plus the available debt headroom and the internal accruals will be utilized for funding the acquisition of this project. Slide 8, last table provides for the average line availability and the broad estimate of revenue and EBITDA for FY '20. Moving on, on Slide #9. We had come out with -- in April 2020, we have taken unitholder approval for our diversification strategy, which was to enter in the renewable sector by acquiring operational solar projects. So broadly, Slide #9 talks about how are we looking at this diversification strategy. So the assets that IndiGrid would look at in the solar sector will comprise of assets which have a long-term contract, which have minimal counterparty risk. So we will focus only on counterparties like SECI, NTPC, GUVNL, which will again have some track record basis, which we would be looking at acquiring them as well as, again, look at the quality of the project. In terms of whether the Tier 1 equipment suppliers have been sourced. On implementation of the project, how robust is the infrastructure, et cetera? With that, focus and with that strategy in mind, we have gone ahead and acquired or entered into definitive agreements for acquiring about 100 megawatts AC capacity of 2 solar PV plants from an entity called FRV, Fotowatio Renewable Ventures. This is a Spanish entity and has a track record of developing about 5 gigawatts of projects across -- solar projects across entire Europe, U.S., Middle East. This project per se of 50-megawatt is placed in 2 SPVs. And the PPA, they have become -- have a operational history of about 2, 2.5 years. The tariff for the project is 6 at INR 4.43 per unit with about 44 lacs of VGF per megawatt. From a connectivity perspective, they are directly connected through a PGCIL substation that is about -- between 3 and 8 kilometers for P2 and P8. As I mentioned, the assets were commissioned in July '18 and have a track record of around 2, 2.5 years. The existing lender to the SPVs are, again, reputed lenders of IFC, FMO and IREDA. As far as the equipment suppliers are concerned, the modules were provided by Trina and Longi, which form part of the Tier 1 category. Inverters are provided by Sungrow, and the EPC contracts have been -- turnkey EPC contracts were done by Sterling & Wilson. One important feature to talk about this asset is the assets in FY '20 have generated about 200 million units, which basically means that they have ended up saving about 160,000 tonnes of carbon dioxide emissions, which is equivalent to carbon dioxide absorbed by 76 lacs trees. Again, moving on to Slide #11. On the acquisition details. The definitive agreements were executed just about a week back. This will be the 11th potential accretive acquisition after listing and after we acquired PKTCL also. Like for PKTCL, we are not envisaging any equity dilution for acquisition of this project, and it will be funded through the preferential issue proceeds and the existing debt room and internal accruals. For these projects, the enterprise value comprises of INR 660 crores with 0 cash and 0 receivables. As I mentioned, there is sufficient debt headroom which is available, which will be utilized. The last -- the table on the slide provides the plant and the grid availability, which are key metrics which we typically look at in solar projects, as you can see, are the -- the plant and the grid availability have been very robust since COD, more than 99.5% in both the plants, with the revenue and EBITDA being about INR 97 crores and INR 86 crores, respectively. Moving on to the next slide, Slide #12. Broadly, if you look at both -- after acquiring both these projects of PKTCL and FRV, we expect our AUM to increase by about 12% from existing INR 14,000-odd-crores to INR 15,500-odd-crores. The net debt to AUM, which currently stands at around 54-odd-percent, after acquisition of these projects will be about 58%, leaving sufficient headroom for acquiring our framework assets of NER and KTL from Sterlite Power, which we have already announced. The annual EBITDA for both these projects, that we are estimating, is close to about INR 225 crores, and the estimated annual NDCF operation on both these projects will be in the range of about INR 40 crores to INR 50 crores. If you look at the right-hand side map of India, as you can see, we have a great geographical diversification with the existing 11 projects, plus the addition of these projects, will just add on to it. Across north -- across the northern region as well as with the solar assets in the southern region. So with that, I think we will end the presentation and the submission from our side, and I will request Sumit to open the discussion on the Q&A from the investors, please. Thank you.

Rithuja, can we please take the first question?

[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.

The -- 2 questions, first is on the -- first, congratulations on the -- completing it on inking the agreement acquired for the assets. Two questions. First is on the tariff. I think tariff is 4.43%, which is fixed for 25 years. Is there any dispute on the tariff with AP? Are we being paid half of the amount? And what is the receivables outstanding? And is there any adjustment we need to pay over and above that once the judgment comes in? That's the first question.

Okay. So thanks, Mohit. The first question pertaining to -- this question is pertaining to solar, I believe, on the FRV side. So while this plant is located in -- physically located in Andhra Pradesh, but this is a SECI contract. So our counterparty is SECI. And therefore, at this moment, there is no litigation or any outstanding matter with Andhra Pradesh. So there is no issue or tariff withheld or reduction of any kind. There's no dispute. Our receivables are in the line of approximately 75 days, which is at the market with SEBI -- sorry, SECI payments. And SECI publishes the payment track record publicly for all Gencos right, and one can check that. Until now, there's been 100% payment track record by SECI and without any delays. So while direct -- physically, this plant is located in Andhra Pradesh, the location is good because of irradiation, the contract is with the central sector accounts from our team.

Okay. I understood. Secondly, what was the capital cost, excluding VGF? What is the capital cost to setting up this power plant, FRV?

Okay. So Meghana, do you want to answer that question?

Yes, yes. So the project cost for the project put -- for both the plants put together was close to about INR 650-odd-crores.

How much?

INR 650 crores.

Okay. Understood. And on the Reliance Parbati Koldam Transmission asset last time, of course, it was supposed the asset, the acquisition failed, I don't know the exact reason. So is there something to -- when do you expect this transaction to conclude? And do you see any hurdles in completing this acquisition? And what happened last time exactly why this fell through?

So I mean, we can't comment on somebody else's...

No, no, no, I understand there was some procedural issue, right? That's the reason I'm asking.

Yes. So procedurally, what we can say is that this asset is a joint venture with Power Grid. And until the 5 years from commissioning, if any sale of this asset were to happen, Power Grid had a right to say no. Okay? And therefore, probably it didn't happen because of that. This 5-year lock in completed on 3rd November 2020, and that agreement got signed after that. So in first scenario, the SHA with Power Grid in the joint venture provided them right of first refusal. However, they do not have right to say, no, right? So that is the difference probably is there between the 2 time lines. I think that's what we believe could have happened.

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

So first question, if you can comment on the project and equity IRR for these 2 transactions for the stake that we have purchased for PKTCL and for the full asset on the FRV?

Okay. So Sarvesh, thank you for the question. For any new acquisition, we look at different metrics. And for this case, also both these assets are of different nature. So we'll try to describe how one can look at it. Starting from PKTCL acquisition, which is unique because it is a cost-plus asset. Over here, more than IRR, we are looking at it as a dividend play. And one can look at it as a dividend discounting model as well. So this project has approximately INR 275 crores of equity, which is regulated equity on which the project turns approximately 15.5%. There are obviously certain minor adjustment both on up and down. So one can take 15.5% as a regulated return on the equity base of INR 275 crores, right? That's more or less. So now if this is the dividend that is accruing to us, right, as a project, this dividend is post tax. So we can actually take this amount and upstream to IndiGrid as a dividend payable, and IndiGrid can provide to investors as a dividend received on which investors will not have to pay tax because the SPV is in the old tax regime. So we use, I would say, this dividend is kind of a perpetual dividend that we receive out of this asset. And therefore, the right metric to look probably would be a dividend discounting or a dividend multiple methods...

You acquired this at price-to-book of 1?

No, no, no. We have not acquired this at price-to-book of 1. We have acquired at price-to-book of approximately 1.5. So if 15.5% becomes your 10.5% and with a little bit of leverage headroom that we have, we can increase it further, right? So on an unlevered basis, if you were to look at it on an unlevered equity basis because this is underlevered project right now. We earn approximately 10.5% to 11% dividend, right?

And this will be tax-free if you declare dividends on this?

Correct, correct, correct. No, I'm not commenting on complete tax-free nature because if somebody were to receive more than INR 10 lakh of dividend, probably it's taxable in their hands, right, in whichever tax regime you are. But this is an old tax regime. So one were to say, in old tax regime, the dividend will be taxable in the hands of investor.

So this is a bit different because this is tax-free at 10.5% versus maybe 12%...

So again, 10.5% is unlevered. So with just a 10%, 15% extra leverage more than SPV, we increased it to substantially high, right? So that's the -- I would say that's the right way to look at it. In addition to that, as this is not a, I would say, this is not an acquisition, which is necessarily requiring us to do capital risk. So the entire amount is coming on the same equity base.

So you will pass this on as dividend not as interest?

Yes, that is correct. We've not yet acquired, but that is correct. Directionally, the unique aspect of this asset is also that we will be able to pass-through the dividend as dividend not as interest.

Okay. And if we just do 2 x 9, I mean, INR 2 billion of EBITDA divided by INR 9 billion of enterprise. That looks to be on the higher side. So what am I missing here?

Sorry, what is 2 x 9? Can you repeat that?

EBITDA of INR 2 billion divided by INR 9 billion of enterprise.

Oh, sorry, sorry. Yes, important question. I think we have given the INR 200 crores EBITDA as a matter of fact representation. This also includes depreciation payment. In a cost-plus project, typically, your depreciation payments are also paid as part of your EBITDA, right? And therefore, in the initial years, we have a very high EBITDA. And the later years, you have a fixed dividend coming out of the project. So which also provides us opportunity to actually optimize further for better IRR, right? In addition to that, this also includes one-time revenue of INR 40 crores which was received in one-time revenue booked on account of change in COD for the earlier 3 elements.

Understood. And can you just comment on FRV IRRs as well?

Yes. Correct. So FRV --, again, IRR is a function of leverage and cost of debt, everything put together. But I can give you directionally, we have acquired it approximately 7.25 to 7.4 kind of EBITDA multiple, right? That -- our cost of debt and our leverage would result into a -- even if we were to assume a reasonable leverage. So basically, it's far more attractive because of the multiple -- I think the multiple is a better way to look at this asset. So IRR would result into a substantial accretion from what we are right now. But I don't want to give a specific number, multiple is something which is easy to communicate in public.

Yes. And Meghana commented that the project cost was almost equivalent to the enterprise value. So now this came in 4 years back and interest costs have substantially declined in the market. So how are we able to get it at the similar enterprise value at the project cost 4 years back?

Okay. So very good question. See, we -- first of all, we have been working on this asset for about a year, and then our values were locked much earlier. So as per the contract, we have locked in this asset very early on. Second, as such, we are not really linked to the capital cost of the project. We are largely in terms of how do we value a particular project based on the ability to earn cash flow. And as we have seen it in the past, we have acquired projects that are below market price -- below CapEx cost also and above CapEx also. So as such, we don't really, I would say, consider the CapEx amount on account of -- if they made a higher cost or lower cost, right? That's not how segregated. How we have acquired, I think that's something which is based on our, I would say, competitiveness that we are able to provide, I would say, swifter solution and a better solution, right? That's the way to look at it. And again, this project had a VGF, et cetera. So overall, cost, et cetera, makes approximation slightly more complicated, right, to link directly [Foreign Language]

Okay. And since for solar assets, the problem was the possibility or volatility in the cash flows as opposed to our usual stuff that we do. So what has been the volatility in the last 3 years, FY '18 to '20 for this asset? If you can comment on that volatility.

In terms of? Sorry.

In terms of the cash flow that will accrue to you, I mean, for the solar assets, I mean, the possible problem is there can be volatility as opposed to a fixed revenue, which is independent of everything, right, in your usual business?

Yes. So we have seen -- we have at least -- good that this project has a 2 year of history, and this project is also several other hundreds of megawatts around in the solar power plant. And we have seen that the grid availability has remained more than 99.8%, 99.9%. So there are no issues. And it's a very small line, which is connecting to a large substation. So grid availability has not been an issue at all. Plant availability, I think, first 3, 4 months, obviously, there is a settling period, but last 18 months have been phenomenally good. So I would say, not operational, not technical and not collection. I think none of the parameters we have seen -- any surprises or volatility in this plant.

Okay. And my final question, if I may. How now these are like INR 500 crores, INR 600 crore assets that we are acquiring. I wanted to know now that we have built some sort of a platform. What is the advantage that is coming to us as a platform as opposed to, let's say, a family office, which wants to buy these sort of asset at INR 500 crores, INR 600 crores? Because these are not very large amounts for ultra HNI or even other firms to sort of try to buy, especially when the yields are coming down across the board. So are we getting some advantage now because of the platform? And if you can quantify it a bit?

Yes. So I mean, let's say, you are a large HNI of INR 500 crores, would you buy a listed instrument, which you can sell any day and have a tax advantage versus buying a physical asset, which you need to run every day and figure out how you're going to run it, right? So I mean, that's the first question, it becomes a no-brainer that when the scale comes, the benefit is when we are able to deploy the right kind of resources behind it, right? Whether it's in terms of people, or in terms of managerial or leadership bandwidth or in terms of technology, right? I'm sure you would have read about recent partnership with IBM that we did for our portfolio. Now that's a sizable CapEx. You couldn't have done that in a 1, 2, 3 portfolio asset size. So with scale, the advantage come in terms of reliability of asset, predictability of asset because you are able to deploy the right amount of technology and resources on that. And the third one, which is overall reduction of wealth and cost because we are having the scale. That's I would say called an operating synergy. The next synergy exists for us on account of, I would say, financial synergy. We are AAA, and I would say we are one of the few, if not only AAAs in the country with having a AAA rating and acquiring renewable energy asset, right. So we do have, I would say, cost of fund advantage. And the third one is the structural advantage, we have framed as an InvIT and which allows us to extract all the cash and provide it to our investors, right, which for some investors is preferred. And therefore, overall, we are able to provide a better outcome because of these 3 parameters.

Understood. Your NDCF accretion for the last 4, 5 acquisitions that you have announced, will be around INR 100 crores, cumulatively INR 40 crores to INR 50 crores coming from these 2 only. So that is like INR 1.5 per unit. So what is the plan now? Is it more acquisition with this or increase of DPU? How are you thinking about that?

Yes. So Sarvesh, I think a right question. We are waiting for the year to end, right? And we need to take stock of what is the NDCF for the full year basis. In any case, we have to distribute minimum 90% at both SPV and IndiGrid level. These acquisitions would happen in quarter 4. So may not yield materially in this financial year, right? These numbers are annualized, not quarterly. So we'll have to take a decision in quarter 4 and the Board of the Manager and us will decide what is the right set of DPU based on the NDCF and will come with a plan in probably quarter 4 meeting. Because we have just come out of COVID, I would say, the first 2 quarters, we are discussing about preserving cash. Now suddenly, there is a turn in the -- turn of events and markets have become far more liquid. So we would like to just see the full year catch up how does that become before we, I would say, increase the DPU. If at all, our NDCF becomes materially large, we anyways have to do it.

Yes. I think that's the question. The 90% of these annualized cash flow for all the assets that have been announced till now, is that greater than 12?

Not -- no, because these assets were going to come in quarter 4. So...

No. no. On a annualized number, next year, I'm not talking...

Yes. So maybe next year, next year, there might be a compulsion to do that, right? So...

The next question is from the line of Abhilasha Satale from Dalal & Broacha.

Sir, we have placed the tariff at INR 4.4, however we are seeing most of that -- the tariff, the recent although tariffs are below. Even the recent one, which -- this has backed -- NTPC has backed. It is below INR 2. So do you find any threat of the tariffs going down in future or anything like anything of that sort of this thing is here in this contract?

Yes. So no, Abhilasha, I think it's an important question. We evaluate from a perspective when you are acquiring that is this materially higher than APPC of the state or counterparty. In this case, also, we are not materially higher than APPC. So I don't think we can evaluate contracts from -- or rather contract's entity from incremental cost, right? Because by that logic, a lot of capacity in India would have become redundant, right? So the way we see it is incremental cost of electricity of solar will come down. But on the other hand, if you have a reasonable cost of power, in that scenario, we suspect that these contracts will be renegotiated. They are very fairly strong player contracts, and they are with credible counterparties like SECI. So we don't see that as a risk. Historically, there have been such attempt by even Gujarat, a state like Gujarat, with a tariff like INR 15, and it hasn't succeeded, right? So we believe the regulators and judiciary is fairly clear on this point. And if a state asset with a state PPA with a INR 15 kind of disincentive had to eventually pay and are still paying with a central counterparty with INR 4.50, we don't see it as a risk for the business.

And what is our current debt level? And what will be the debt level after these acquisitions?

I think the debt level after this acquisition was there in the presentation, approximately 58%.

The next question is from the line of Varun Agrawal from BOI AXA Mutual Fund.

So my question is around the strategy of increasing -- going forward, increasing the share of renewable energy in our portfolio. So what kind of impact it can have on the overall IRR and dividend distribution and our overall asset profile?

Sorry, can you repeat that question, please? I missed that.

Am I audible?

Yes. Yes.

Okay. Sorry, I will repeat my question. So I wanted to understand the overall impact of -- sorry, overall strategy of increasing the renewable energy assets, which is solar and other assets or generating assets in our portfolio. So what kind of impact it can have going forward on our dividend payment, IRRs and overall asset profile?

Okay. So I mean we -- one can look at it from different angles, whether it's from a risk perspective or return perspective. But I'll try to address it on both. One is -- the solar assets, which we are acquiring, even central counterparty assets are going to be more accretive, right? So there will be higher returns. So as I said, we acquired it for 7, 7.5 kind of EBITDA multiple. Whereas transmission assets go at least 10%, 15% higher. So about 8, 8.5, 9 kind of multiple, right. So there is a difference between in terms of accretion that happens. On the other hand, there is also slightly higher risk, right? Because how -- there is a point of connection mechanism pool for transmission assets, which has got a far longer track record versus what we are acquiring from SECI, NTPC, that is relatively shorter tactic. We believe the contracts are equally strong. However, what -- as a part of our strategy, we don't follow a particular mix, right, that we want to be 20% renewable or we want to be x percent, something, et cetera. Our focus is to -- as I started with the presentation, to find assets with long-term predictable cash flow, right. Now -- right now, we have identified as a -- solar as an area. Maybe we may get good acquisition opportunity, maybe we don't, right? So there is no a set pattern that we need to follow. And therefore, I think we are neutral to a percentage. However, as a guidance, we have been telling investors and debt participants as well that at no point in time, we are looking to cross solar assets in our portfolio of 20%, 25%, okay? So that is an outer cap. Doesn't mean we have to be at 20%, 25%. We may be at 15% and still be happy. So our focus is on managing the risk by selecting the good quality asset with good counterparty and ensuring that they agree to it. After that, the percentages is not something which is part of our business plans.

Okay. So one more question on the similar line. So in terms of predictability, a lot of these solar assets might have variability in terms of the availability of sunlight and other things. So do you think this -- 15%, 20% exposure will have too much impact on our cash flows, considering until now, most of our assets are more or less -- Yes. I mean -- yes.

Yes. An important question. I think, see the way to look at it is twofold. One is solar as a resource is not as unpredictable. I mean you can -- solar started in India on a commercial scale, somewhere around 2007, '08 period, right? So in most of the solar generating stations or rather, let's say, regions, there is more than a decade of solar data available, right. So the solar generation or irradiation per se is not materially variable, right? So that's one point. Second point, and right now, we are looking just one asset. But let's say, if at all, we are at 15% to 20%, we are not looking to buy it in one area, right? So maybe you have 5% capacity in Andhra Pradesh, 5% capacity in Rajasthan, maybe 10% capacity in Gujarat. We don't know that. What solar offers as an opportunity is a diversification. So you are not concentrated in a particular geography, which will hit you hard if there's one -- suddenly, there is a higher rain in that year and you are kind of impacted. So it's not a concentrated capacity. It is a distributed capacity in relation to scale. And therefore, we don't get material impact, right, on that account. So solar that way gives diversification and the impact is lesser. Vis-à-vis transmission, and I'm not kind of saying the transmission is more risky, but kind of as a concentrated impact, right? If our one line is 10% of our portfolio and is down for 1 month, we'll have a far higher impact on our balance sheet, P&L than one solar plant having a little bit of less generation on account of higher rainfall, right? So it's not -- it is not really adding that much of risk on account of solar irradiation, right? Does that help the question?

Yes, yes. absolutely. So just one last question. In terms of the -- I mean, in terms of the payment pattern, we don't see any issues in terms of solar assets. And as we have already mentioned, we are focusing more on SECI and all central government or when -- assets which you're buying are more linked to where there is a predictability of cash flow, there's going to be -- so that the cash flow itself are not delayed?

Correct. No, no, so I think let's not club all solar generation into one bucket, right? We are buying solar assets with very select counterparty, right. That means SECI and NTPC, which exactly addresses the risk that you are trying to address.

The next question is from the line of Hansal Thacker from Lalkar Securities.

Congratulations on the last 2 acquisitions. Just one question. Can you throw some light on the cost of debt on the last 2 acquisitions and on the portfolio, in general?

Yes. So -- thanks, Hansal. And this question keeps coming, it came in quarter 2 review also because the cost of debt in the market in general has come down materially. And optically, our cost of debt ticks at 8.5%. We believe in kind of conservative management. So we have been fixing our cost of debt in the past, and therefore, a lot of instruments are fixed. However, approximately 40-odd-percent of our balance sheet debt, approximately INR 8,000 crores. We can either refinance or prepay or some kind of other structuring where we can do. And we are working on that. For example, we raised recently, just about a month back, one nonconvertible debenture at a cost of debt of 6.85% quarterly on a 3.5-year period, right, which is about 7% annualized. And today, we have opened up another issue for the upcoming acquisitions, which is at 7% to 7.2% PAPQ, which is approximately 7.25%, 7.4% annualized for 4.5-, 5-year maturity. So I would say that transmission is happening. The substantial reduction is happening. This would be -- there is approximately 125 bps lower than our weighted average cost of debt. We are looking to refinance assets. And as and when we do, it will result in benefit on that account. And this -- especially the capital that we are raising now is going to go towards the acquisition that we are doing right now. So for refinancing, we will keep focusing on opportunistic, I would say, tenor as well as facilities that allows us to reduce further.

Great. Great. So as I understand, the FRV acquisition was done on 100% debt, right?

Yes, FRV and PKTCL, both are not done yet. But they are underlevered...

As and they will be done.

Yes. They are underlevered right now, will be based on debt. We'll be funding the acquisitions right there.

Brilliant. Wow, so that's a really lucrative acquisition then. And some idea on the PLF on the FRV, would you have that handy by any chance?

Yes. I think we can give you a little bit of past data. So the generation is in the tune of approximately 20 crore units. So that comes to approximately 18% to 18.6%, let's call it, 18.5% CUF, but this is on a DC capacity. Okay. So the DC capacity of the plant is 137 megawatts -- sorry, 135 megawatts, not 100. So if you were to try to calculate the math, it comes from 135 megawatts multiplied by 18.5%, multiplied by 365 into 24 into INR 4.43. That's the calculation. Yes. But you need to consider DC capacity.

Okay. Okay. And the INR 4.43 you are mentioning is without the VGF?

Yes, VGF is actually -- VGF is a onetime payment that gets paid when a particular milestone is achieved, right? And in this case, some of the milestones are not yet achieved. So they will be paid over the period of next 12 to 24 months, as and when those milestones are achieved by the plant. And part of this, we will have to share with FRV as an earnout. However, some part of it will also result into our accretion, which is additional to what we are making right now.

Okay. So keeping the VGF as a onetime, it would be safe to assume that the rate per unit will still be INR 4.43?

Yes, INR 4.43 is annual payment. VGF, this is onetime grant that gets paid. Not onetime, it comes in 4 tranches. 50% on first year in COD and then 10% every year. So in first 5 year, VGF get paid. So VGF is over and above this.

Great. Great. Congratulations and all the best.

The next question is the follow-up question from the line of Mohit Thakur -- sorry, from Mohit Kumar from DAM Capital. I'm sorry, his line got disconnected. We have the next question from the line of Sunil Kothari from Unique Investments.

Harsh, Meghana, congratulations for these 2 new acquisition and sustain for, really commendable. So my question is, just to understand, we -- up to now, we were in transmission assets. And now we are a little bit moving towards generation assets. So which are the risk factors you will be keeping in mind?

Yes. So Sunilji, thanks a lot. And I think we've already signed the agreement. So we can just describe what risk factors we have kept in mind. But also in Meghana's presentation, it was there in the beginning, what we are looking at, right? So if you look at Slide 9 of her presentation, right, which kind of secure. So first is buying a good asset. And buying the good asset means that asset quality is good, constructed well. There are good Tier 1 equipments in place. And therefore, we have described some of the equipment name of manufacturers also because that makes the big difference in your productivity, in your generation, in your sustainability so that addresses... [Technical Difficulty]

Ladies and gentlemen, sorry to interrupt the line of the management got disconnected. Please take connected while we reconnect them. Ladies and gentlemen, thank you for patiently holding the line. We have the line of management, Mr. Harsh Shah connected.

So I left that second part was a selection of counterparty like SECI, NTPC, which ensures that they have unblemished payment track record. And therefore, that will continue. Third is having the right capabilities in-house. So I would say we -- and the last we spoke about this about 10 months ago, where we did not have anybody specifically for solar, except our own past experiences. We have Satish as a Chief Operating Officer, who is, I would say -- can you hear me?

Yes, sir, we can hear you.

So Satish who is the Chief Operating Officer, who has managed a large wind portfolio of GE in India. We have Jyoti, the CFO -- as a CFO, who comes from JSW and who has not only manage, who has bid, financed, I would say, solar and nonsolar assets in generation as well. We have Meghana who has acquired other projects from an acquisition point of view. And we have a person with Satish, who has joined as the Head of Solar O&M, who has built a couple of gigawatts of solar portfolio and manage that. So we have sufficient leadership capability and team capability to manage. So I think that's the capability that we have built. So pretty much, this is what the risk is, right? You buy a good asset with a good counterparty and manage it well. That's the focus we'll continue.

Okay. Right. And the second point is, since last -- you also clearly mentioned that since last 9 -- or 2, 3 calls, we are talking about restructuring debt. So just which are the hiccups, which is not allowing us to restructure, to just understand, I'm not saying that why we are not doing it. So please, if you can?

No, Sunilji, I think, first, just a correction, not restructuring, restructuring is a completely different connotation from RBI perspective. Just refinancing.

Refinance. Yes, sorry. Yes. You got the right one.

So from a refinancing perspective, there are no structural issues. There are largely with respect to -- when you do a bond, right? It's a fixed price bond. Then it trades in the market. You can't buy them out cheaper, right? So for example, if we issue a bond at 8.5% in 2019, okay, for INR 100, it is staying at INR 105 today or INR 110, right? So now we can't refinance that because that is a listed contract, right? We can only refinance loans or floating rate loans or something which is coming from maturity. Therefore, we need to just maintain that calendar schedule that as and when it comes for opportunity, we'll refinance. That's what we met. It's refinancing.

So in near future, maybe another 6 to 9 months, you -- do you feel, we'll have reliable good chunk, which we can refinance at this lower rate?

Yes, yes. We have a sizable amount of loans, which we have ability to refinance.

The next question is from the line of Mohit Kumar from DAM Capital.

So do you think the provision in the Parbati Koldam contract to buy out Power Grid?

Yes, Mohit, the provision is there, Power Grid wants to sell, and we want to buy, we can. But that is not part of the plan. It's a 26% shareholding. So it's not a material in size as well.

Okay. So we can safely assume that the dividend will keep flowing to us. And as far as -- and as the FRV assets are concerned, more likely the return will come in form of interest, am I correct?

Correct. Correct.

Sir, on the -- who is doing the O&M right now for the FRV asset? And which -- just the VGF component is what was pending. Will it come to us or it will go to the -- to the erstwhile owners.

There is a ratio...

And how much the amount?

Yes. So there is a ratio that we have agreed. So part of -- I think exact numbers we have not disclosed or probably will disclose on closing. A part of the VGF will accrue to us as well. In addition to that, there is also a GST claim, right? So GST payment, both GST payment and VGF, part of it will accrue to us, part of it will accrue to sellers, so we will have an upside. However, the sellers need to deliver in a particular time frame, right? That if it comes in 12 months, then you get x, if it comes in 24 months, you get y, right? So that is the formula that we have put in place, which incentivizes seller to continue to work with us to get the claims as well as there is an upside for us, right? So it's a mix of both.

If I may ask, what is the kind of milestones still pending because this power plant was commissioned in 2008 -- Jan 2018 and 2019, respectively.

Correct. Yes. So for this power plant, there are certain -- some small amount of land, not just for power plant, the entire solar power plant, some amount of land mutation pending, which is required by SECI to do the payment, which is the one milestone which is pending to receive the first VGF. And we believe SECI has already given the waiver for the first VGF. So now it is procedural. And obviously, COVID had slowed all of us down over the last 6, 8 months. So now according to us, it is procedural. On GST side, there were certain petitions outstanding in CRC, which they have just before closing down, ruled in some other projects favor that the GST payment will be onetime and will be paid by the -- by SECI. So both these things, the materials, I would say, thresholds have been crossed. And now it is a matter of procedure.

And how much of the amount pending as of now?

Meghana, would you have the exact number of total GST and total VGF, please?

I don't have it off hand. Mohit, let me just give that to you later.

Sure. Sure. Regarding O&M for FRV is it Sterling & Wilson and do we intend to do ourselves going forward?

We intend to continue with Sterling & Wilson for O&M for now. While we have all the managerial capability, we will have our own project manager on site. But O&M contract will continue as is because they're doing a good job.

And lastly, on the funding of the FRV. I think that there is a loan amount which is -- you're getting from FMO, IFC and IREDA? What is the proportion in which they have funded the loans? And what is our plan going forward? I think I believe that some of the -- some of the amount is sitting as a bond from FMO?

Yes. Okay. So from our perspective, we are looking to refinance all of it. And bonds have completed 3 years in the country. So regulatory wise, there is no hurdle. So we would be looking to buy out the bond and continue with that. So it will be entirely refinanced from our perspective.

From rupee loan, am I right?

Yes, yes. Rupee loan, correct, or rupee bond. Basically, rupee...

Yes. Understood. Yes. Sure, sure. Are we -- I think we can raise the money from bank or so now, right? So that's exploring all...

Yes.

The next question is from the line of Khyati Mehta from Tata AIG.

I just wanted to have some color on the disclosures made yesterday regarding SPTL becoming one of the sponsors of IndiGrid.

Okay. Sure. Sorry, can you repeat the question? Your question was regarding the merger of SPTL and SPGVL?

Yes. And them becoming a sponsor of IndiGrid so...

Okay. So, no, this is just the corporate action that has taken place. SPGVL, 100% subsidiary of SPTL was the sponsor of IndiGrid when it was formed. However, Sterlite SPTL and SPGVL have been merged now, and therefore, SPGVL ceased to exist and therefore, the resultant company, SPTL becomes a sponsor by virtue of merger. So this is just an intimation -- factual intimation on account of that. Does that answer your question?

So are -- is it a cosponsor because I think KKR was inducted as a sponsor, I don't...

Yes, yes, yes. Correct. Correct. So that continues. So this is just a legal entity changing from Sterlite side. Nothing else have changed.

And the stake of SPTL in IndiGrid around?

Sorry?

The stake of -- the holding of SPTL in IndiGrid will be how much as of...

Approximately 0.3%. Approximately 0.3%.

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

Just one question. For H2 of this year as well as for FY '22, what is the extent of refinance that we can do? And what will be the average basis point reduction in interest cost on account of that?

Okay. So I mean, that's a question, which you need to derive answer to from our balance sheet. So on our balance sheet, we have 1 -- INR 435 crores of bond, which is getting refinanced in Feb '21, which is getting matured, so we can refinance that. Other than that, we have a lot of projects -- project level loan, right? We have project level loan in GPTL, project level loan in ENICL, project level loan in OGPTL, right? These 3 put together would come to approximately INR 2,500 crores to INR 2,600. crores. I will need to refer to the quarter 2 presentation, and that 3 bank loans, plus the bank loan at InvIT level. So put together approximately INR 3,000 crores to INR 3,500 crores. INR 3,000 crore of debt, which is at either SPV or at an IndiGrid level, we can potentially look to refine.

And at around 150 basis point reduction on an average?

That's something which you and I would know. As and when we do it, we'll come to know actually, right? I mean, today, when we are -- I can give you the exact public numbers, which we have raised, we are raising the debt now. But I think the future one depends on when we are refinancing it. That can be up, that can be down. So that's something we'll have to wait for when we refinance that. It can improve as well, it can worsen, right? So don't want to give you an upfront commitment on that.

Okay. So what is the ballpark cost of debt on this INR 3,000 crore?

Okay. Ballpark cost of debt. I think we'll need to calculate that, to be honest, but it will be upwards of 8, that I can tell you, 8.25 to 8.5 average.

Okay. Understood. And are you also planning to now remove Sterlite as a sponsor now that their shareholding is so low and they are -- anyways, KKR is the sponsor? Is there a procedure to remove the existing sponsor as a sponsor of the company?

No, factually speaking, there is a procedure to remove by a simple vote of unitholders. We can, in degree, the unitholders can remove. Provision is there. However, the manager Board hasn't made any such decision or plan in place. So it would be premature.

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

Congratulations, Harsh and the entire team of IndiGrid on this acquisition. Sir, I have just one question, which is, I think in this acquisition, we are saying that our NDCF is going to be in the range of INR 40 crores to INR 50 crores. How -- I mean I think in the course of the presentation, you mentioned that a part of it will be distributed as dividend. Could you give us some sense on how much could that be and from where, how will that go about?

Okay. So I think see, we can give an approximate way to compute that because we have not yet acquired. So it's difficult to predict from that perspective. But let's say, as we said, approximately INR 275 crores. So this asset would throw anywhere from INR 42 crores to INR 48 crores of dividend per year on a 100% basis, right? Considering the ROE and 15.5% cost of debt, right? We only own this. We only own 74% of this. So we get approximately, say, INR 32 crores -- INR 30 crores to INR 32 crores of dividend from this asset, right? And divide that by number of units, which would come to about what INR 0.5, somewhere around that, INR 0.5 or INR 0.60 or something. Now at a higher level, that's what the math is, right? We'll need to figure out accounting and how that gets structured and all that eventually. But on a long-term basis, there's about INR 33 crores of dividend on a INR 58.5 crores of unitholder base. So that's the ratio one can look at.

Right. So does it mean that the solar assets, like in the future, if we acquire, there could be a window in which this kind of dividends could accrue in future as well depending on the structure, but I think in transmission lines, clearly, it's not a dividend payout that you can give but in solar assets, that possibility remains?

No, no. You mix the 2 assets. The dividend that we spoke about is for PKTCL, which is a transmission asset, but a cost-plus transmission asset. So you get a post-tax return. For solar, it will be interest. So it has nothing to do with the sector. It's to do with the cap structuring for that asset.

Got it. Okay. There is one more point, which is I think there was some new decision going around about going forward in the future, government is contemplating some policies wherein if the distribution company is not able to deliver the power, there will be a penalty, which will be levered. Does that any way create any kind of business risk for us?

No. So first is that is for distribution licensee. We are a transmission licensee. So it doesn't create on us directly. Indirectly, it creates on our customers, right, which is distribution companies. So see, all these structural measures that you keep hearing about is towards overall improving the sector efficiency, right? So while it may look like penalty is there, but eventually, the government is -- I mean government is only providing liquidity also to meet that penalty, right? On the other hand. So the idea is to create an infrastructure environment so that distribution companies become more efficient, right? So that the overall sector becomes more efficient. So in the longer run, I think these will result into a rather positive environment for the sector, than the negative. And in the short term, anyway, we don't get directly impacted.

Okay. And one last question, and this is -- we are talking about assets that we have acquired. But if I can get an update on the 2 framework assets, which are in the pipeline that is NER and KTL, could you just update us in terms of what is the status? And when do we think that those could materialize if at all?

Yes. Sure. So NER project is under construction, and I think it is at the last stages of construction. There will be obviously a force majeure on account of COVID and all other aspects. So there's 5-, 6-months delay on that project. We believe at least what we have been informed is that the project will be commissioned by March. And therefore, we have in parallel started diligence for that, okay? So exact acquisition date, we don't know, but maybe quarter 4 or next 6 months, we'll look to close this acquisition 6 to 9 months as and when the project gets commissioned. It looks, at least what we been informed is that the project is at good stage, and we should be able to look at it in 6-months' time. And that's one key factor. On KTL, it is substantially delayed one part of it. So 50% of KTL is commissioned, and it's revenue generating. However, the other 50% is substantially delayed. So probably 12 to 14 months, maybe for that. So it will be slightly delayed than earlier plan.

Okay. So by quarter 4 of FY '22, we expect that you could get good clarity for both of them?

Quarter 4 of FY '22 15 months [Foreign Language]

[Foreign Language] Yes. So we should be done with -- by that point.

Yes. Yes. Correct. 15 months is a good clarity. Correct. Yes.

Ladies and gentlemen, as this was the last question for today. I'd now like to hand the conference over to Mr. Sumit Kishore. Thank you, and over to you, sir.

Thank you, Harsh, Meghana, Jyoti. On behalf of Axis Capital, thanks a lot for giving us the opportunity to host this call. Would you have any closing remarks, please?

So I think we have been just on track of delivering our strategy. This is a stable business with predictable returns and now IndiGrid has good access to both capital as well as management team and asset base. And therefore, we are in a very good position to execute our strategy, which was focused on long-term contracts, low operating risk, stable cash flows and then which is what we are executing. I would reiterate, I think a year before, there was a lot of questions around solar. I would reiterate that our focus is to go conservative than aggressive. And therefore, we've provided outer caps of 20%, 25%. However, we don't necessarily are running to achieve those caps, we may be operating at a much lower level. We are looking to acquire, monitor and generate the yield before we jump on to, I would say, growing materially on especially a new sector. And it took about -- took us, I would say, about a year or 14 months, from starting to think about it to evaluate, put together risk framework, build capability and finally execute. So I would say that we will just remain conservative and focus on the fundamental of the business, which is to get predictable, stable cash flows and generate yield for investors. And I think a lot of you have been tracking us since the beginning. And thanks a lot for all the right questions, which nuances on the business, which allows you to evaluate the business better. So thanks a lot for participation and wishing you all a merry Christmas and a happy new year.

Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you.