Indigrid Infrastructure Trust (540565) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the India Grid Trust Q3 FY '21 Earnings Conference Call 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. Thank you, and over to you, sir.

Thank you, Lizan. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I am pleased to welcome you all for the IndiGrid Trust Q3 FY '21 Earnings Conference Call. 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 the opening remarks from Harsh on the operational and financial highlights as well as the key updates for the sector. This will be followed by the Q&A session. With this, I hand over the floor to Harsh. Over to you, sir.

Yes. Thank you, Sumit, and welcome, everyone, to the quarterly results call. And I would just wish everybody a safe and healthy New Year as we enter into the 2021 calendar year. Coming -- I would go through the slides part from the vision and the business updates, and then I'll have my colleague, Jyoti and Meghana to run through the operations and the strategy ahead, and subsequently, we will keep time for question and answers. To start with on Slide #5. Our vision means to become the most admired yield vehicle in Asia. We are focused on a focused business model, which is on long-term contracts, low-operating risks and stable cash flows; second focus area is to ensure value-accretive growth, which is DPU accretive acquisitions on a year-on-year basis and create a growth pipeline for future; our third focus is predictable distribution, which is we've been doing till now, which is a quarterly distribution and minimum 90% of net distributable cash flow gets distributed and focus on sustainability of the distribution; the last one is following an optimal capital structure, which is there is going to be a consolidated leverage cap of 70%. We are a AAA rating, and we will ensure that prudent liability management is implemented, and we remain capitalized at any point in time. On Slide #6 is just a snapshot of what we are today. Today, we are at INR 15,000 crores of size in terms of assets under management. We are present in 15 states and 1 UT. We have 30 lines, approximately 6,700 kilometers -- circuit kilometers, and 9 substations with approximately 12,000 MVA of transformation capacity. We are AAA rated InvIT from all 3 rating agencies, which is CRISIL, India Ratings and ICRA. Most of our assets have perpetual ownerships, which means that we don't have a transfer in the end. Our residual contract life of contracts of our assets were approximately 32 years on a weighted average basis. And we have 10,540 towers in our portfolio, which, along with the conductor, includes approximately 399,000 tonnes of steel and aluminum. This includes the latest acquisitions that we did in quarter 3, which is PKTCL, which we acquired from Reliance Infra as well as JKTPL, which we acquired from Techno Electric and Kalpataru Transmission Ltd (sic) [ Kalpataru Power Transmission Ltd. ] Coming to quarter 3, on Slide #8 are the key highlights. To start with the financials. In quarter 3, EBITDA has grown by 25% year-on-year basis on the back of robust operations as well as acquisitions that we had done in the year of 2020. Our net debt to AUM remains at 52% as on 31st of December, which is substantially lower than the 70% cap and SEBI regulations. Our rating is maintained AAA by creating agencies that rate us. In addition to that, I would like to add that this is one of the quarters where there is highest net distributable cash flow generation that has been achieved, and Jyoti will cover that in detail in his presentation. The next section is on accretive acquisitions. Quarter 3 has been very active and interesting for us. We have signed for the first cost-plus transmission asset called PKTCL from the Reliance Infrastructure. And this also happens to be a joint venture with Power Grid, where Power Grid continues to own 26% of the shareholding. The unique aspect about this acquisition is that this is a dividend story. This project will be on a cost-plus basis, and therefore, it upstreams the dividends to IndiGrid and then IndiGrid will pass the dividends in the form of dividends to its investors. We also signed the first SPA for solar asset with a company called FRV, which is a Spanish entity and which we are looking to acquire 100 megawatts of solar assets from FRV, which is -- which has the contract with SECI and has a good operational track record, which meets the criteria. With PKTCL and FRV both put together, we would be crossing the AUM of INR 15.5 million (sic) [ INR 155 billion. ] The third section is on steady operations. Our collections have improved. In quarter 3, we have collected 112% which reduced our DSO back to 70 days. And we are seeing on a month-and-month basis, stable collection track record. And therefore, this is a healthy reversal that we are seeing in comparison to the quarter 1. Our average availability is maintained at over 99.5% for quarter 3, which is an important measure on which we are accruing revenue and we get paid. We also signed a multiyear collaboration with IBM to develop an AI-based digital asset management platform, which we believe over a period of time would result in increasing our reliability and reducing the life cycle cost of managing these assets. The fourth, which is a new segment, which we have discussed several times over last 3 or 4 quarterly calls, which is with respect to our capital raising plans. The IndiGrid Board has approved up to INR 1,500 crores of capital via rights issue. However, this is subject to regulatory approvals from SEBI and RBI. As and when we receive such approval, we will look to raise capital via rights issue. The last and the most important one is the DPU strategy. We have been maintaining the INR 3 DPU for over 8 quarters. And looking at number of acquisitions that we have done over last 4 quarters as well as the NDCF that we have generated in this quarter, the Board and the manager has decided to increase the DPU by 3.3% to INR 3.1 per quarter. But this would mean that on an annualized basis, this would be INR 12.4 a year. We have done it after substantial consideration and acquisitions that we have undertaken. And therefore, we are confident that this increase is sustainable with the existing portfolio and pipeline of assets that we have right now. So cumulatively, for YTD FY '21, this will result in distribution of INR 9.10 per unit despite the COVID challenges, which we have seen over the last first couple of quarters in the year. I would take a pause here and have my colleague, Jyoti, who is CFO of IndiGrid, to run through the presentation from Slide #9 and take you through the operational details of the results of quarter 3.

Thanks. Thanks, Harsh. So I'm on Slide #9 now. So if you look at it, we are trying to show the COVID impact on the power sector in general and also on our collections. So I'll start with the right-hand side of the slide first. Like everything else in the broader economy, power sector is also reflecting the normalization post the COVID, where we have seen a robust demand pickup, both on the generation as well as on the demand side, where the peak power demand in the Q3 was at an all-time record high of about 186 gigawatts. And while transmission tariffs are not really linked to the actual flow of power, but nevertheless, it's important that the overall health of the underlying sector, in which transmission belongs, is also robust. And to that extent, this is a very good sign for the broader sector and for transmission as such. Now coming to the collections, we have seen, as we expected the normalization of collections on a quarter-on-quarter basis as well as on a year-on-year basis. So this particular quarter, we have seen a collection efficiency of about 112%. This has been a marked increase compared to the first quarter where we saw the collection below 60%. And in terms of the average collection efficiency from a 9-month perspective, we are now in line with what we saw last year at about 90%, 93%. Our DSO days has also consequently been improving. And for this quarter, we have an outstanding receivable about 70 days, which has been significantly improving over the sequential quarters from 100 days in Q1, 80 days in Q2 to 70 days. We expect this to sort of trend to the yearly normal of around the 65 days by the end of the year. Now I'll go to the operational highlights for the quarter. Harsh has already pointed out that our average portfolio availability continues to remain robust at 99.5% and above. On most of the operating parameters in terms of whether it's trips per line, whether in terms of training man hours, whether it's near misreporting, we've seen a marked improvement on a year-on-year basis. We are also happy to report that there have been 0 COVID incidents among all our operating locations. We have 600 people sort of a team, including the partners, and there have been no incidence of COVID-19 in any one of them, thankfully. We've been obviously compliant with all the statutory guidelines, social distancing, need to know attendance at work, proper quarantine facilities, and also sort of implemented awareness sessions across all our AMC partners on a proactive basis. And all of these efforts are helping us in ensuring that we have a 0 COVID impacted operations. We obviously continue to align our practices with international standard. So we've been improving our operating processes as well as practices, including focus on EHS guidelines, having a higher focus on digital initiatives, including the digital asset management that Harsh alluded to. And we are well on our way in terms of achieving the vision of being one of the best run investment trust globally. Now I'll go to the financial highlights for the quarter. We've seen a robust increase in both the revenue as well as EBITDA. Revenues grew by almost 27% from INR 340-odd crores to INR 432 crores on a year-on-year basis. EBITDA also improved by 25% to just a little shy of INR 394 crores. And given the robustness of the operations and the stability of the cash flows that we see in the business model, we decided to increase the DPU, as Harsh mentioned, from INR 3 a quarter to INR 3.1 a quarter, which translates into an annual payout of about INR 12.4. And we see good visibility of being able to sustain this kind of payout over the foreseeable future. We have paid almost INR 43, a little less than INR 43 amounting to INR 1,842 crores over the time since we got listed. This particular quarter, because of the INR 0.10 increase, our actual payout will be INR 181 crores compared to INR 175 crores that we were tracking over the last few quarters. As I already mentioned, the DSO days are improving and now down to 70 days compared to 80 days last quarter and 100 days in the Q1, and collection efficiency has been much better than 100% and is trending towards the long time average. Now I'll move to the next slide, which is the EBITDA to NDCF bridge. So we have an EBITDA at the SPV level of about INR 400 crores, a little higher than INR 400 crores. And after accounting for the interest expense, working capital and the CapEx and a reserve of about INR 33 crores, the available NDCF at the SPV level is about INR 294 crores. Taking into account the interest at IGT level of about INR 101 crores, other expenses at IGT and the reserve of about INR 8 crores. We do have a distributable NDCF of about INR 181 crores, which is what we are paying, translating into INR 3.10 payout per unit. Move to the next slide, Slide 13. Now we've continued to ensure that we maintain a good balance sheet, robust balance sheet, while we embark upon our growth initiatives. We are very mindful of the AAA rating, and that's becoming very important. It's actually very important for us given that our leverage ratio is right now 52% net debt to AUM. We continue to term out our repayment profile. We've ensured that all incremental financing that we are doing is beyond the 2025 year -- financial year because we see a little bit of lumpiness in terms of repayments till then. During the quarter, we did raise about INR 1,000 crores of debt, a combination of 50% through loans and 50% through NCDs. And each one of these did take care of the need to term these maturities out. They were also done at an incremental borrowing cost of about 7.5%, so almost about 1% inside of what our average cost of debt is right now. As the book continues to churn and more and more new debt becomes a part of the book and the old debt gets paid out, we do expect the average cost of borrowings to trend down to below 8% in the next financial year and improving sequentially thereafter. We do carry a robust amount of cash in our books, about just a little short of INR 1,000 crores. And we also have access to short-term capital lines just in case the need to tap into them for any particular reason. Our book is a well-balanced now, better than it used to be between, let's say, capital markets, which is now less than 50% and long-term bank finance. And we are in active discussions with a few public sector banks to get incremental lines for them, so that we will improve or increase the share of the bank loans in our borrowing mix even further. I'll now request Meghana to take over and take you through the rest of the presentation.

Thanks. Thanks, Jyoti. Moving on to Slide #14. This depicts our total returns that IndiGrid has provided since the time we got listed in June 2017. The graph, if you can look at on a total return basis, IndiGrid has provided 60% of absolute returns, breaking that into 40% of the dividend and 20% change in the price. Comparing this to -- on the right-hand side with all the other equity indices as well as with a pure-play transmission player of PGCIL and equity play, we have provided significant superior returns on a risk-adjusted basis. On an annualized basis, also, this translates into 14% compared to all the other equity indices on one side. And on the other side, the GSEC bond, which has provided 27% on absolute basis and 6.9% on annualized return basis. On the risk level, as I mentioned, again, which is governed by beta, IndiGrid has the lowest beta compared to all the other indices in the market and GSEC bond on the other. So we have been providing superior risk-adjusted returns since the time they have invested. Moving on to Slide #15. This broadly provide the Global Yieldco overview where we have looked at how the other listed yield platforms are performing across geography. The X-axis talks about the spread that these yield platforms are providing over the 10-year government yields in those particular markets. And the Y-axis provides the current dividend yield that these trading -- these yield platforms are trading at. The size of the bubble basically talks about the size of the market, the market cap of that particular yield platform. We have seen that there is some narrowing of yields which has happened in India, specifically with respect to IndiGrid also. Indicatively, I think this reflects the current interest rate cycle in the country along with the financial performance and the robust operational performance of IndiGrid Trust. Slide #16 depicts similar metrics, but in a tabular format. So as I said, IndiGrid, essentially, we have seen narrowing of the spreads to close to about 350 basis points compared to the other yield platforms across geographies. Moving on to the next section on the fund raise and the DPU strategy. I'm on Slide #18. As Harsh briefly mentioned in his opening remarks, our Board has approved equity issuance of up to INR 1,500 crores through a rights Issue. SEBI had come out with the right circular sometime in January of 2020. And they have enabled both fast-track as well as slow-track methodologies for the rights Issue. As Harsh also mentioned, this is subject to regulatory approvals, both from SEBI and RBI. So this is an enabling resolution that the Board has approved. The way we are looking at the fund raise is the -- we had done the last fund raise of about INR 2,500 crores in May 2019 through a preferential allotment. SEBI had not enabled the rights issue guidelines at that point in time. Along with that fund raise, we had locked in close to about INR 12,000 crores of assets with Sterlite Power across 6 assets per se. Out of those, we have already acquired 4 assets for INR 7,100 crores through the Framework agreement and the ROFO agreement, respectively, of course, this is NRSS, OGPTL, ENICL and GPTL. Now overall, above the framework assets, we have also acquired INR 1,200 crores of assets, both Jhajjar as well as Parbati Koldam as well as announced the solar acquisition of FRV. So close to about INR 1,800 crores of assets we have slated to -- we have acquired and slated to acquire over and above the framework assets that we have talked about. So the idea is to look at a fund raise in line with these additional assets that we have acquired. We are also looking at after all these acquisitions, including the balance to framework assets, the net debt to AUM will reach to about 65% to 67%, leaving sufficient headroom in play and at the same time, raising preemptive capital in order to -- in order to create significant higher headroom and look at building the other pipeline. We remain on track to acquire the balance framework assets, as I mentioned. On the DPU strategy, on the back of the acquisitions that we have already done and slated to do, I think, a distribution of INR 12.4 per annum continues to be sustainable overall a considerable period of time. And this DPU, we will be able to sustain even on the expanded capital base as and when we complete the rights issue. Moving on to Slide #19, on the business outlook. I think we remain focused on completing the FRV acquisition for which the definitive agreements have already been entered into. In addition to that, we are focusing on monitoring the other 2 framework assets, which is NTL as well as KTL, both these assets will be close to about INR 55 billion. And at the same time, we are creating a pipeline on the transmission as well as the solar asset. We see tremendous opportunity in these 2 sectors. As Jyoti mentioned that maintaining balance sheet strength remains a core area of our focus in addition to raising the equity funds through the rights issuance, I think idea is also to maintain adequate liquidity to ensure that any uncertainties or any unpredictable scenario can be faced with adequate liquidity. On the debt side, also, we aim to diversify the sources so that any lumpiness is not looked at. And at the same time, we focus on elongating the tenure and reducing the cost of debt. Robust asset management is another area of focus by maintaining the availability above 99.5%. And at the same time, investment into technology, whether it is through the digital asset management that we have tied up with, predictive analytics and other emergency preparedness that we are looking at, and at the same time, implementing the ESG and the ESMS framework that we have already initiated on. As one of the first InvITs in the power sector, I think we have been spearheading a lot of policy initiatives, whether it is reducing the lot size from 5 lakh to current 1 lakh or whether it is increasing the leverage from 49 to 70, and this continues to be another focus area, wherein we are working with the regulators on reducing the trading lot size further to bring it in line with the equity. And at the same time, diversifying the debt sources for InvITs, whether it is working with IRDAI and PFRDA to ensure that insurance companies as well as domestic pension funds can subscribe to the debt securities issued by InvITs. Moving on, the next few slides, I'm on Slide #21, which basically talks about our journey since 2017 that when we got listed with the 2 asset portfolio. And over the last 15 quarters, steadily, we have increased our portfolio from 2 to 12, and at the same time, did a capital raise of INR 2,500 crores. Another major milestone was KKR becoming the sponsor for the InvIT. And now we are fully here to become the most admired yield vehicle in Asia and by targeting the AUM of about INR 30,000 crores. And at the same time, maintaining AAA-rated cash flows. Slide 22 talks about the portfolio on an asset basis, with a detailed specification of the number of lines, circuit kilometers, the COD, availability since COD till date, the breakup of the assets under management and the metric quantity breakup of asset-wise. Slide #23 provides the corporate structure, wherein now we have KKR has been inducted a sponsor with a 23% say, GIC owns 20%, and the rest of the unit holders diversified across 57%. On the investment manager side, also, we have KKR which owns majority and the other 12 assets in the SPV with 3 sub-holdco. Axis Trustee is the trustee for the InvIT. Slide #24, I think, talks about our shareholder base, and we have seen a very diversified shareholder base. Today, it includes 9 insurance companies and [ 4 ] mutual funds and 2 employee pension fund. And the total number of investors, we are seeing a significant increase in those also on the back of the lot-size reduction and significant improvement on the liquidity part. Moving on, Slide #25 gives an overview of our experienced goal in detail. And I think that brings me to the end of the presentation. We'll be happy to host any questions specifically on the Q3 financial highlights or any other questions that any of you have. Thank you. Over to you, Lizan.

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

Congratulations on good set of numbers and raising the DPU by 3%. Sir, my first question is raising of capital. In what time horizon we -- you expect to deploy this money? And related to that, when do you expect this -- the KTL and NER to be acquired? And second question is on the -- given that we have a huge repayment which is due on -- in FY '23, have you started working on refinancing that particular payment? And where are we in terms of -- what is the expectation of interest rate for us now?

Okay. So thanks, Mohit. I think your first question was on DPU increase and rights issue. I think the rights issue, as we mentioned, it is linked to certain approvals. We are awaiting that. And I mean, it's very difficult to put a time line on when we'll get the approval because it is at the end of the day in the hands of the regulators. And when done, this will be the first public rights issue done by any InvIT. So we'll be seeking certain clarification approval. As and when that gets done, we would be able to guide better because at the moment, the time is something which is not in our control. However, we are well prepared as and when the regulatory approval comes in. The next question was for NER and KTL. Both the projects are at advanced stage of commissioning. NER project is already part commissioned so as KTL. So as and when they are getting commissioned, we'll look to acquire. We're already working very closely with Sterlite Power and evaluating these assets in depth, so that as and when they are ready to be acquired, we can close the acquisition sooner. And the third question, if you can repeat, sorry, I missed that one.

The funding of the -- since we have a repayment scheduled in FY '23 of large amounts, so trying to figure out where they started working on?

Yes. So Mohit, I think -- I don't think anyone can prepare 2 years in advance of a refinancing in future. That's not practical as well as that is not possible. However, what we have done, as Jyoti mentioned, we are looking to increase our maturity. What we are doing is we are not adding any more maturities in FY '23, '24, right, which enables us to keep that cap at that amount. On top of it, I would say we are opening up different sources of financing, which would enable us better to refinance as and when we have to refinance those facilities. And the third one is that, yes -- I mean, the question was with respect to cost of debt. So I think Jyoti alluded to that are kind of marginal cost rather, let's say, the incremental cost that we have raised certain bonds where loans have come at an average of approximately 7.4%, 7.5%. So I mean, some of these bonds, which are locked in, which you see amortizing in FY '23 are at 8.75% or 8.59%. So there's substantial in the money option. But then there is cost attached to it. If we look to refinance those facilities today, which we don't think is in -- it is practical today. But as we be closer to the repayment, we would look to refinance them before the maturity date.

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

Congratulations for an exciting quarter really. Okay. So a couple of questions over here. The first 1 really is more of a macro question. Now if you look at the current interest rate and the inflation scenario, where do you see the [ interest rate ] kind of moving out, do you see it stabilizing at about 5.9%? I'm sure you would have discussed it internally. So what's your color, if you can give your inputs over there?

Sure. Thanks, Swarnim. I think that's a very, very difficult question to address for management teams today. I think -- see, more than guiding on what we feel interest rates are going to be, I would take your answer -- question in 2 parts: One is what is our view; and second is what we are doing about it. So see, our view is that we come from a simple, humble realization that we cannot predict interest rates. And therefore, we don't hold our business strategy on prediction of interest rates because that's something where things can go wrong, and we are a yield platform. So stability is at the core. But I think where the overall global liquidity is where country's priority of growth is, we don't see a spike in interest rate in India itself. And the rationale being, we have one, India has restrained its -- a lot of firepower of liquidity or, let's say, printing money, when the rest of the world has printed money. So I think I would say India has a little bit of physical room to print money when required to push growth, right? So I think India is retaining that firepower. And therefore, we believe that we don't see a substantial increase in rates in near future. However, this is just based on our understanding, and then we don't try to implement this in our business strategy. So when it comes to business, as you said, our internal discussions are focused on the fact that we are not in the business of predicting interest rates. And therefore, as and when possible, we try to do longer-term lock-in of rates, right? And therefore, we have locked in rates at 9% also. And we have locked in rates at 7.25% also, right? So we have a mixed bunch of portfolio. And what that results in is that over a period of time, our portfolio is more insulated to interest rate movements up or down. So -- and when you see interest rates coming down to 7%, yes, we don't get the gain of 2% or 1% immediately because you are locked in interest rates. On the other hand, if the interest rates were to go up by a couple of hundred basis points, we will still be insulated. So our focus is to walk a narrow path of conservative interest rate management and locking the interest rate when possible. And this is owing to the fact that our business is stable, right? Our revenue is not interest rate linked, it is largely stable, predictable revenue. So we would -- as a strategy, we like to hedge or like to lock in interest rate as long as practically possible in different interest rate regimes.

No. Got it. That is the percent I know. The reason, actually, I talked about that was that Jyoti in his opening remarks, he did mention that from about 8.4% of our blended cost of debt right now, we are likely to go to less than 8%. I think that has to do with 2 things. First, I think the depth of the -- of our bond -- of our debt market itself, that's actually increasing for us because I believe we are now going from NCDs really to term loan also. And I think it's just a matter of time where the [ IRD ] also approves be the insurance company really, so that will really give us some best of the market. And -- so that is where I was coming from that, this 8% -- less than 8% kind of a blended debt for us, is that really a function of the lower interest rate scenario? Or this is more of a sustainable thing in nature because of the debt in the market?

Okay. No, that is an easy question to answer, I think Jyoti alluded that. So we did -- see, first is it reduced because we did INR 1,000 crore raising at a lower rate, right? And I think there is -- as you guided before, there are several refinancing opportunities that exist with us. Some of them at SPV levels, some of them at IndiGrid level, and we are looking to acquire new assets as well. We think all of that put together, our incremental cost of debt is substantially, let's say, below 8%, which averages out the total debt -- puts the average down below 8%. So that's what Jyoti alluded. There are -- if we keep raising capital at the current cost of debt, probably our weighted average cost of debt would come down below 8%. And I think I would say that is a sustainable cost of debt because when the interest rate started reducing, our cost will come down as fast, right, because we had locked in our cost of debt. But on the other hand, as we do refinancing and the incremental debt is lower, we'll see that impact kicking in. So that's sort is at play right now.

Got it. Got it. The second question really is on the collaboration that we have done with IBM. So on this digital asset management platform, how will this really operationally includes the performance? And what kind of cost saving can it potentially bring to us?

In terms of, you mean cost of debt?

No, no, no. So I think in the presentation, we have mentioned that we have done some collaboration with IBM to develop some artificial intelligence, digital asset management platform. So what exactly is this?

Okay. So see, at the end of the day, transmission is a function of -- O&M for transmission is a function of a few factors. One -- because there are no moving parts. There are very less operating parts. And therefore, it is slightly different than a normal generation power plant. Point number one is focused on the assets that we have. Are we monitoring it on a regular basis and whatever fractional changes are happening in the assets, are we addressing that in time, right? What digital asset management or rather, let's say, our collaboration with IBM allows us to do is that out of our 10,000 towers today, and there are going to be another few thousand towers in future, how do we ensure that what are the risky towers, what are not risky towers, what requires more maintenance, what requires less maintenance, et cetera, strategies are done in time, which enables us to optimize on our workforce, which eventually reduces the cost, so that is one -- and increases reliability. So that is one aspect. So by implementing digital, we are able to deal with these physical assets in a way that we are optimizing our resources and increasing reliability by being at the right time at the right place, right? That's one. Second is it may enable us to beat inflation to some extent because the more assets you have in the region, you are better off dealing with the same amount of manpower in that region because you are reducing the frequency of monitoring of those technologies, whether it is via drone or something else. But if you have a digital footprint of each tower, it enables you to reduce the frequency of monitoring and eventually give you a better result. On the other hand, there are some critical towers, which you know are weak on account of risky locations when you increase the frequency there. So essentially, it allows us to canalize our resources in the right direction at the right time. So that's the high level input that it allows us to beat inflation over a longer time and allows us to leverage scale and use that to reduce our overall cost of ownership, right? So that's the real benefit. The second one, which Meghana spoke about investment is with respect to our ability to restore tower back part. So there, there are several initiatives we're taking. For example, this year, we're investing in ERS, which is called Emergency Restoration System, which allows us to restore the tower back in toughest terrains within a few days instead of waiting to create new foundations and towers, right? So that adds to overall our reliability factor.

Okay. Sir, any potential cost savings that you would have assessed?

I think as we do the -- FY '22, we'll be able to comfortably communicate that. Right now, we are still assessing the overall savings. See, we're still at the implementation stage. So I would say even beating inflation is a large cost savings for this, right, for a per year basis.

Yes, sir. Fair enough. And just the third one, I mean, if you can really break up the INR 17 crores of incremental working capital in Q3 between the existing projects? And in this quarter also, there were some new projects that came in. So if you can just break that up between the 2 -- between existing and working capital will be helpful?

Okay. Jyoti, would you have that ready? And if you can take that one?

Yes. So basically, look, the working capital, this particular quarter is largely on account of acquisitions. Because we acquired 2 assets, JKTPL and GPTL. And to that extent, almost entirely 90% of the difference in working capital is because of acquired working capital from these 2 assets. Otherwise, on a steady state, like-to-like same-store basis, the working capital is more or less comparable.

Right. So the cash flows would have been much better there, clearly?

Yes.

Yes.

We'll move onto the next question that is from the line of Vishal Biraia from Aviva.

Just 1 question on the receivables side. Among the amounts that are pending, is there any 1 amount -- 1 large amount that is stuck with any particular state discount, something of that, sir? Could you elaborate a bit on the composition of the receivables?

Okay. So I think we -- I mean, our data will be slightly dated because we received this data in a little bit of delay from the CTU. But we have thought that there are not just 1 state, there are a few bunch of states, which receivable maybe pending. And I think a few of the names are like UP and J&K, which have slightly delayed the payments. I would say, these are the 2 ones which we believe are the delayed ones. But again, accuracy is difficult to gauge till the time we get that data from Power Grid, but this is what we believe right now.

Okay. And when you compare your transmission assets to Solar PV assets, is there any key difference that you feel? This is important difference in terms of the risk or anything on that, sir?

No, these are different types of assets altogether. So there is a lot of difference between transmission and solar assets put together. In some cases, transmission is better; in some cases, I would say, solar is better. To give you a very high-level view, I think transmission has counterparty as well as a payment security mechanism, which is, I would say, not just to solar, superior in most other sectors in the Indian infrastructure. On the other hand, transmission are a chunky asset. So for the revenue of INR 1,600 crores, we have 30 elements of revenue generation that is happening in the country or 35 elements. So if on an average per element is INR 50 crore to INR 100 crore revenue, so when that element is down for any reason, you have a material impact on revenue, or considering the exposure they are cross country, your physical exposure is far more geographically than solar. Whereas on the other hand, in solar, your operating exposure is far less because you are within a cloud boundary. And each panel of your overall power plant generates 500 watt as against overall size of 100 megawatts. So that's a much more diversified portfolio in terms of assets, and therefore, the operating risk is slightly lower. On the other hand, solar as a counterparty, which is SECI and the payment security mechanism is questionable if it is as good as Power Grid, right? So these are the 2 differences at a high level we see. But as long as we are factoring in, so we don't -- we believe solar is overall slightly more risky, and therefore, we expect slightly better returns in solar than transmission, directionally, if that addresses your question.

We'll move on to the next question that is from the line of [ Dhruvam ] from HDFC Fund.

Sir, one question was on the debt repayment for the next 2, 3 years. Now I see, last few years, the net debt repayment is not much. So any guide that you can give for the absolute amount of debt repay that you will do for the next 2, 3 years? I'm just wondering why I'm asking this is, because I'm building in some debt repayment. If that does not happen, probably DP can be higher, so that way?

Sure. So I think, [ Dhruvam ], there is -- we plan to do debt repayment post or as and when we achieve, let's say, 65% to 68% of net debt to AUM. And why do I give that number is because that we believe on a sustainable basis, at 65%, also, there are tremendous security and safety of net coverages over there. So as and when we reach that, I think we would start amortizing the debt, so we don't come very close to 70%. And when we reach 65% to 70% debt is a function of new assets that we acquire and a capital that we raise, right? So it is difficult to give an exact guidance of 2 years because, let's say, with the framework assets, we are going to reach 66%, 67%, and we would have started amortizing that, but we are raising equity capital and acquiring more assets. So it's not possible to give exact correlation of the year in which we'll amort, but we can guide on the, I would say, long-term strategy is that we would be -- we're not comfortable beyond 65%, 68% of debt, and as and when we reach that, we would start amortizing debt on a year-on-year basis.

Got it. Got it. So sir, when you acquire a new asset, say, for example, even if you have raised the equity, you acquire a new asset, that acquisition can be funded 70% through debt, right? I mean, then you are not constrained with that 50% original limit?

Sorry, I lost your question. Can you repeat, please?

So for example, you have reached -- all the equations are done and you have reached the 65%, 70%, as you mentioned in the ppt, at least the 65%, 70% AUM to debt ratio and you require a new asset with the right issue happening, after your right issue has happened. Then the debt portion of the new asset can be 70%. It is not restricted to 50%.

Yes, yes, it is not restricted to 50%. I'm just giving the guidance that in future when do we start looking at repayment. Otherwise, if we are trading at 52% net debt to AUM, it is commercially not wise to do net debt repayment.

Got it. So basically, okay, I get the point. And sir, secondly, it was a very -- probably, it's a small point, but a conceptual question is, I understand the AUM to debt ratio that you have is based on the valuation -- the AUM number is based on the valuation report that you get. Is it?

Correct.

And so for example, say, 2 years back, you might have done the valuation and you get -- you add back time with GSEC, which was used as base. At that time, it was say 7.5%. Now the GSEC has probably moved to 6% and your [indiscernible] changes, the valuation AUM increases. So does that also lets -- allows you to borrow more because that 70% -- the base number for that 70% has changed?

Yes. Theoretically, you are right, but you need to also factor into an eating window that 2 years before you had a 35-year cash flow, now you have a 33-year cash flow. So the interplay between both counts. But if you keep everything else on the same day and change back, your valuation will increase. And your ratios are linked to the valuation. However, for most debt investor, our covenants are not necessarily linked to net debt to AUM. They're also linked to DSCRs, how much net service coverage we have, how much interest service coverage we are, et cetera, which is purer, I would say, from debt credit perspective.

True. True. Got it. But -- got it. But I mean, there are 2 benefits as such, if you see, if the interest rates keeps declining. Is that the AUM increases that allows you to borrow more and probably give a higher returns, a small portion of that and the interest cost also declined?

Yes, maybe you are right [ Dhruv ], but I think our strategy is not to keep borrowing more. Our strategy is to keep platform well capitalized, right? So I mean, we are still at 52%, and we are talking about raising incremental capital to ensure that we are capitalizing ourselves well for future. So theoretically, what we're saying is right, but our strategy is not to keep leveraging more and more and run the platform at 70%. So our idea would be to keep a balanced structure and monitor the other ratios as well.

Got it. Actually, I'm coming from -- more from a modeling perspective because I model -- I get the point.

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

Congratulations on a good set of numbers. So first question is, I'm referring to Slide #18, where you have referred to the DPU strategy and said that the increase in DPU to be sustainable even on the expanded capital base post the Rights Issue. So now given that Rights Issue is typically at a discount, basically, essentially, you are saying that you are building in an increase in the yield from the current levels?

Okay. So let me answer and then based on what I understood. So see, most, if not all, business trust in which our MLP, as they are called across the world, are based on yield plus growth, right? I mean there is typical -- internationally, a formula they use D + G, that how much is the dividend and how much is the growth. And typically, that's how the value of business class, which has a track record. Now in our case, the way to look at it is that we've been doing INR 3 unit a quarter. So let's say, on annual basis, we are doing, let's say, INR 12 a unit. We were doing INR 12 a unit. And considering the acquisitions that we have done, has resulted into increase of NDCF, which will result in -- or can result in increase of DPU, and therefore, we are going right with increase this year, which will, let's say, on an annualized basis is INR 12.4 a unit, which would mean going back to the original messaging that we had communicated during IPO, that we plan to deliver to INR 12 DPU and 3% to 4% growth year-on-year. And if you look at -- since IPO, when we did IPO at INR 11 a unit and now at a INR 12.4 run rate, we are approximately 3.5%, 4% growth on the CAGR on the distribution itself, right, on the DPU basis, not on the share price but on DPU basis. So which is exactly what has been our strategy, to focus on INR 12 rock-solid prediction plus grow it 3% to 5% as and when we get attractive acquisitions and we are able to raise capital. So over the last 3 years, we have done 1 capital raise and several acquisitions, which has enabled us to deliver this INR 11.4, right, which is about 3% to 4% year-on-year. So now going forward as well, when we said sustainable basis, our idea is to communicate that this is not interim. This is not onetime, right? So we acquired 4 assets over the last 12 months and this one we signed. So we would have acquired 5 assets in this financial year, which has added a substantial amount of NDCF to our portfolio. And the increase that we are doing is not onetime because it's quarter 3 or it's not onetime in next quarter, it will be different. Our plan is to maintain this 3.1% for a considerable future, and we believe we have got enough assets, which we have acquired as well as those that are in the pipeline, which would enable us to project INR 12.4 over a longer period of time even after raising capital. Because, see, raising capital is -- the cost of carry is not so dilutive because they said, instead of raising capital, we would have borrowed let's say, 7%, 8% and we would have raised capital. The cost of carry difference between them is hardly a few percentage point, let's say, 3%, 4%, right? So it is not as diluted because the alternate was to raise debt, which, on a balance sheet level, may not be healthy. So we are creating capacity for future growth. And even after creating that capacity for future growth, we are able to projects that with the existing assets as well as pipeline assets, we'll be able to maintain INR 12.4 for a considerable period of time.

Okay. So essentially, if I'm holding 10 units, for example, today, and hypothetically, if I am given an opportunity in the Rights Issue to subscribe to 3 rights shares at INR 100, you are saying that on the 13 shares that I'll have post Rights Issue, I will get INR 12.4 on each of them. And that increment, you will be able to sustain?

Yes, correct, correct. So yes.

So that's how the yield increases in a way, that's what?

Exactly. Correct.

Okay. Understood. And second is this waterfall that you have mentioned for Q3. Now if I see that waterfall for Q1, Q2, Q3 combined, essentially around INR 100 crore sort of reserve has been created at SPV plus IGT level? Is that the right understanding?

I think Jyoti can come in directionally, I can say that is the right understanding. Is that the right one, Jyoti?

Yes, that's right. About INR 108 crores of reserves have been created over the 9 months, yes.

Understood. And would you have the cumulative figure for this year? As on 9M FY '21?

Cumulative is also the same.

Okay. So there were no reserve essentially prior to that?

That's correct. Correct. Because we see, we did capital raise in 2019 and -- which means that there was an expanded capital base. The assets of that expanded capital base are coming in FY '20, right, most -- many of them. So therefore, the impact is coming in FY '20, FY '21 now. And that's when you see this excess cash flow getting created.

Okay. And this FY '23 repayment refinancing is scheduled on Slide #13, which is around INR 2,500 crores. So now that this is like maybe somewhere around 18 months from now, is there any possibility of sort of preponing the refinancing? Because the rates are lower rate, I mean, today, as you can see, how rates have come down and given that you mentioned that you don't want to have a view on GSEC as such. So if you don't have a view, then any absolute low number as long as it's making sense with respect to your project IRRs, should be a very sensible way of doing it early, right?

No, no, you're right. The only point is that this is a traded instrument, right? So while the cost of debt on this instrument may look 8.59%, but it is trading at 110%, right? So if you buy back or if you repay, you end up giving that much a penalty, right, or let's say, that much of money that gets out of pocket, right? So you borrowed INR 100, but you prepay INR 110, that's the impact.

So net-net basically, you'll have to follow the original refinancing schedule is what you're seeing because net of all the costs which will incur for...

Not necessarily when you say -- it depends on the residual tenor of a particular bond, right? If it is only 3 months less, then you can refinance. The impact is negligible of the bond differential, right, and you can prepay. What if the impact is 2 years, it's going to be magnified. The impact can be higher.

Understood. Understood.

If I may just come in on this one. I think Harsh did mention about all the various tools in the kit to tackle this 2023 sort of tower that you see on the repayment bar, so one of them is this as well. Almost entire amount is NCD, it's not the loan amount, was 96% of this amount is NCD. And because there's a mark-to-market impact for -- on an average 18 to 20-month of maturity. When we explore refinancing, it is not stacking up at this point of time. But as the remaining maturity is lesser, this will be another thing that we will be proactively looking at to take out some of the loans prior to the majority. Apart from, of course, the other thing that we've talked about in terms of having proactive discussions and expanding our sources of borrowing.

Yes. And Jyoti, if you just can help me with one more thing since you mentioned that you are looking to increase your bank loan portfolio as a percentage of your liabilities. So what kind of tenures and what kind of fixed rates -- because our focus has always been on getting fixed rates to maintain the sanity on the DPU side also? So what kind of tenures and what kind of fixed rate are we getting these days?

Yes. So on the tenure side, these are long-dated typical project finance type of loans, upwards of 10 years, 15 years, let's say, average door-to-door tenure of these loans. In terms of the pricing, they are available at the sub 7.5% or the 7.5% pricing on a floating basis. Now there are many types of discussions we are having with the banks. Some of them are for, let's say, a 3-year fixed and a floating thereafter. And some of the other discussions we are exploring would be to take floating rate loans and do an IRS on top of it for at least a foreseeable future. But given that a bulk of these will be with the public sector banks, a more likely scenario will be that they will come in on a 1-year floater as typically what the public sector banks do. And we can explore on a proactive basis, a hedge on top of it from an interest risk mitigation point of view.

[Operator Instructions] Next question is from the line of Abhilasha Satale from Dalal & Broacha Stock Broking.

Congratulations for the good set of numbers. I have a question on collection. So our collections have improved at 112% during the quarter -- and this is on the base of 56%. So I just wanted to know that how much was it at the end of Q3 FY '20? And usually, in Q4, our collections are better. So are we seeing that trend even this year also? Like, do we expect our collections to be better in Q4? This is my first question. And I'll just say the second question also. You made one comment in terms of the payment discipline of PTCL against SEBI. So could you just specify you meant in terms of the number of days? Or is it the entities overall rating or in that perspective, could you just specify that point?

Can you hear me?

Yes, yes.

Yes. So last quarter, we ended the quarter with 80 days of DSO days as on Slide 11, and this quarter, we have ended it with 70 days, right? So that's the change that has taken place on a balance sheet basis. I think on percentage collection last quarter, quarter 2 was like 120% because the quarter 1 was very low, right? And therefore, the quarter 2 and quarter 3 are the over collection that is kicking in between the 2 quarters.

No, sir. And just I'm just asking on year-on-year basis, like, how was it in Q3 FY '20?

Okay. Okay. Okay. Okay. I'm so sorry.

Q3 FY '20 was 89% versus 112% this year.

Yes.

Because Q4 FY '20 was, again, we ended up at around 110% or so. So like on this 112%, how are we seeing Q4 because that is again...?

Coming to that question it is prediction, right? I think we all -- over the last 5 years, quarter 4 has been typically good or rather highest. But this year is unique, where quarter 1 was 60% and then quarter 2 and 3 years then a catch-up. So we don't know how it will pan out in terms of quarter 4. Typically, quarter 4 has been great, but we'll have to see on how it goes, right, in terms of our collection. In addition to that, in quarter 4, there is a new sharing regulations that is implemented where CPU is separated from power grid and the new billing and collection mechanism is put in place, so there have been procedural discussions happening that who will bill who, et cetera. So again, this is the first time billing in new guidelines that is taking place. So it is very, very difficult to predict quarter 4, right? So I would urge you to have patience and we'll communicate the results of quarter 4 after it's done. But yes, typically, it's been better. To your second question, see, my commentary was not based on the track record. Even SECI track record is extremely good and rather some of the outstanding or lesser in SECI as well. But my commentary was more from a perspective of that SECI being rated as a AA entity versus power being AAA entity, more as a general perception is what we were alluding to, not necessarily their track records. SECI track record has been equally good like POC, pool track record in terms of payment.

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

So just a couple of questions. The first one was in terms of raising equity right now. Considering the interest rates are low, would you have referred to first raise that and maybe look at equity a couple of years later? Even though your leverage could be probably stretched to 60%, 65% before you do that? And the second question was on the solar assets. So solar assets are also perpetually owned similar to power construction assets?

Okay. So to answer your second question first, solar assets are not perpetually owned and it depends. Solar asset light is not so long because there are panels, there are glass, there is silicon cells. So even the light is not more than 25, 30 years. In many of the cases, the company owns the land, which is a perpetual asset. But in many of the cases, if the project is in solar park, you don't even own the land. So the terminal value in such cases should be considered 0, right, because you don't own the land as well. So typically, they are 25, 30 years assets we are owned, but the asset life itself may not be beyond that. So -- but in some cases, we do own land, which will result into appreciation of the value over there, but it is case-by-case in solar. Your first question, Mahek, I think...

Sir, just one second. So the asset that we have bought currently, how is that one, the SPA that you're saying?

Okay. So the SPA that we have signed is in the solar park. So the land is not -- land is owned by the solar park. So at the end of the concession period, we will have to return the land to the solar park. Okay. And the first question that you asked was on capital. See, as you put in rightly, I mean, in excel, it is correct that you should raise equity when the interest -- you have peaked out your debt capacity. But unfortunately, I think from an experience perspective as well as business strategy perspective, we believe that we should not wait till that level because what is important is that we do not link our growth, which is asset acquisitions to capital raising ability. Because those 2 markets do not move in tandem, let me tell you that. So for example, when the interest rates are low and the liquidity is abundant, even the asset prices may get inflated, right? And therefore, you're buying assets at an inflated price. Now if the cycle is to reverse, because your interest rates are higher, the capital flows are lower that is the time when platforms like us can purchase assets at a good price, right? So at that price, if we are not ready with an acquisition kept capital at our hands, then you can get stuck in a cycle, right? That your capital comes expensive, asset comes expensive and -- or rather when the asset is ready, capital is not ready and vice versa. So I think with -- from our experience, at IndiGrid as well as a study of most successful entities across the world in the yield platform business, is that you should raise the capital when you are not necessarily capital starved, right? So from our perspective, we are raising the capital to create future growth capacity. But even if it is going to be, let's say, a quarter delayed, we are not going to be -- we are at 52%, so we'll still survive. So we don't want to link the 2. Because if you are raising your debt at 65%, 68%, and let's say, there is a macro event, capital event in the world, you don't have the ability to raise equity capital at that time. And you might be rather saving the credit crisis at that time. So we believe in managing balance sheet upfront to ensure that we always are capital available to grow.

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

Yes. So 2 bookkeeping questions. If you look at the operational availability for this quarter, ENICL was at 98%. So was there some plant shutdown? Or what was it exactly?

So yes. So I think ENICL had certain planned shutdowns because we acquired these assets in April last year. However, these shutdowns are not paid by us because there were certain punch-list items, which was supposed to be complicated by Sterlite Power. So these are indemnified items. So these plant shutdowns were taken to correct parts of the asset, which may continue for another quarter or 2 and when they take the shutdown, given the revenue losses paid by Sterlite Power, for ENIC, specifically.

All right. All right. The second one really was -- what was the incentive income during the quarter?

Okay. Just a minute. I mean, Jyoti, can you comment on that, exact, in terms of income?

It was about INR 12 crores, Swarnim.

LPAs.

INR 12 crores, okay.

[Technical Difficulty]

And Harsh, we see, but the last one really is that if you look at our cash reserves, okay, we are at closer to about INR 800-odd crores. So of course, out of that INR 180 crores needs to be distributed for Q3 and then another INR 200-odd crores for the [indiscernible] that you will be maintaining. If you were to exclude very pretty at about INR 400 odd crores, and I believe the next 2 assets, they are broadly going to be 100% leveraged, and then we have this INR 1,500 crores of rights, that will also actually give strength to our balance sheet. So this INR 400 crores of cash reserve, do you think that it's a bit really on the higher side, and we might really not need so much of cash really for some sort of contingency or some other things also. So how are we looking to utilize this really?

Yes, yes. So Swarnim, I think you're right. I think this includes a couple of things. One, this also includes part of the capital, which we repaid in the first week of January. So we had borrowed part of the amount for refinancing, which got done after the quarter end. So there is a part of the cash of this, which got repaid to certain loans in January. Plus some of the cash reserves also include interest payable, but I think that gets included because the INR 200 crore [indiscernible] number is slightly higher. It's lower than INR 200 crores of [indiscernible]. But I think the key reason of a large cash balance is on account of our loan refinancing that we had done, which we borrowed at the end of the quarter and paid at the beginning of the next quarter.

No. That's fair. That's fair. But I think still we actually fit in a bit higher, really. So is there a case for some sort of a prepayment?

Yes, exactly. That's why I said we have done substantial amount of prepayment in January. The prepayment happened post quarter. That's why you see the cash in the books, but the prepayment took place in January, first week of January. It happened already. So we have prepaid.

But Swarnim, to answer your question, I mean, the INR 300 crores to INR 400 crores of cash that we would carry, I mean, look at the size of the balance sheet, we are today at about INR 8,000 crores of overall debt, right? So I think about 4%, 5% of cash is not that high as well if you look at from that point of view. And we obviously continue to aim to optimize the negative carry, right? Because we still have a 3%, 3.5% yield. Now we've also, as part of our initiative to expand our borrowing lines, we have set up some short-term working capital lines, including CP facilities. So once we get better comfort around our ability to tap into short-term market, we may want to optimize this even further. But against the INR 8,000 crores to INR 9,000 crores debt, today, about INR 300 crores, INR 400 crores cash is also not that high. I would like to bring that to your perspective as well.

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

Commendable performance, the entire team of IndiGrid, really, a great job done. Sir, I have just a few things I need to understand. Sir, when we did the preferential with KKR and GIC, we had targeted about INR 17,000 crores of AUM and we are almost there. Now with our proposed Rights Issue of about INR 1,500 crores, what is our internal target in terms of the AUM that we foresee? That once you get the rights money and the commensurate debt that we can raise on that rights capital, how much would we lease to that TDM because long term, our target is INR 30,000 crores. So will we reach that number or will be somewhere in between?

Yes. So I think -- thanks, Sunil. I think the goal -- so I would just reverse the question. I don't say -- and as we have said before, we don't have asset targets because we have targets on, let's say, accretive growth. So assets itself is not the target for us, any of us. So I would reverse the question in saying that with this, let's say, up to INR 1,500 crores of capital, how much more can we do, right? If I take the question in that manner, with the current capital base, we could have gone up to INR 17,000 crores or INR 18,000 crores. With this, we can add another INR 4,000 crores or INR 4,500 crores of capacity, right? So this would put us somewhere around INR 23,000 crores to INR 24,000 crores of capacity, right? It doesn't mean that is our target, right? Our target is to acquire when the time is right, the business is right, the project is right, right? So we are not based on -- we're not looking to acquire based on size target. But to give you a capacity, we can reach up to approximately INR 24,000 crores if we raise this much amount of capital.

Fair enough. Okay. Sir, one more is when we get into the debt amortization phase when we reach that stage, we can take it that given the DPU at that point in time will also not be affected?

I think it depends on the business plan overall, right? So right now, we are not seeing after this capital raise that stage to be achieved for a considerable period of time. And again, I think we've done that earlier, substantially period of time, we don't see any impact coming.

Okay. Okay. Sir, just one point, if I can chip in. Most of the people, they are just talking about the refinancing. So at this point in time, the only risk perhaps in the books of IndiGrid seems to be on the bunch up of refinancing in FY '23, '24, '25, and FY '21 was a real slowdown worldwide even in India everywhere. Now the world and everybody -- everything is coming out in FY '22 in terms of improving. So if in FY '23, '24, '25, economic and everything is robust, and if interest rates increase at that point in time. So majority are worried about the refinancing risk, which we carry. So if our marginal cost is at 7.4% today, can we lock in that say at 7.75% or something even higher then will do away with the risk is what I think most of us are worried about or just want to get a sense from your side or some kind of...?

Yes. No, I think that's a very logical way of looking at things. And as Jyoti mentioned, we do keep doing this calculation. Let me put it the other way round. Let's say, there are a bunch of prepayable loans or bonds in our portfolio, which we can do today, right, instead of worrying about the '23, first. So at this point in time, our focus has been on that, that whatever is the nearer term -- so for example, let's say, we had the facility with -- in an OGPTL SPV with a cost of debt of 9%. And we focused on that first and we replaced that with a cost of debt at 7.6%, right, with the same bank, right? So our focus is to ensure that we reduce the -- let's say, cost of debt as well as the refinancing of what is near term, right, what is in hand right now and we can do it. And we are still keeping an eye on this FY '23 and it is a matter of cost economics, right? I mean INR 2,000 crores, INR 2,500 crores. And if we see the differential of 1.5%, on an average, we are talking about providing 3% of margin to investors, right, or debt to investors, which would be INR 75 crores in cash, which is a very, very sizable amount to take that refinancing. However, as we come closer to the dates, we will see those numbers coming down and making it more allotable. So we are working on that, but I think it needs to make some commercial sales, right, because otherwise, it's will make a big gaping hole on a future call.

The next question is from the line of [ Deva Modi from Aredco ].

Yes. Congratulations on a decent performance. I would just want to start by asking on what is the cost of the IBM collaboration that we have highlighted? And how does it help our optimization in terms of both cost and operational efficiencies?

Okay. So I think the first is cost-wise -- I mean, these are different costs starting from hardware, software implementation as well as a long-term service contract. So on a 10-year basis, if I look at it because there's a long-term agreement, we are spending approximately INR 22 crores. But this is on a 10-year basis, right? So let's say, annually INR 2 crore kind of a cost that we are spending. First year, maybe INR 3 crores because we are implementation costs, but subsequently, on a 10-year basis about INR 2 crores per year. The synergy or the efficiency that we are seeing because of this, as I said to the earlier question, you will be able to do targeted maintenance in a much more reliable way and therefore, avoid, I would say -- not avoid, but reduce the overall cost of maintenance that we are implementing on a year-on-year basis, right? Because, let's say, for example, for inspection, we deploy a particular number of people for a particular line and for a higher risk line, it could deploy more people. But again, that is based on not exact artificial intelligence and right data which is available on a digital platform. It is available based on experience as well as what people have seen on ground, but those knowledge transfer is not -- it can keep changing. So a digital asset management like IBM Maximo allows us to: one, keep the knowledge of the asset in-house, in the company, instead of the people and the maintenance team; second, it allows us to analyze their data for 15 states, right, in different geographical terrain what is happening and then deploy the right maintenance strategy across asset base, which eventually will reduce our operating costs and increase reliability.

So what kind of, let's say, cost -- I understand that there will be a lot of operational efficiency and synergy and the will be reduced significantly, or that would be the expectation. What would be the cost impact in terms of today versus, let's say, 3 years down the line because of the IBM collaboration?

Yes. So I think it's a future prediction right now, but I can tell you it will be beating inflation, right? So that itself is a saving. Typically, we have factored in 5% to 7% increase in AMCs in the past, right, of all the people-related costs. Right now, our goal is to beat inflation first. So we're focusing on that those costs don't increase, right? That itself is a big saving, assuming, let's say, the cost is today INR 50 crores and 2 years down the line, it's going to be INR 60 crores. Instead of that, we'll maintain it at INR 50 crores, right? So that's how one can look at it.

Okay, sure. That would be a very big thing. So you are basically saying that you'd be able to maintain cost with status quo over the long term, probably be much lower rate of inflation than what the models would have been?

Exactly. That's an easier way to evaluate that, yes.

And just on this -- so currently, we have around, let's say, INR 50 crores to INR 100 crores of equity, and we are doing the Rights of INR 1,500 crores. And we have also mentioned in the PPT that we have around INR 15,000 crores for current AUM and another INR 5,500 crores of acquisition lined up. So let's say, if we compile all this information, we get that we will be reaching something around INR 21-odd-thousand crores AUM with broadly close to 59% leverage. If you -- apart from the INR 1,500 crores equity raise, you use debt for the remaining portion of acquisition. So firstly, would that be roughly correct understanding that it will be close to your [ 32 68 ] or something like that on around INR 21,000 crores?

Okay. So you say -- yes, I think you said about 59%, 60%, right, close to the recent acquisitions?

Yes. Yes. [indiscernible] INR 5,000 crores of capital.

Yes, that seems like -- that seems an accurate calculation. I mean, obviously, AUM keeps changing, but if we add current AUM plus INR 5,000 crores, INR 21,000 crores and what we raise is equity, it would be approximately 60% of net to AUM.

So no, in fact, it is 68 -- 68% because you will be at around INR 5,200 crores plus INR 1,500 crores -- so when you look at the Rights Issue INR 1,500 crores can necessarily assume that the whole amount can be tapped in one go, right? I mean?

No, no, it won't be 68%. I doubt it will be 68%. I think there is some error there. We would be approximately 60% to 62%. So the way to look at it is today, we are at, let's say, INR 15,000 crores of AUM and our debt is approximately INR 9,000 crores, right?

You are talking of net debt?

Net debt, yes. So it's approximately INR 9,000 crores. So the incremental asset that we will add is INR 5,500 crore debt, right? If we were to do INR 5,500 crores. That will bring our debt at INR 14,500 crores, but we are raising, let's say, we raise about INR 1,500 crores equity, that will reduce the debt to INR 13,000 crores. So INR 13,000 crores over the days of, whatever, INR 1,500 crores -- yes. Correct. Yes. So it would be around 62% to 63%, yes, not 68%.

Sure. And what is a good yield to consider in terms of the revenue yield on the entire AUM in the long term, considering that currently, we will probably only have like a little bit of solar in this? And I understand that the yield will change from year-to-year because of the various spends that will be there in different transmission assets. But generally, is it good to take something like 12% to 13% ballpark to be a good revenue yield on the entire AUM?

I am sorry, we've never done evaluation based on revenue yield. That's a tough one. I think we'll have to think about it on a revenue yield. Because operating costs are different, there are curves and tariffs. So it's tough to evaluate this business on a revenue yield basis.

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

I have one question, sir, how much you paid for the acquisition of Parbati Koldam?

Sorry, can you repeat the question?

How much you have paid for the acquisition of Parbati Koldam?

Okay. Meghana, can you come in and share the exact numbers for the acquisition value?

Sure. The implied EV, including debt is close to about INR 900 crores, Mohit, on the acquisition.

No, no, my question was how much you have paid for the equity consideration?

I think equity consideration. So net of cash...

Yes, that will be close to about INR 360 crores.

And what is the regulated equity for this particular asset?

Just a second. Mohit, let me come back to you on that one.

Sure, sure. And sir, what is the time line for acquisition of the solar asset?

I think we have signed the agreement. We are doing the closing related work. So it will take -- I would say, a couple of months for us to close it.

Okay. And lastly on the Rights Issue, what kind of approvals are required?

Sure. Okay. With respect to Rights Issue, okay. So with respect to Rights Issue, we have -- we are evaluating between the fast track and slow track process. In a fast track process, we do not need SEBI approval, and there are certain criteria to be complied in a fast track issue. And in the slow track approval if we go, we'll need SEBI approval. Besides that, there are certain, I would say, clarification and approval needed from RBI, especially from SEMA perspective because there is the first time Rights Issue of the public InvIT. So RBI approval is in both cases. And SEBI approval is depending on whether we choose fast track or slow track.

Mohit, there are certain process-related aspects also because this is the first Rights Issue signed in bits. So it entails exchanges of processes with the exchanges -- as Harsh like mentioned, the approvals from these regulators.

The next question is from the line of [ Danesh Mistry ] from Investor First Advisors.

I was -- I've been on the call throughout and I just had 1 question. You've mentioned that you're looking at a INR 1,500 crore Rights Issue, capital raise through Rights. And so that implies about a 16% post-money dilution. And if I heard correctly, you also guided saying that post the dilution also, you will continue to maintain the INR 3.10 distribution per quarter. So I just wanted to hear whether -- whether I heard that correctly? Or did I misunderstand it?

Yes. So no, I think first is the -- first point I would correct slightly. And we're not saying we are raising INR 1,500 crores, it is up to number. So depending on the price and I would say, rights ratio, this number can marginally change here and there. The second question is, yes, the guidance is post capital raise also the INR 12.4 will continue.

Okay. Okay. So you're saying that you have enough of visibility to give you that comfort when you're assuming this kind of dilution, essentially?

Yes.

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

Congratulations on good set of numbers. Just wanted to understand on the price of the rights issue. If you can put on some color, what sort of price will it be? Will it be more than or less than NAV?

So I think tough to give a color on that right now, Rushabh. We've not yet finalized the Rights Issue detail as we said that we are -- our Board has only approved today the capital raise, which is kind of an intermediate step as an in-principle approval. The pricing as well as the final sizing is going to take place, I think, once we have certain approvals in place. So we know predictability in that sense. So unfortunately, we don't have the answer for that right now. But it will be -- I think, directionally, it's the right issue, so people would get chance to participate.

That's right. Right. Okay. And I just wanted to understand one more thing on your corporate structure where I'm referring to Slide #23, a couple of quarters back, you were also in consultation with the NCLT remove IGL, IGL1 and IGL2 from the structure so that you can give the distribution in the form of dividend, which is more better for the investors. So any progress on that front, if you can just highlight that?

So I think, Rushabh, these 2 are different points. One, we are evaluating, removing intermediate holding companies as well as merger of assets. But that is a very large merger of INR 10,000 crores, INR 15,000 crores of assets with regulatory approvals, tax impact, et cetera. So we are evaluating that right now. However, that is not with the objective of creating dividend out of the portfolio. That is with an objective of making a simpler operations, simpler compliances and overall government structure. Having IGL 1 and IGL 2 has no impact on the dividend, right? We are paying interest a majority part of our distribution or all part of our distribution because the majority of capital is invested by IndiGrid in the subsidiary directly as a debt. Even if we were to merge these assets into 1 together, that capital structure is not changing. That would still remain the same. So these 2 are different aspects altogether. And as we've explained in certain earlier calls, if we start providing dividends, there is going to be a 25% tax at the InvIT level, right? First of all, it's extremely difficult to reverse this capital structure. But even if it was to be done, there is a 24% tax that will be there at the SPV level. And then the dividend would be provided to investors, and that will be in the hands of investors also taxable. So I don't think that dividend arbitrage, which people thought about in the past exist, after dividends started being take.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Sumit Kishore for his closing comments.

Yes. On behalf of Axis Capital, thanks a lot for giving us the opportunity to host this call. Harsh, do you have any closing comments?

Yes. Thanks, Sumit. And I'll just -- I just thank everyone who joined the call. And just say, our focus, as I mentioned earlier, is to focus our strategy on simple business model, which is on stable, predictable operating cash flow and increase, increase them over a period of time and maintain a healthy balance sheet. And I think this quarter marks the another turn event in our history when we have increased the DPU on a quarterly basis as well as decided to announce a capital raise in the coming future, which is closely linked to our strategy of providing predictable DPU to our investors and grow, which is distribution and growing their distribution and supporting that as a healthy balance sheet by raising capital at the right time. So I think we are on a path to success what we had envisaged a few years ago. And I would like to thank all the investors and stakeholders for participating in that. Thank you.

Thank you. Ladies and gentlemen, on behalf of Axis Capital, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.