Indigrid Infrastructure Trust (540565) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the India Grid Trust Q4 FY '21 Earnings Conference Call hosted by Edelweiss Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Swarnim Maheshwari from Edelweiss Securities Limited. Thank you, and over to you, sir.

Thanks, Steven. On behalf of Edelweiss, a warm welcome to all the participants. I hope all the participants are safe and healthy. From the management today, we have with us Mr. Harsh Shah, CEO; Mr. Jyoti Agarwal, CFO; Ms. Meghana Pandit, CIO; and Mr. Satish Talmale, COO, who will represent India Grid Trust on the call. From the -- I'll just hand over the call to Harsh for his opening remarks, post which we'll have a detailed Q&A session. Over to you, Harsh. Thank you.

Thank you, Swarnim. Am I audible? Swarnim? Hello, am I audible?

Yes, sir. Now you are. Please continue.

Yes. Okay. No. Thank you, everyone. And as Swarnim mentioned, I really hope for safety and wellness of everyone, who has joined on the call. This is a quarter 4 FY '21 investor call as well as a conclusion of the financial year '21 call. So we have captured certain items for the full financial year to give a perspective of certain items as well as a little bit of -- about our evolution over last 4 years. To start with on Slide 5, I would like to reiterate our vision. Our vision is to become the most admired yield vehicle in Asia. We believe if we do the 4 aspects of our business model and execute them well, we'll be able to achieve our vision. First one being focused business model, which is focused on long-term contracts, low operating risks and stable cash flows. Second, value-accretive growth, which allows us to do DPU increase on a year-on-year basis and create a growth pipeline for future. Predictable distribution. So we have been giving guidance on a forward-looking basis and also providing quarterly distribution, which is predictable for our investors. And the last one, which is a focus on optimal capital structure, which is a consolidated leverage, maintain our consolidated leverage lower than 70%. We -- and focus is on maintaining our AAA rating via prudent liability management as well as good quality assets. On the Slide 6, I've captured -- we captured our evolution over last 3 years, starting from a growth track record in terms of assets. When we listed, we had 8 lines, about 2,000 circuit kilometers, 2 substations, about 6,000 MVA in 4 states and 10 revenue-generating elements and approximately INR 3,700 crores in fact. Fast forward today, we have 40 lines, about 7,600 circuit kilometers, 11 substations with 13,500 MVA and presence across 17 states and 1 UT with 50 different revenue-generating elements and with a total asset size of approximately INR 20,500 crores. We have been able to achieve this phenomenal growth based on execution of our promises of focusing on value-accretive growth in the assets that we operated. The next important part of our evolution being our unitholder base and how it has evolved and diversified over a period of time. Starting again from IPO, we had the sponsor about 16-odd percent. We had no insurance companies, retail holding was about INR 445 crores and FPI is owning about 39.9%. Fast forward today, we have a change of sponsor or other additional sponsor with KKR being sponsor as well as owning about 24% of the units. 9 insurance companies own about 8.6% stake, all of them coming along the way in via secondary sale and subsequent rights issues. Retail holding has increased from INR 445 crores to INR 1,825 crores. And there is also evident in the liquidity that we see indicate lots on the exchanges. DII Holdings have relatively come down in proportion to the FII and the FPIs owned 31%. And if we add KKR and this together, it will be a higher number. The third aspect of evolution, which is the market development. And we've seen -- since the time when we listed in which market was in a state of flux and evolution, we believe now it has come to a status of its evolution that a lot many new issues that we have seen in the recent future. We have, in line with our strategy, consistently raised capital to ensure that remains a healthy balance sheet and focus on predictable DPU growth. So while we listed with INR 2,250 crores of IPOs, subsequently, we did a preference issue of INR 2,500 crore and very recently had INR 1,284 crores of rights issue. This is a unique aspect about InvITs in comparison to other equity listed companies, considering that InvITs have a mandatory payout ratio of 90% of the cash it's earned, it requires raising of capital for its growth because it is dividending out all the cash flow it accrues. We believe it is a better corporate structure because it enables equity investors to have a stable yield, predictable yield with a mandatory payout ratio and contribute capital if they feel they want to contribute and is the right decision at that point in time. Our average daily turnover has increased from about INR 5 crores to about INR 10 crores in 2021, which is clearly indicating the liquidity improving. Total returns delivered in year-on-year basis have been substantially higher and is increased over a period of time. Our net debt to AUM has remained within our planned numbers to maintain a robust balance sheet. And along the way, there have been several changes like leverage limit to 70%, lot size reduction to INR 1 lakh, RBI enabling, bank lending, induction of KKR as a sponsor and insurance and FPI lending to InvIT is becoming a reality. All of this contributing to InvITs becoming a market of its own. On the next slide, which is Slide #7, it just captures the evolution of our financial performance over the years. And as one can see from different numbers, in general, we have grown anywhere from 50% to 55% in terms of our compounded annual growth rate of all parameters, whether it's revenue, EBITDA, AUM and NDCF, which effectively also has delivered a good DPU growth of the investors who have chosen to invest since listing, and we believe we'll continue to focus on this DPU journey as we move ahead to ensure that stable distribution and consistent growth remains the focus of IndiGrid. Coming to Slide #9 on -- just a snapshot of who we are today. So we are today India's first power transmission yield platform with an asset size of about INR 20,500 crores; a presence, as we spoke about, in 17 states and 1 UT with 40 lines and 11 substations. We are AAA rated, and our residual contract life is about 30 years. And in terms of another dimension of size, we are 11,550 towers and overall about 4,30,000 tonnes of metal between steel and aluminum. Going to FY '21 key highlights. The first aspect on the portfolio growth, we have acquired INR 6,900 crores worth of assets in FY '21, which has taken our AUM to INR 20,500 crores, including the largest asset ever transacted in power transmission sector in India, which we executed called NERSS2 in quarter 4 of '21. Besides that asset, this year is special because we acquired three type assets from different kind of counterparts, starting from joint venture with Power Grid, which is a cost-plus transmission asset, which we acquired from Reliance Infrastructure; state transmission assets, which we acquired from a JV of Kalpataru and Techno Electric; and signed the first solar asset with FRV in the last year. In general, last year growth was about 35% of revenue and 26% of EBITDA on a year-on-year basis. It is important to note that NER acquisition happened in the last week of March and, therefore, has very limited contribution to both revenue and EBITDA numbers of FY '21. In tandem with the portfolio growth as we have consistently increased our DPU in the past, what we are guiding for FY '22 is for INR 12.75 a unit, which is up from our earlier run rate guidance of INR 12.4 unit and up about 6% from the FY '21 initial guidance of INR 12 a unit. It is important to note because this is adding to a trajectory of approximately 4% year-on-year growth in DPU that we have projected and delivered over last 4 weeks. The next segment is on improving our balance sheet strength. We have successfully managed the first wave of COVID-19-related uncertainties on the business by maintaining adequate liquidity and reserves with the company. Our net debt to AUM has remained at 59% as of 31st of March 2021, which leaves substantial headroom for growth. This does not account for the rights issue impact, which will be explained subsequently. We have substantially diversified our debt sources, reduced the cost and elongated tenures in the incremental facilities that we are undertaking. We have focused tremendously on resilient asset management this year. We are transitioning into an in-house project management or asset management as the industry calls it. And therefore, the Sterlite Power in FY '22 will not be pursuing the project manager role. However, we would be internalizing it within the IndiGrid teams itself. We have partnered with IBM for utilizing their global tool called Maximo to digitize asset management and increase reliability and efficiency of our operations. We have made investment into emergency restoration systems to ensure reliability of our portfolio and availability. And we are focused on building a world-class EHS and ESG practices across the portfolio. The last one is on industry stewardship. So we are consistently focused on reducing the lot size to allow maximum participation, increasing liquidity. And as some of you would know already, IRDAI has come up with a circular to enable debt securities -- subscription to debt securities by insurance companies. And MoF has announced the similar measures for FPIs. However, we are awaiting the final circular from RBI. All of this has put together enabled us to contribute superior total returns, maintain sustainable increase in DPU and steady operations. Going to the key power sector trends. I would just spend a few minutes here, as we believe Electricity sector is truly at the cusp of shift in demand patterns, technological disruptions and regulatory dynamism in India and globally. To give a perspective, technological disruptions would mean efficiency of solar cells and, in general, other solar technologies reaching great parity levels; improvement in storage technology and battery technologies; and evolution of electric mobility. The impact of these disruptions has direct results on the demand patterns. The focus on electricity in India has moved from just availability of our light to reliability and sustainability of energy delivery. Electrification of mobility will further cause huge shifts into the demand patterns in the country to the extent that if the overall electric mobility vision is achieved, it will eat into the oil and gas share of the energy and expand the electricity sector in a material way, which will have a tremendous impact on equipment manufacturer as well as infrastructure providers like ourselves. Storage requirement are becoming central to stability and reliability and such demand shifts as well as the charging infrastructure for EV we will become a much larger market in the coming future. And the last one is a regulatory dynamism that we are seeing in the government, whether it is with support in form of PLI or support in terms of planning, adequate and efficient transmission system, revitalizing DISCOMs by some monetization as well as delicensing of distribution businesses and many such light touch regulations, which are supporting a decadal growth in the Electricity sector. And the cusp of these 3, we believe that we are looking at a decadal growth and a transformational shift in the Electricity sector in India, not only for the infrastructure companies but also for companies associated with it in terms of manufacturing, technology and generation. Coming to the COVID impact on the business directly that we see on the next slide. The COVID per se, as we have been showing this slide, did not materially impact our business. While the demand subsequently materially dropped in COVID in 2020, it subsequently came back. It's dropped in 2021, as we can see in the green curve. We believe the moment the lockdown opens up, it will come back up. However, the main thing to note over here is that the power transmission tariffs are based on availability and are not linked to power fluent demand. And we have seen it in 2020, our collections came back to normal and rather beating the historical average and ending the quarter 4 with 126% of quarterly revenue, which we believe is one of the best quarters that we have seen. And our FY '21 revenues remained above 100%, which clearly showcase that the COVID impact of FY '21 was not there on the business per se, besides the practical challenges of operations. In general, we are ending the year with one of the best receivable days of 41 days at the end of the quarter. The last section is on the resilient operation. I would have Satish, if you are on the call -- Satish to take through that section of resilient operations and reliability centered management. Satish, over to you.

Hi. Can you hear me?

Yes.

Yes. Great. Hi, everyone. Good afternoon. So on resilient operations. I think despite of COVID challenges, we could be able to maintain the reliable power supply with a maximized availability. So across the portfolio, we have achieved 99.5% against our normative availability target of 98%. Of course, there were safety issues concerns. We have to put a lot of additional COVID-related safety measures at our facilities, including in substation and in transmission lines. And all the critical O&M activities continued with the restricted site teams in our -- especially in substation operations where we had to operate 24/7, we could able to sustain and manage the operations without any much larger impact. Yes. Harsh, back to you. Yes.

Yes. Thank you, Satish. The next part was about -- on Slide #14 on in general operating performance of the year and the quarter. I think the quarterly availability, as Satish mentioned, has been as per plan, except for certain items where there are shutdown events that we need to take, but they were compensated by such regulatory authorities like MSRDC and NHAI, which requires us to move lines. In general, our performance on reliability measure has substantially improved and number of trips per line in FY '21 has come down to 0.31 from 0.48 in FY '19. And further, if we remove the indemnified components, which are in some of the lines, the trips per line comes back to about 0.2, which we believe is one of the best in the industry, and we would continue to focus on that. Our safe manhours have been good. However, we did see a fatality earlier in the year for a very rare incident of honeybee bite, and we're truly committed to ensure that it does not repeat. And me and Satish and everybody at the team is focusing to ensure that we increase our training manhours to ensure that we do not see such fatality to repeat. Our solar generation is very low at some of our substations in terms of our size. However, we -- as you know, we have purchased or signed to purchase the 100-megawatt of solar facility, and you will see these numbers growing materially after that. We also received ISO certification for 14001, 45001 from Bureau Veritas in -- and 9001 in the financial year '21. As I mentioned in the summary, we are transitioning our project manager agreement from Sterlite Power to IndiGrid and IndiGrid would become self-reliant in operations and management. On the next slide is about the robust financial performance of quarter 4 and full financial year '21. I would invite Jyoti, who is CFO at IndiGrid, to take this slide onwards. Jyoti, over to you.

Thanks, Harsh. So on the back of very sound operational capabilities, we've sort of reflected that in our financial performance, which you can see on Slide #15. For the quarter FY '21, our revenue on a year-on-year basis increased by 39%, EBITDA increased by 37%. Our NDCF, however, increased only by 8%. This is because of a few one-offs relating to some SPA earnouts as well as some one-off DSRA creation that happened during the quarter. Adjusted for that, the NDCF accretion has also been in line. Actually, it's higher than the EBITDA generation at almost 40%. For the full year FY '21, our revenues increased by 35%, and EBITDA and NDCF increased more or less in tandem at 26% and 27%, respectively. As we've already announced, we have a 3.3% growth in the DPU per quarter from INR 3 to INR 3.10 over the course of the year. Now this, of course, came into effect from the December quarter. So for the full year, the corresponding DPU increase is a little bit lesser as the INR 3.1 was paid only for 2 quarters and not for the 4 quarter. The increase is half of 3.3, which is 1.7%. It's showing 1%, that's a typo. But on a run rate basis, our DPU increase for FY '21 is 3.3%, INR 3.1 x 4 INR 12.4 for the year versus INR 12 that we used to pay before that. And as Harsh has already guided, we plan to increase the DPU INR 12.75 or roughly INR 3.1875, which will be a further increase of roughly around 3%. So overall, an increase of 6% from the start of the year till the end of the year. Our AUM growth has been remarkable at 71%, and we are today commanding at AUM upwards of INR 20,000 crores, roughly INR 20,500 crores. We go to the next slide, which is essentially a bridge between EBITDA to NDCF. It is more or less explanatory, but I'll take you through some of the key highlights here. On the quarter, I'd like to highlight the working capital movement, which is a very big positive of INR 160 crores. This was on the back of an exceptional quarter in terms of collection. We collected the highest ever -- quarter compared to the last 4 years at 126%, and that led to significant drawing down of the debtors and cash coming into the books. That helped us for an NDCF at an SPV level, which was higher than the EBITDA. So against a INR 451 crore EBITDA, at the SPV level, our NDCF was actually higher at INR 275 crores. Adjusted for the interest cost, debt repayment, DSRA, et cetera, at the IGT level, we generated an NDCF at IGT of INR 226 crores, out of which we intend to pay out the INR 217 crores of DPU at INR 3.10 on the expanded equity base of INR 70 crores. So it's important to note that for this quarter, we created an NDCF reserve of almost INR 62 crores, about INR 53 crores at the SPV level and about INR 9 crores at the IGT level. For the full year, the corresponding reserve is INR 170 crores, about INR 143 crore at the SPV level and a INR 27 crores as the IGT level. Now this NDCF reserve will help us to tied over any sort of disruption in the collection cycle, which may or may not happen in the future. As of now, we don't see any challenges. Collections seem to be following the course, but should there be any challenges, then this NDCF reserve will help us to tide over and smooth out the predictable DPU that we have always envisaged to maintain. We go to the next slide. Harsh, do you want to take the distribution strategy, please?

Sure. Yes. Thanks. So I think on Slide 17, on distribution, as we have guided, we are focused on delivering INR 12.75 a unit for next financial year. And for the current financial year, the quarter 4, we have decided to distribute INR 3.1 a unit, which consists of INR 1.51 as interest, INR 0.52 per unit as dividend, which is under the old tax regime, so therefore, tax free. Capital repayment of about INR 1.07. And this will also be for you -- you'll also receive an advice with the similar numbers in your mailbox along with the DPU. I think with this, we have cumulatively delivered about INR 45.77 a unit and approximately INR 2,000 crores of distribution to investors since listing. I think it is important to note that this distribution and the guidance are on a much higher outstanding unitholder base. Earlier, we had INR 58.35 crore of units outstanding, whereas in this quarter, in quarter 4, we have INR 70.02 crore unit outstanding, and we are delivering the same INR 3.1 a quarter for the entire unitholder base. And the guidance of INR 12.75 will also remain on the entire unitholder base. There is a -- Jyoti, you would take the next one, 18, 19 or?

Yes. I can take the next 2 slides. So the next one Slide 18 is the adjusted NAV. The way the InvIT regulations work is that when you acquire an asset where you are the majority holder, when you consolidate the debt as well as the AUM or the value of the asset, 100% in the books. Consequent to that, the NAV at the end of Q4 is at INR 146.26. This includes 100% of both NER, PKTCL as well as more importantly, NER. Now for NER, while we've acquired 74% in tranche 1, there is a plan to acquire 100% of the asset, and that transaction for the balance 26% is due to happen in quarter 1 of FY '22. While the equity value adjusted for debt has been consolidated 100%, there is a payout that needs to be made for the 26% that we'll acquire in this first quarter, which would lead to an adjustment in the net asset value to the tune of roughly about INR 8. Then there has also been a rights issue, as you are aware, INR 1,283 crores, which will have a dilutory impact because of the same valuation is going to be distributed on a larger number of units. And that impact will be about INR 6. So on a pro forma basis, the INR 146.26 of NAV per unit would actually translate to about INR 132.18, and we thought in the light of fair disclosure and full transparency, this is the fact that we wanted to bring to the notice of our unitholders to be mindful of.

Sorry, just to add on that, Jyoti, I think as you ended up brightly this is as per the valuer report, our NAV statutory remains INR 146.26. However, as we speak today, there are 2, as Jyoti described, we wanted to be more transparent and disclose the quarter 1 events, which has a dilutory impact. And we believe that that's something which unitholders should be aware of. Therefore, it is provided that these are the 2 events, which has an impact on the downward side on the NAV that is published. And to make it clear, NER is acquired, so 100% economic interest of NER is acquired and is accruing to IndiGrid. However, the payment, which is not made at the moment, which is what Jyoti described, that we would be paying subsequently in quarter 1 or subsequent time line as and when certain conditions are met by Sterlite Power.

Thanks, Harsh, for that explanation. I'll move to the next slide, Slide #19, which talks about our finance structure, the capital structure on the debt side. So we have a gross borrowing of roughly around INR 12,800 crores at the end of March, which is adjusted for some amount of debt, which got paid in the first week of April. In the quarter, we raised about INR 5,100 crores of debt, and this is primarily because of NER, which got consummated in the last week of March and about INR 1,000 crore, we raised for the purpose of refinancing debt at the SPV level. This debt, we raised at an average incremental cost of about 7.36%, which stands very well compared to the average overall book cost of 7.93%. So over the course of the entire financial year, we've been able to refinance debt at a lower level, so that our average cost continues to go down. At the start of the quarter, our cost was about 8.29% for the overall book, which now is less than 8%. And in the month of April, May, we have also been able to do a public NCD issuance where we were able to raise about INR 1,000 crore for 7 years and beyond, average maturity of roughly around 8 to 9 years at a cost of about 8%. And what that has done is that has made us capable of extending our tenures of the debt book, so that we are able to raise incremental debt for 7 years and beyond at lower cost. So today, as we speak, we are in a position to raise incremental debt between 7- to 10-year maturities at plus/minus about 7.5%. And as more and more of our book debts turned over a new debt comes into the fold at that rate, our average cost of debt should also be going down from the current 7.93% to maybe trending down to 7.5% over the next couple of quarters. We continue to be rated AAA. We have a fixed rate borrowing of more than 80%. It's almost 83%, 84%. And roughly 60% of our book is in the form of NCDs and the balancing in form of loans. We're carrying a cash balance of about INR 965 crores at the end of March, but this includes the DPU to be paid of INR 217 crores as well as restricted cash in the form of DSRA of about INR 300 crores. So adjusted for that, the cash that we are carrying, which is out of free surplus cash, is about INR 450 crores, which on a book of about INR 13,000 crores translates to about 3%, 3.5%, which is a right -- a fair amount of cash that we believe we should carry given the overall size of the operations. Our net debt to AUM is at about 59%. Now this will be going down as -- because of the rights issue that we have done in the month of April. But as of March 31, it stands at 59%. Our interest coverage ratio is actually 1.52. There is a typo here. It should be 1.5, more than 1.5, it's about 1.52. In terms of the repayment schedule, which you can see at the bottom half of the slide, we -- because of the ability to raise debt beyond 7 years that we have enabled, we should be able to refinance all our -- that kind of a maturity bucket and exchange the maturity. So that -- but for FY '23, we believe by September, all the repayments in any financial year will not exceed INR 1,500 crores. That would be roughly around 12% to 13% of our book. And we believe that is the right kind of level of refinancing or repayment that are due in every year that we should have. And we would proactively ensure that it doesn't go above the INR 1,500 crore mark in any particular year. As far as FY '23 is concerned, there is a large amount of debt of INR 2,600 crores, which is coming for repayment. This includes 2 chunky NCDs, one for INR 1,400 crores and another for nearly INR 700 crores, which we can refinance now, but there would be -- these have been locked in at higher rates of interest, and so there would be a significant amount of rate cost or prepayment costs that we'll have to bear. So the way we will manage this particular refinancing is that we are proactively working with banks for an advanced tie-up of a loan facility, which is longer availability period, which we hopefully should tie up during the course of the year, so that we have this facility in advance rather than raise this money closer to the maturity date. We are also, to the extent possible refinancing as much of the FY '23 debt piece, and we should be able to do at least INR 200 crores to INR 250 crores over the next quarter. Harsh, you want to take the next slide?

Sure. And adding to what when Jyoti -- where Jyoti ended, I think where we are in terms of our rating, the rate cycle and the opportunity, we believe that this INR 2,600 crores in FY '23 is a very good opportunity to reduce our cost of debt further because these are the bonds, which were locked in about a couple of years ago with a much higher cost of debt and then our incremental cost of debt. So we believe that this is going to result into a good chunk of savings for the coming years, too. On the next one, I think there are 2 strategic capital raise that we did and one Jyoti already spoke about, and I think some of the statistics on public debt is mentioned over here. I think the key objective of that was to diversify our source of debt, extend average maturities of a borrowing and increase the market depth for the capital raises. And we saw that against a token of a smaller issue, we received a 25x demand of about INR 2,500 crore, and we completed INR 1,000 crore for the full greenshoe subscription and over 11,500 applications were received for the debt issue. And majority, which is more than 80% of the subscription as we saw has been in the 7 or greater than 7-year tenure. And that's something which achieved, we believe achieved our objective of really establishing a long-term tenure in the market for IndiGrid papers. And the average maturity of allocation that we achieved is 8.6 years. And this also now includes 4 insurance companies who have chosen to purchase our papers on the longer tenures. And this is just -- important thing is just a few days after IRDAI enabling such ability of insurance companies to subscribe to our debt papers, and we are pretty encouraged and happy about such strong demand from long-term capital. On the rights issue side, I think this was the first ever rights issue done by a public listed entity. And this is the first call after that, we are talking about the rights issue to investors. And our objective was to ensure that we preemptively capitalize ourselves to ensure that we are able to grow when the market is right. This rights issue has helped us create leverage room for further growth and also offered opportunity to all our shareholders to participate and contribute in the growth journey of IndiGrid. Our rights issue got subscribed by 1.25x. And what was heartening to know is over 90% of the eligible investors chose to subscribe to our rights issue, and which we believe is a very good number. And then we see it as a sign of confidence in the IndiGrid platform from our investors. With the capital that we have raised at the rights issue, we would be able to acquire another INR 5,000-odd crores of assets, while remaining within the 70% leverage that we have kept for ourselves. The next slide is more long-term track record of delivering returns. And as we have been consistently maintaining InvIT and especially IndiGrid is focused on delivering superior total returns, which consists of dividend distributions or other distribution per unit plus price appreciation or change in price. As you can see with the comparable indices and stocks that we have been consistently showing over the last several quarters, we still remain at a substantially higher spread of what we have delivered in terms of annualized return over last 4 years since our listing. Important to note, a majority part of these returns are getting delivered by virtue of our stable distribution and not just the price change, and that's something which also contributes to a lower EBITDA or lower volatility in total returns and the price of IndiGrid. Coming to Slide #23, which is the outlook for FY '22. We believe that there is about INR 50,000 crores of interstate TBCB pipeline and another INR 45,000 crores of intrastate TBCB business that is expected over the next 3 to 4 years. This forms a very healthy pipeline for acquisition. Within the interstate transmission bids, we see approximately INR 15,000 crores worth of bids coming in FY '22. And additionally, about INR 26,000 crores are identified for 20 gigawatt of renewable pipeline, which may come in the subsequent years. Our focus will be on completing the acquisition that we have signed up called FRV as well as converting the framework asset KTL into our portfolio by year-end. We will continue to selectively evaluate opportunities in both solar and transmission sector. And the outlook is to increase our DPU to INR 12.75 and we'll work towards delivering the same. On the balance sheet side, we will continue to further diversify our debt sources and elongate tenures. We will aim to reduce our cost of debt by refinancing. We will maintain adequate liquidity to mitigate current uncertainties and any unpredictable scenario that may pan out due to COVID or other than COVID over the next 12 months. On the asset management side, we'll continue to maintain a robust availability and maximize incentives. We will be investing both in technology and people to ensure reliable and self-reliant O&M. We will continue to make investments into leading technologies like digital asset management or predictive analysis and emergency preparedness to ensure that we are able to operate our assets reliably. We would focus on EHS and ESG practices for the portfolio in line with global practices for similar platforms. On the industry stewardship, we'll continue to layers with regulators and ministry to reduce the lot size at par with other listed platforms to ensure the liquidity increases and improves for InvITs. There are further changes that we are seeking for PFRDA to subscribe to debt securities for InvIT and also actioning of MoF circular on FPI and ECB lending. And we are recommending government to streamline tax anomalies with respect to capital gains tax for InvITs. With that, I would just conclude the call by saying we have really happy to have such a right participation and performance. We look forward to answer your questions now.

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

Congratulations on good set of numbers and raising the capital. Sir, 2 questions. Firstly, why we are maintaining such a high level of cash on our books? And the related question is that, of course, we have around INR 24 billion of repayment during FY '23. When we expect it to refinance? Can you just give us a sort of time line?

Sure. So I think Jyoti did explain partly, but we'd try to do it again. I think the high level of cash, I think we need to reduce certain cash. Out of the INR 965 crores of cash, about INR 220 crores is the distribution held for this payment, which would bring it to about INR 750 crores. Out of that, approximately INR 300 crores is a statutory DSRA. We maintain a 1 quarter of interest cover every time -- at any point in time, which reduces by the INR 300 crores. So this is about like INR 520 crores out of INR 960 crores is kind of either cash flow which we are distributing to subsequent investors and for debt service. Out of the other INR 400 crores that you see, there's one way to look at it. There is a reserve that we have created in this financial year. So approximately INR 170 crores, right? That's a reserve that is created, which we can use subsequently. So we have approximately, other than these 3, about INR 200 crores, INR 300 crores of excess cash, which we -- depending on the opportunity, we can either use it or we keep it. That's a flexibility. So I don't think we should look at it as INR 960 crores of cash balance. The real flexibility and cash balance is just about INR 200 crores to INR 300 crores. And we have an upcoming acquisition also coming, right, for FRV that we have signed. So we will decide to use it for either upcoming acquisitions or refinancing that may come up. So the next question that you asked was on INR 2,400 crores of repayment in '23. See, both of them are coming for next financial year. So any refinancing that we do for that amount would largely happen in the quarter 4 of FY '22 because they are -- as Jyoti mentioned, they are locked NCDs and the breakage costs are higher. So we would be doing it somewhere in the quarter 4 of FY '22.

Okay. Understood, sir. And sir, what would be your debt equity post the acquisition of KTL and FRV in the sense, you raised also right with rights issue is INR 1,283 crores, right? So post the KTL and solar FRV, I think that should happen in the next 12 months. What will be the -- and also the NER, I think we need to pay something, right? So after all -- paying all 3 -- after making all these payments, what will be debt equity at the end of FY '22?

Yes. So I would just say, one, after the rights issue, our debt to -- net debt to AUM is at about 55%, approximately. And considering the size of both the other assets, overall, AUM would probably be in the range of 60% after these 2 acquisitions. Jyoti, if you -- does this seem right about 60%?

60%. Yes, you're right. I mean it would be about that kind of a level. Immediate visibility is around 55% post this quarter because rights as well as FRV, we are expecting to happen in this quarter. It will happen a little bit later, but it will be within the 60% threshold based on current visibility of the acquisition pipeline.

So there is a 10% extra margin available to us, right, post this?

Yes.

The next question is from the line of Prashant Pandey from Birla Sunlife Insurance.

So my query is basically on the return of capital, which you have given in this quarter. So how -- is it predictive? Was there any specific reason in terms of debt maturity was coming up for the loan, which was given to SPVs. And also what is the future outlook? How much capital return can we expect going forward?

Okay. So I think this is not linked to any specific maturities, et cetera, as we have described earlier. This is linked to primarily 1 quarter that under the tax regime and the InvIT regulations, we need to do return of capital or rather, we need to distribute to our investors, the cash that we received from SPV in the same form as the other payment. So for example, in a particular year or a quarter, if one SPV generates more cash than the interest that it has to pay to IndiGrid, in that quarter, we may see some capital repayment happening. It is not a uniform, but some SPV will do it, some SPV will do it after 10 years. So it depends on the capital structure of the SPV per se. So whenever we receive a cash inflows into an SPV, more than the interest payment that it owes to IndiGrid, you will see this component coming in. It is just an accounting treatment. It is not a buyback or a capital repayment in the true sense. It is just a capital repayment because subsidiary has returned the debt to InvIT and InvIT is paying back the same. In this quarter, the number is relatively higher. As you would have seen, there is substantially higher collection that has taken place, right? So when you receive more collection, there is more NDCF. And the interest is accounting, so we can only pay X amount of interest. The rest of it comes to us as a capital repayment. On the outlook in future, there would be components of capital repayment, which would be there. But it is not -- it is very difficult to predict it on a year-on-year basis that [Foreign Language] it's very difficult. So we have focused on following the rules that is there in the SEBI regulations and the income tax. But prediction of that is difficult early on.

Okay, sir. And my second and final question was on the NDCF. In -- or if you see on Page #15 and 16, NDCF is different. So I wanted to understand, as in why is there a difference? Is it because one is at the SPV level and another is at the InvIT level?

Correct. So there are 2 ways to look at it is. One is it at the InvIT level in terms of after creating reserves, and second is that what you see on the Slide #16 is just a waterfall from EBITDA to NDCF, right, of how the -- what are the changes, et cetera. It is not a technical formula of NDCF that gets followed under SEBI because SEBI requires to have 2 level of NDCFs separately communicated. And so what is NDCF for IGT is after adjustment of 10% of reserve at SPV. So you'll need to make certain adjustments to map it to the FY '21 NDCF of INR 917 crores, which is the total cash generation that has happened in the company.

So the 90% regulation is for the lower amount is INR 775 crores?

90% is on both amounts. NDCF and SPV as well as NDCF and IGT.

Okay. If I may explain in a simple way, both of them are actually representing the same number. The method of representation is different. So if you look at Slide #16, if you take the distributed amount and just add the reserves for the quarter and for the year, we will get the total NDCF number, which is there on Slide 15. So Slide 15 is talking about the overall NDCF generated, including the reserves. The breakup of the NDCF is shown on Slide 16.

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

So congratulation Harsh and team on a blowout year and quarter after such an unpredictable year. My question is actually in continuation to the previous one. So while I understand that the capital repayment may not have a predictability, but can we assume that the dividend will have a predictability going forward?

Yes. So on the dividend front, it is a very specific scenario for which we can provide a little bit of guidance. So the dividend is coming from the joint venture called Parbati Koldam, which we acquired from Reliance Infra, which is a cost-plus asset. And in a cost-plus regulated return asset, we received post-tax return from the regulator and the customers. So there is a specific amount of dividend that we receive every year from that joint venture. And that would amount to approximately INR 0.50 a year kind of dividend for the platform, which is about INR 30 crores to INR 35 crores, and that is something which will continue for a longer period of time. So the dividend component will be more sustainable and more predictable in the range of INR 0.5 to INR 0.6 a unit per year.

Okay. Wonderful. And the second question I had, with the increased guidance at INR 12.75 for FY '22, the first quarter, you were paying out 3.1%. And therefore, would it be safe to assume that the balance will be caught up by the end of the year?

Okay. No, no. So -- okay. So for the guidance, we are following an accrual method. So the INR 3.1 that we are paying is for quarter 4 of last year. So the INR 12.75 will be from the NDCF of the financial year '22. So depending on how you account for it, it will go -- so quarter 4 DPU is INR 3.1. But quarter 1, FY '22 onwards, it will be a higher DPU.

Oh, right. Sorry, my post. All right. So the next full year will be INR 12.75?

Yes.

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

So after this tax rule, which got changed for dividend distribution, many of the REITs, which are listed ones, had changed the mix of distribution to their unitholders and also have given some guidance on the same on an increased distribution as a percentage of total distribution. So it seems that there is some financial engineering and flexibility to sort of change the mix to the unitholders, which, of course, have been proven by all the listed REITs in India. So given that, do we also have that flexibility? Because -- and hence, if we have that flexibility, would we want to give any guidance on the mix of these 3 forms of distribution going forward?

Yes. No, I think that's a very good question. I'll just start from saying that REITs and InvITs follow a different capital structure, it's directionally. What happens in real estate -- is much higher than the book value. And because of that, in any case, they had to pay dividend even earlier, even though it was taxable. So for them, what has only changed is that from a taxable dividend, they are moving slightly and making it towards tax-free dividend, depending on the cap structure of different SPVs. However, for InvITs rather, let's say, infrastructure businesses, typically, the capital structure is -- materially different than like real estate. So what happens is that we have a lot of depreciation cash flow available to us, which on real estate, the depreciation percentage of the overall asset value is lower. So we are kind of restricted to follow a particular cap structure, which would eventually result into a material part of our distribution coming as interest. So we do not have the same kind of flexibility to move to a dividend structure. And we believe that is better for InvITs or rather IndiGrid for sure because if we were to move to that kind of structure, the overall cash flows will come down materially. Because then we need to start paying 25% tax to that extent to be able to generate same amount of dividend. So we have done those calculations, and we believe that that's something not feasible for IndiGrid. However, it can be case-by-case for different people. Even the dividend that we are providing is specifically coming from a cost-plus asset. That's why we are able to -- we are being able to deliver that dividend.

Understood. And the other thing is, so basically for a further increase on DPU is in a way dependent on the incremental IRR project, IRRs that you are bidding versus the cost of debt. So this is spread, how are you seeing that in the market relative to previous years? Or in the gush of liquidity everywhere in the world, are you seeing pressures on the incremental spreads for the newer things that you're bidding versus your cost of debt?

Correct. No, I think a very, very pertinent question. First point, I think we acquired NER just at the end of the last financial year. So for the near-term DPU growth, we are not dependent on new asset acquisitions because our high confidence guidance comes from the fact that we have the assets that we've already acquired on the back of which we are providing the DPU guidance. So our near-term DPU growth is not dependent on asset acquisitions. To answer your second question, certainly, the competition and, in general, I would say, capital availability in the country has increased and which would result into, I would say, relatively narrower spreads on acquisitions. However, I mean, it depends on what is the particular situation for -- I mean let's say, whether there is a stressed asset or operating asset or a particular asset in which you already have synergies on, et cetera, so it depends on asset to asset. But in general, directionally, yes, competition has increased, but they narrowed down. That is when we believe platforms like IndiGrid are more competitive because of our rating, because of our balance sheet strength, because of our track record of acquisitions because we can turn around acquisitions faster. And speed is definitely one of the criteria that we have seen has worked well in terms of competitive scenario. Because eventually, the sellers do want a solution that gets delivered to them faster, but rather than waiting for a year because the economic situations can change materially in a year. So -- and the tax part, where we can have a better IRR just because the way we are structured in comparison to a legal entity, which is structured differently. So I would say we remain to be competitively well placed on account of our rating, balance sheet strength, turnaround capability and track record and our tax structure.

Understood. Last question on the acquisition pipeline now. We only hear what is actually accepted and closed. But I mean, how often do you reject the acquisition of an asset? Are the assets mostly homogenous, so all it requires is a good deal around it? Or are there really assets which are bad as well because we'll keep hearing that everything that you're considering gets acquired in a way? So how often do you reject and what causes rejections? And if you can throw some rejection ratio, et cetera?

Yes. Okay. So I don't have a specific rejection ratio, to be honest, to give you a specific number. But I think I'll answer the second question first, which will address the first one, is that assets are homogeneous. When we -- see, if you look at our portfolio today, about 90 -- actually 95% of our assets are under the same type of contractual framework, right, which is interest rate transmission service to receive similar kind of cash flows, et cetera, similar kind of technology, et cetera. So effectively, the filtration is very simple. As long as it is this part of the contract, we like these contracts, we believe they are very strong, we don't need to reject the asset. The next level comes in terms of quality of work and execution. And typically, there are about 2% to 5% range of outcomes that we see in quality of execution between different projects. And that gets adjusted in the value that if you correct, 2% of extra work and the asset will become good, those kind of changes. So if it is an interest rate TBCB asset, which is clean operating asset, it is an easier decision for us. We do not need to reject it. Solar is slightly pickier and is materially different than TBCB. So we have been very selective over there. We do not pick up assets with, I would say, relatively weaker counterparties, right? So -- and that ratio would be very high, right? Well, most of the projects that are there today has a substantial amount of state counterparty risk, and we do not even pursue those projects. So there's -- I would say, I wouldn't call it a rejection, but we filter it out, don't bid for those projects. Coming to the narrower pipeline, if it is a SECI project, well-built project, NTPC project, well built, good quality model, et cetera, then we pursue that project. Eventually, we may not get it on account of several things because, let's say, we don't like the quality of certain aspects. We'll put a higher risk premium to it and a higher cost of correction, and maybe we are bidded out. But the criteria for rejection for us are largely around the counterparties that we don't like, and we don't work with as well as if there are material issues with the contracts, which cannot be corrected for any commercial measures.

Understood. What are the tangible and intangible benefit of this making the project management in-house? And would it be given to the investment manager or who -- which entity?

Sorry, can you repeat that?

The project management, which has been transferred from Sterlite Power to, I don't know, which entity. What is the tangible saving per year? And what is the intangible benefit of doing this?

Okay. So one, it is not with manager. It is within the IndiGrid entities itself. So there's no external economics going to any other person. In terms of, I would say tangible benefits, I would say there is no tangible savings on this account, right? We are anyways paying about 10% of O&M cost to Sterlite Power. And we would need to incur minimum that, if not more, to have a similar kind of platform working for us. So I don't think there is a commercial saving on that account. In terms of intangibles, there are many advantages. One is it's a large operation that we are running. And the accountability should remain with the IndiGrid teams instead of outsourcing it with external members or agencies. So we needed to build that strength. Second, it also addresses our risk management that our own teams are managing our assets, and we have better confidence, better control and governance around it. And the third one is to ensure that if we invest in people over the longer term, then over a longer period of time, the cost of operations will go down. That's the third one, instead of just changing contractors in AMC. So I think these are the 3 intangible benefits, I would say, for changing the project manager.

The next question is from the line of Ruhi Pabari from Reliance Nippon Life Insurance.

Hello, am I audible?

Yes. You are.

Yes. So firstly, congratulations on the good set of numbers. I have a basic question with respect to the DPU classification. And I understand -- and if I may have just missed it earlier, I understand you said this is more of an accounting entry. There is no actual repayment, which is happening in terms of a debt. So when an SPV is generating some amount of cash, and it is generating cash more than it's an interest payment, that's when this capital repayment is happening is what I understood for the initial part of the call. So when that is happening, why does my interest component in the DPU has to go down?

Okay. So I think that's a very, very smart question. So see, we create -- there are 2 concepts I would like to bring to fore to explain that. One is a concept of reserve, right? So we -- at IndiGrid level, we have flexibility to do 10% of NDCF at 10% of reserve creation, half yearly basis at SPV as well as IndiGrid, right? So we do not need to completely translate into a mirror image of what we have received at exactly as has been. It can be proportionate because we create reserves. Second, there is a context of allocation of expenses that we need to follow from tax perspective. So then on conceptual level, when InvIT receives its income in form of interest, it needs to set that off against the interest expense that InvIT incurred. When it receives in terms of principle, it needs to follow similar kind of principle of allocation and same for dividends. So we internally follow a particular allocation method of expenses at InvIT level, which would mean that what is the attributability of that income and expense at InvIT level correspondingly and then the residual amount is paid. So it's difficult to exactly match it on the call like this. But it is to follow an attributability of income and expense concept at InvIT level, which is what causes this difference. So in reality, we have INR 170 crores of reserve also that we have created in FY '21, right? That will also have certain amount of interest and principal repayment or rather capital repayment and dividend repayment, that would be used subsequently as and when we utilize these reserves to pay further okay.

Okay. Understood. Right. Okay. Yes. And in terms of the capital repayment, just one thing I wanted to understand is that how is this any -- is this capital repayment taxable at the margin rates in the hands to the unitholders? Or how does that treatment go?

So it is difficult to address the exact taxability for me on the call, but I'll describe how -- because even the manager has received as an owner of IndiGrid units this capital repayment. It goes out of the cost of acquisition for the buyer.

The next question is from the line of Sudhir Bheda from Right Time Consultancy.

Sir, congratulation on superb set of numbers. And sir, congratulations to you and your entire team for outstanding management and unparalleled return in the last 3 years, sir. Hello? Hello?

Yes, thank you.

Am I audible? Hello?

Yes, sir. You are audible. Please proceed with your question.

Yes, you're audible.

Yes. Sir, my questions are 2 questions. First, what is the reserve -- see, you have created INR 170 crore for the year FY '21. So what is the total reserve we have created so far in last 3 years or 3.5 years?

It is INR 170 crores. It is same, INR 170 crores. So starting of FY '21, we did not have any reserves. Now we have created that reserve.

And sir, my second question is, is there any inter-SPV transfer of loans? Suppose one SPV, some sort of liquidity, then another SPV is with excess liquidity transfers the amount to another SPV. Those kind of transactions are there in this -- our first at the SPV level?

No. We prefer -- I mean technically, we can do it, but we prefer to avoid any such inter-SPV transactions. If at all, there is a need, InvIT itself gives a loan or takes the loan back because InvIT itself carries a lot of liquidity, but we avoid going for an SPV transaction.

Because other InvITs are doing like this. So I just wanted to...

Yes. But it makes the accounting, very complex, and there are tax impact and many other impacts, so we have been avoiding it.

The next question is from the line Nilesh Chawla from Shah & Chawla LLP.

Heartiest congratulations, sir, on an excellent set of numbers, and thanks for giving guidance for higher DPU. Most of my questions have been answered, sir. But just a passing guidance from you, may I know what is the rationale behind distributing income even on the right units also? Because as I believe the income is to be distributed, as you said, for the year -- quarter 4 of last year, and rights were concluded in the month of April current financial year. So may I just have some understanding on that, please?

Yes. No, I think you're right. There is no rationale. We just followed the regulations as is. We could not have avoided the rights issue owners to not receive the income because the unitholders, who are entitled for distribution, are the unitholders, who are there on the record date, whether rights or preferrers or any other unitholders. So there was no way for us to exclude those investors or the alternative way to consider is to say rights, pricing of INR 110 would have factored this distribution also coming to there, right? So we can look at it both ways.

No. But I think, sir, we could have had a separate IC number for the right unit. And probably, I feel that there will be some minority unitholders, who may not have applied presuming that against 1 unit, 1 lot, I may or may not get 1 lot. So there are chances that few of them may not have applied, and they may be deprived of this additional benefit?

No. So I'm trying to understand why is it an additional benefit? Because even if the unitholder, who did not apply, will still get the INR 3.1 a quarterly distribution. They are not getting lesser.

No, that's right. But if they would have applied, and they would have obtained the similar -- additional lot, they would have got higher dividend or the higher distribution?

No, no, you're right. But that's what is the unfortunate reality of SEBI regulation, right, that we had to do regulation, we had to do rights issue within the lot size multiples, which is beyond control of the company. In addition to that, we still need to follow the regulations of record date of dividend, right? Even in the company, if the rights issue was done early, the company cannot choose different dividends for different investors, right? Investors has the same legal right and standing, whether they have come via rights issue or preference issue. So unfortunately, the company does not have these flexibilities to decide rights issue investors should get less or more. And the way the regulations are defined, the company could not do rights issue in a way that a normal equity rights issue happened. So in both cases...

I agree, sir. I agree, but I'm sure the regulations, whatever they may be saying, if company would have thought off, probably company would have come up with the Board meeting and the record date before the allotment of the rights unit or maybe right units would have had the different IC number?

No, no, no, let me explain it 2 ways, right? One, it is not prudent for company to take decisions based on what you call the record dates, right? If we do that, we put the company at risk on market flows, right? Whatever after 2 months, the markets are back, right? So we cannot take that phase. Second, this anomaly will accrue the -- anytime we do the rights issue. For example, let us say, the record date for this quarter is June 2, right, today, or let's say, next few days, right? So after record date, we announced the right issue, right, let's say, June 3, okay? The rights issue will get concluded by when? Next 30 days?

Right.

Right? [Foreign Language] allotment [Foreign Language] It will take 30 days. We will be standing in June 30 -- July -- June 30 right? The same is investors will get quarter 1 DPU. Same impact will repeat. Whichever date you pick up for rights issue, whichever date in the calendar year, investors, we cannot time it exactly. Any time you pick up the subsequent capital, the investors will have this advantage, right. So that's a procedural flaw, which company can't change around, right?

All Right. All right. Excellent -- and wish you all the very best for the work that is being carried on. So continue to carry on the excellent work. Thank you. Thank you very much.

Thank you.

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

Harsh, regarding the capital repayment, to put it in a different wheel. Let's assume if the collection wouldn't have been so high, our reserves creation would have been a smaller amount, and we would have received a higher amount of interest for this quarter?

Yes. So higher amount -- I mean, let's talk-- for percentages, right? In crore terms, you would not receive higher amount, but in percentage terms, it would be a higher interest component. That's correct.

Had the collection not been so higher I mean, we did say 26%, correct, right?

Correct. Exactly. Exactly.

It's only because you have received a higher cash amount this so we've chosen to create reserves and to use that reserves in future, whatever that might be to return or occupied whatever.

Correct. Correct.

Fair enough. And Harsh my second question is, what would be our portfolio IRR or as a unitholder maybe at INR 100 or at NAV level or at current price?

The IRR is a very, very, I would say, a floating term right, very difficult for me to guide on because of, one, as you rightly put in, at what price? Second is at what leverage? Third is at which assets to include or not to include, right? So for example, if we include -- if you only include the current assets or we include KTL or FRV or if we don't include. Even if we include KTL and FRV, we will still be 60% levered, which is not a optimal case of 70%. IRR assumption is very materially between different people, right? So it's tough to comment for us on IRR specifically. What we can guide on is, obviously, DPU and growth, right? And across the world, platforms with track record of delivering DPU and growth on the yield front get valued as dividend plus growth, right? What is the total return? What is the distribution that is made by such platform plus the growth track record, right? With now such a long track record of performance, I think what is more relevant is distribution plus growth in terms of return parameters. It's almost tuck into an EPS to that extent, if one can think about it. It's like EPS plus EPS growth. Similarly in InvIT, it's DPU plus DPU growth, right, as a way of valuation. Because IRR per se is very, very floating, right, which assumption [Foreign Language] IRR numbers will vary so much, but it would make sense.

Sure. But is it not possible to share what the IRR is of, say, March 31, 2020, and when we close it, and you maybe give it I said INR 100 in every investor based on their purchase price can be as is IRR?

No. So we publish a valuer report, right? So our valuation report as on 31st of March 2021 has all the disclosures about the asset, the EBITDA, the revenue, the cost, everything is there, right? But what we don't forecast is interest assumption, leverage assumption, repayment assumptions, that is something which each investor will have to take a decision on, right, because we cannot guide on that. And therefore, we cannot guide on IRR. But you can construct the same model with a little bit of assumptions of your old site based on our guidance, right, to create what is the IRR in the platform. Because -- so there is enough material in the public hand for one to calculate IRR, but we cannot guide that what is the right IRR because then we are seeing what are the assumptions of it, right, which is not a management can guide on that.

No. No, fair enough, rightly so. Harsh, my last question. In the presentation, we have mentioned some onetime adjustment on account of changes low-income. So if you can just explain what is that and the quantum of this thing?

So this is about -- there is a onetime change in low-income that we received, which we had to also give it to Sterlite Power because we acquired this asset from Sterlite Power. So we received this income in our P&L and passed it on as an expense to Sterlite Power, which is a onetime, and therefore, it is a comparable quarterly annual financial gets distorted with that. The specific number is approximately INR 60 crore of onetime income that we have booked and a similar number of expense that we would have booked.

So the income that we booked is INR 42 crores, and the expenditure that we have booked is about INR 68 crores. So that is the one-off item that has been booked in this quarter.

The next question is from the line of Ravish Chandra, an Individual Investor.

Harsh, first thing is congratulations. I'm attending all the con call since '18. I remember you used to say that we'll reach INR 20,000 crores by 2023. It's excellent. You have done well within the planned or the scheduled time. Second thing is, I appreciate your inclusive team now like Satish for project management included, which indeed a lot of intangible benefit like, okay, for next asset acquisition, you have that capability of managing yourself. So I appreciate a few questions because, of course, InvIT requires 3 major, one is debt ratio or debt interest reduction; second one is managing -- getting more AUM into the place; and third one is operational management and all 3. Good job. Most of the questions answered, but I have one more doubt. This -- until today, we are king. We are only InvIT, but now we have a competitor. Harsh, you think that this competition, one more InvIT is in the place. So further acquisition going from INR 20,000 crores to INR 30,000 crores, will be a hurdle of competition in the AUM purchase rate.

Okay. So thanks a lot, Ravish. I think first question is about the competition and growth. See, we do not have special hard coded target that we have to reach a particular AUM number. And that's what allows us flexibility to choose the right asset at the right cost of capital. Second, on the other InvITs, et cetera, see the competition is not just on InvITs. Competition is from non-InvITs also, strategics also. So that remains -- I would say, remains the thing that we keep evaluating. However, we believe the focus of any PSU InvIT is going to remain on acquiring assets from its sponsor than really going out and acquiring assets from the market. That is something we believe is not the focus of public InvIT or a PSU InvITs. However, we cannot comment on the behalf, but to a similar InvIT in case of an auction with our track record with our governance and our agility, our ability to turn around is something which is typically valued highly for sellers. So we do not see it as an incremental competition, but doesn't mean there is no competition. There is already competition from other strategic owners of transmission assets, other financial platforms, so it is just continuing in that manner. We do not feel that there is an incremental competition because of an PSU InvIT. Rather, we feel that with more InvITs coming, there is going to be better liquidity, better understanding about InvITs in the market in general, and it's going to overall help everyone...

Seems like we lost the line for the current participant. We move to the next question from the line of Mohit Kumar from DAM Capital.

Sir, you spoke about a number of policy initiatives which you are waiting for. Can you list out the last few of them? I think if the last one you said the anomaly to capital gain, what is the referring to especially?

So this is referring to the point that on InvITs, listed InvITs, we pay on trading, there is a security transaction tax that gets levied and investor pay back. Typically, it is levied on the equity stocks and that's InvITs are trading on the equity index. So that is the right thing to do. However, when it comes to the long-term capital gains tax treatment, for InvITs, the period considered for long-term holding is 36 months, which is more akin to a debt fund than equities. So for InvITs, at the moment, there is worst of both that there is a security transaction tax like equity, but the holding period is like debt fund. So we have been proposing to the ministry and several regulatory bodies to streamline the anomaly. We believe it should trade at the equity level. We believe it should be -- STT should be leviable, but then 36 months should not be a holding period to compute long-term capital gains tax. It should be in line with the equity long-term tax statement, which is 12 months.

Understood. Are you expecting any other policy changes, which will -- over the next 12 to 14 -- over the next 12 months?

So I think our focus is just on enablement of PF capital also to debt securities. That's one, but I don't think it's kind of changing the game materially. And the second one is reduction of lot size, which is one big initiative that we are working on. This is -- another 2 ones that I can take off-line.

Sir, lastly, we have an asset with the Power Grid. Is there any chance or any talk with the Power Grid that to buy out the balance equity?

Sorry, can you repeat balance? Okay. Okay. The Parbati Koldam, you mean. Okay.

Yes, yes.

No, we haven't engaged on any such conversation yet, and it's anywhere, a very small amount, hardly about INR 75 crores odd. So it's a smaller number, but yes, we have not engaged in that.

I'm asking this because there's a large number of these kind of JV projects, which are there in the Power Grid. I think they are huge in numbers, maybe around 10% to 14%, if I'm not wrong. So that provides a potential opportunity for us to go and source the deals.

Possibly, but I think this is too early. We just acquired the asset. It's the first quarter of operations. It's a joint venture. So maybe we'll explore, but it is too early for us to say anything on that.

The next question -- we take the last question from the line of Rushabh Sharedalal from PR Share and Stock Brokers.

Just wanted to understand it on the return on -- return of capital, that is a component of our DPU. So you just said to one of the previous participants that if the FPV generates more cash than what it requires to pay to IndiGrid, then they pay that particular portion of distribution as return on capital to the -- subsequently to the unitholders. Apart from this particular situation, is there any other situation, in which IndiGrid pays any kind of distribution as return of capital? Because I remember that only in the second quarter of 2018 and once in 2019, we paid some INR 0.28, INR 0.12 as return on capital. And one more thing on this only, whether it has any impact on the net asset value of the trust?

Okay. So answering second question first, there is no impact on net asset value and how it's paying. And to answer the first one, I think there are few other cases in that scenario also, one can see return of capital or other capital repayment. For example, we acquired a company along with cash, right? So let's say, when -- on the date of the acquisition, company had INR 20 crores of cash. But that could not be upstreamed by the earlier seller or earlier owner because of whatever the capital structure or external lenders didn't allow or any other issues. So we acquired the company and then upstreamed this INR 20 crore of cash, right? So it's already factored in the valuation for the seller. But then we upstream this INR 20 crores of cash, which the SPV pays to IndiGrid the new order. In such case also, there can be a capital repayment, but there will be a one-off, right? But there can be such one-offs, but in most cases [Technical Difficulty] an interest.

Hello?

Hello.

Yes. I just lost you in between.

Yes. So in most cases, it will be more cash than interest. That's when it comes to capital repayment. One-off could be when we acquire a company along with cash.

Okay. So what exactly is the rationale behind giving this return of capital and not giving it for so many quarters and just giving it this time or twice in -- once in 2018 and '19. Was that the same rationale in those quarters as well?

Correct. Pretty much same rationale. It is not in our hands, right? It's not a decision-making that we do that this quarter, we want to pay distribution in terms of capital repayment. If SPVs have received more cash, then interest that it can pay, it will come in form of capital repayment. Or if we have acquired an asset with an in-built cash, so I believe the last time in 2018 was the case when we acquired Patran asset from Techno Electric, that already had INR 10 crores of cash, which we paid for. So that INR 10 crores of cash was upstreamed at that time, so upstream as an SPV paid to the IndiGrid as a principal repayment after acquisition. So these are the 2 cases, largely, it will pan out. And none of them are a BAU every quarter, it will happen, right? It depends on the quarterly cash flow and many such events that can happen.

The next question is from the line of Vipul Shah from Sumangal Investment.

Hearty congratulations for a very good set of numbers. My first question is, is there any precedent what will happen beyond this 30-year concession period globally? Means what will happen to the unitholders when the concession period ends? Is there any global precedence for this?

Okay. Sir, so just to correct, Vipulji, I think you're mixing 30 years, 35 years sales. So I try to explain both. One, at an asset level, there are 2 possibilities that can take place. One is that the asset contracts will be extended further because we believe electricity will be needed beyond 35 years. And the owners of the assets are us. It's not a concession, so there is no transfer. And we'll continue to get paid, and this will be continuing as planned. Second, in case there is no extension of contract, as in the early part of the slide, I explained, there is a significant chunk of metal, about 4 lakh tonnes of metal that is there in our portfolio today. Well, if the word doesn't shoot scrap, but even if you calculate the scrap value of that in today's term, in today's value terms, it will be a significant chunk of today's price, right? If we were to close the business today, there is a significant chunk of steel and aluminum in the company today, so whatever inflation numbers, you can assume that will be the value that will be scrapped in the business and paid to all the unitholders, right? That is the second scenario. Third one...

But which is the -- sorry to interrupt you, Mr. Harsh, but which is the more likely scenario? Means, globally, what has happened in other countries?

Okay. Okay. Okay. So globally, what happens is nobody scraps infrastructure that is built, right? And you have extension of contract. That's what happens reasonably.

So that is the most likely scenario.

That is the most likely scenario, right? That we believe that should happen. But again, at the end of the day, 30 years is a long time. We don't know in what contractual framework it will take place, right? But what we know is that the assets we have, they have a significant value. Whether we'll realize it in form of operating those assets and earning income or scrapping that metal and pay it, in either case, there is a significant value. Now we are not a decision-maker at that policy level at which direction should it go to. If you ask my personal view, a professional view, I believe infrastructure, which is built with so much difficulty, should be continued to operate because the incremental asset building is going to be far more expensive. For example, the assets that we have built right now 5 years ago, if they were to be built again now, they will cost at least 50% higher, right? So imagine the scenario 30 years ahead, if the government wants to build a new line. It's going to cost multiple times in the same line with a little bit of improvement and better tariffs, right? So that's how we think that it should take place. The last question that is the clarity on that is actually, before I describe that as an asset level, units are a growing concern. There is no end of unit land, right? Like an equity, it's an ownership right. It has no principal repayment. And after that, there the unit cease to exist. So like in equity, if some InvITs business ends, right, after 15 years, 5 years, 30 years, et cetera, and they are not growing, they're not buying more projects, et cetera, you can delist the InvITs also just like delisting units, equity shares, right? It is a complicated process, but the SEBI regulations does provide for it.

Okay. Okay. And lastly, again, I will return to the distribution of this quarter as one previous -- means, I didn't -- I understood the rationale for returning the capital, but I didn't understand the rationale for reducing this interest payment component. Means what I want to convey is, instead of this INR 3.2, it should have been INR 4.2 or something like that.

Correct. You're right. I think if the IndiGrid board would decide to give INR 4.2, they could have given INR 4.2. But we believe it's not prudent. We believe predictability has more value than suddenly, 1 quarter, we increase by INR 4, and next quarter, it goes to INR 2, right? So there is a business. In this business, there are seasonalities. In some quarter, there is great collection, but maybe in the next quarter, it will be lesser, right? So it's not that 126% will remain always 126%. That is not possible. So if in 1 quarter, it's 126%, that means there is some quarters somewhere where it'll be 64%, right, to average out 200%. So as a business, we need to be able to act prudent and in the quarter in which there is 126% collection, we should create a reserve out of 26% to ensure that the volatility can be met, right, in volatile month. That's the philosophy under which we are operating. And therefore, we keep this INR 170 crore as a reserve. And maybe next quarter, the collections are lesser than we use out of these reserves. So this is to ensure that the predictability of DPU remains. That's why we are focused on maintaining that.

Okay, sir. And -- okay, sir. And lastly, you said -- you made some payment to Sterlite Power into the tune of INR 68 crores and you received INR 42 crores. That is what I think your CFO said. So -- means can you explain it in a layman's language, what has happened?

Yes. Okay. Sure. So what has happened is what Jyoti explained is there's INR 43 crore income that has come in, which is on accrual. And there is INR 63 crores of cash -- INR 67 crores of cash that we have paid. The difference between the 2 is that the amount that we paid to Sterlite Power is 70% of the NPV of incremental tariff that we had received. INR 43 crore of the amount that we have booked in the revenue is the cash we have collected already in arrears. In any of these regulatory settlements, when the regulator issues the order, you get paid earlier starting from COD. In this case, it was 5 years ago. So we received INR 43 crore in cash, against which we have paid the same amount -- 70% of that cash. And the residual amount is the 70% of NPV of future tariffs will receive on account of this tariff order.

The next question is from the line of Jiten Rushi from Axis Capital.

Congratulations on good set of numbers. Sir, just a few questions from my side. So as you said, the project management will be done internally. So my understanding is correct, it will be done at the SPV level, sir?

Okay. So and not spill. We have intermediate holding companies also. We are going to make an entity called India Grid Limited One as a mother entity, which will do project manager for all SPVs.

Okay. So that will be -- so this will be with effect from FY '22, right sir?

That's correct.

Sir, there was a contract between us and the Sterlite, which has got expired, and this has resulted in creation of this entity, which will be during the O&M work?

No, no, sir. The entity was already created. We were anyways doing project management work internally for all assets which we acquired other than Sterlite. So like, for example, PrKTCL, JKPTL -- JKPTCL, all those assets we are doing project management on our own. Now the contract does not expire. We have bilaterally decided that we want to do our O&M on our own. And therefore, we are transitioning out. So it's not the contract that has expired. It is out of our choice that we have decided to do it on our own.

And what would the payment structure here like as a percentage of revenue? How it will work, sir?

So it is intercompany, in any case. So we'll continue to maintain a percentage of O&M cost to be paid to India Grid Limited One, but it's 100% subsidiary of India Grid Trust. So on a controlled basis, there is no external payment that is getting made.

And sir, on the KTL deal now, sir, when do you expect this one now because of the COVID, we understand there could be some extension of time. So what is the deadline now where we can see it finally getting consolidate?

So KTL is still an under construction asset. It has about 60% revenue generation that has started, but it's not completed yet. So tough to predict with the COVID uncertainties on when will it get completed, but we are watching it. As per our contract, it is valid till up to December '22, so that's kind of an outer date for us.

December '22?

Yes.

And sir, on the -- now on the acquisition side, the FRV, as I understand is the -- the SPA should get concluded next month, probably just in June only. And now with the COVID situation and there could be some assets, which can get digital because of the equity component. The original developer couldn't get -- cannot invest the equity into the system. However, the asset they have bid must have been of a good quality. So are we looking for any such kind of acquisition, wherein we have the ability to acquire such under construction asset. Obviously, it can be a limited portion of your AUM. Are we looking out for some acquisition like this?

Yes, certainly. We are looking for acquisitions like that. But in a limited way, I don't think there are many such projects, but we are looking for such acquisitions if it makes commercial sense.

Okay. So any new acquisitions expected this year? Or this will stick around with KTL and FRV?

Sorry?

Any new acquisitions are lined up like probably in some...

Okay. Yes. No, there may be new acquisitions, but that's not at a scale that we can certainly say it's happening this fiscal, that fiscal.

Okay. And sir, 1 last question. Just wanted to understand. So this return of capital will also have an impact on the cost -- it would be investor. Like so if I invest INR 100, I am getting INR 1 to be back. So my cost would probably come down to INR 99, if I understand correctly.

That's correct.

We take the next question from the line of Kiran Naik from Mody Fincap.

Let's go to the next one, please.

The next question is from the line of Manish -- Manoj Shah from Lacksgow Investment.

Just to understand, regarding this return of capital, as we were saying that if somebody has invested INR 100 and you gave him INR 1 as return of capital, so how for that investor, if it is retail investor, how it will get accounted for the tax purpose because dividend and interests are more or less taxable now in the marginal tax bracket. So how this will be different?

So this will be slightly different. And I kind of -- you should consult your tax adviser, but I'm just explaining at a conceptual level. This would be removed, as Jiten said on earlier question. If you have acquired a unit for INR 100, your cost of acquisition will become INR 99. So it will be a balance sheet adjustment. And as and when you decide to sell the unit, let's say, you sell at INR 140 today, then the profit or capital gains will be calculated based on selling price minus INR 99 versus selling price minus INR 100. So basically, this component will get impacted on the capital gains tax instead of a marginal tax. That's the way to look at it. But it will be taxed when you realize that gain as per the tax law, but that's the directional input. Just to clarify, the dividend is not on the marginal rate because this dividend is coming from the SPV, which is paying in the old tax regime.

Okay. So because earlier, if I understood, dividend was tax free in the hands of the investors interest of the equity shares, okay? Now it has become taxable.

No. Only if the company that issued a dividend is following the new tax regime. If the company is continuing to follow old tax regime, you still have a tax-free dividend for that company, subject to your dividend not exceeding INR 10 lakhs and other provisions around. So that's a different one. So it is to do with the choice of company in terms of old tax at or new tax regime. The company that we have acquired is following a old tax regime, and therefore, this dividend is given as a tax-free dividend from InvIT.

Okay. Just coming back to the return of capital. As you said, when the investor sell, it will be calculated as a capital gain. So it will be more like for a -- like a debt capital gain for that a 36-month period kind of -- that's how it has to be looked into it.

If you sell after 36 months, then it will be a long-term capital gains tax, whatever the rate is...

Like what -- like what we get in the sale of debt?

No, no, your capital gains treatment will be like equity, just the holding period is like debt, 36 months.

Okay. Fine. And because a lot of this regulations sustained, so it was getting a little bit difficult to understand, how come...

Yes, yes. These are a couple of issues and best to take advise of a tax adviser on this.

Yes. I can understand, maybe just for the layman understanding it is that can you think for a website, which can help a lot of retail investor?

No. We have a website where -- on a website, there is a tax query issue. You can probably refer to that also.

We take the next question from the line of Kiran Naik from Mody Fincap.

Sir, I have only 1 question. Are the company planning any more entities in the coming year?

See as we have said that we want to refinance some of our existing debt, including the maturities that is coming in FY '26, so we would certainly be doing a certain amount of capital raising for refinancing of debt. Size and tenure, et cetera, probably we can only talk about when we have done it.

Okay. It will be similar, which had came in March, April for retail investors also?

Not sure. Tough to comment on that because, see, there are long process to issue anything to do a public debt. We have just done one. So we would probably do a private placement for some more debt for some time.

As there are no further questions, I now hand the conference over to Mr. Swarnim Maheshwari for closing comments. Over to you, sir.

Yes. Thank, Steve. So thanks, everyone, for participating in the conference. Harsh, would you like to have any closing comments over here?

No. Thanks a lot for everyone, who has joined the call and continued -- it's a long call, but I think it deserves an annual -- annual call that deserve that much focus on query. So we are very helpful -- we are very thankful for all the investors to join the call and showcasing confidence, be it in rights issues or public debt issue that we have done to wholeheartedly subscribe that. We are committed to a vision and strategy that we have put together for unitholders of IndiGrid. And we will continue to execute that with 2 things in mind, which is a predictable DPU and consistent growth. With that, I would just sign off, and thank you.

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