Indigrid Infrastructure Trust (540565) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '22 Earnings Conference Call of India Grid Trust hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Subhadip Mitra from JM Financial. Thank you, and over to you, sir.

Thank you. Good afternoon, friends. On behalf of JM Financial, welcoming you all to the third quarter FY '22 earnings call for India Grid Trust. We are joined today by the senior management team led by Mr. Harsh Shah, Chief Executive Officer; Mr. Satish Talmale, Chief Operating Officer; Mr. Jyoti Agarwal, Chief Financial Officer; and Ms. Meghana Pandit, Chief Investment Officer. I would now request Harsh to begin with his opening comments followed by the Q&A session. Over to you, Harsh.

Thank you. Thank you for having us, and thank you, everyone, for joining our quarterly call. I'll take through the presentation as that is available on the exchanges mutual presentation, and I'll have my colleagues, Jyoti, Meghana and others to talk about certain parts of the business, and we will go for the question-answer session after that. To start with, I have got the few, our vision is created and vision remains to become the most admired yield recognition. And we believe we can achieve that if we have focused on the below 4 pillars, [Technical Difficulty] with long-term contract in low operating risk. Value operating growth, neatly operating acquisitions and creating future growth pipeline, editable distribution, which we are adding to open the quarterly consistencies provider distributions. And off table trapping structure, consolidated leverage staff and we'll keep in the platform well above. Next is on Slide #5, just a snapshot of what we are. We are India's first power transmission yield platform. We're also one of the largest power plant -- steel platform in India. We have about [ INR 21,000 crores ] assets across most states in India, about 3,500 kilometers, 4,500 in the subscription capacity. Our projects are secured in nature, and we have a residual contract right on about 3 years in terms of recurring revenue. Going forward, the next update on the quarter 3 FY '22 performance. I think the first thing I talk about is the sector front. And then we discussed it earlier, but power sector is becoming exciting, I would say, by the [ DNA ] with the developments that are panning in India as well as across the world. And one thing [Technical Difficulty] bucket to bucket technological reflections that are happening, shifting of demand patterns and regulatory dynamism. To talk about how the demand patterns are shifting, I think we have been listening to you and following how the people wants and has been growing on a consistent basis in the country. And much beyond that as well, we see that government narrative has changed. In the past 5 years ago, we'd have heard about providing electricity or making electricity reach rural India. But with the current programs that have been effecting over the last 5, 7 years, but whereas the move towards the larger electricity as a focus, because as such electricity has reached extension part of the country, like reliable electricity has become the focus. But that feel is that we are going to see more and more consumption growth happening in the sector. Beyond that if we see 6 or 10 years then GV is certainly a real changer, especially for a country like India, which improves its fuel essentially and have a geopolitical implication of new important payment. If India can make a transition to an easy economy, we believe the consumption is going from substantially higher than what we have looked it right now and on doing occur. Certainly, the challenge is too early, but if one takes 10 years ago, we believe when we came to 15 years ago. And therefore, we are positive about the growth in the sector in terms of just electricity consumption. The second part of it is technology infrastructure, which is to do with reduction in cost of enable energy and service sectors. And why is that important is, because the variable cost remains to be minimal for these energy when if the CapEx costs have reduced, which it has, we see tremendous amount of benefit to the country. And as we know, we are one of the largest in the world in terms of incremental intact capacity with respect to so. And we believe that this increase is to grow and further cost would support and in fact, I would become a self-service in the U.S. And the last one is about the regulatory dynamism and one can also do a transmission because eventually what we view is a G&A, which was generally at the tax rate, which is the case that announced recently. We believe that is something which will enable the country to hasten, the cheapest part and which is the location, which would require remained amount of investment in transition. Second is relicensing of distribution. I think while it's not been a huge success in terms of execution, that is directionally the plans, the policy has been moving in the right direction to resolve the customer side issues with respect to payment, which is the core of the challenge to the sector. We believe that these 3 things moving in tandem, we are looking at a record repayment growth in the sector. And with the involvement of technology and new age investments, we are really hoping that it is not going to remain industrial sector as we move some of the technology. Coming to our quarterly results, our quarter results have been reversed, and the highlights have been grew by 33% year-on-year. And EP increased 3% year-on-year last at 3.1%. Now we distributed 2.19% time as on date. Quarterly collection, where we have and we connected 103% in quarter 3 FY 2022, which is in line with general using collection selection trends. One more important update is that KKR entity has acquired 26% residual stake in Individual Investment Management Limited from power, which means that KKR owns 100% of the investment manager and also in response of select power on digital fares and indeed as well as adjustment of the [indiscernible]. Coming to the next highlight of the businesses, we are maintaining our well capital balance sheet net debt to EBITDA remain at about 56% versus the cap of 7%. I said we believe we are sufficient to do to the acquired asset as and when they are available. And we will continue to maintain a capital balance procedure and the uncertainty of volatility and can in the [Technical Difficulty]

Sorry to interrupt you, Mr. Shah. May I request you to please speak a little louder, sir?

Sure. Okay. Thank you. Coming to the third part of the same, which is resilient asset management, which has meant our focus at the beginning, average at 29.5% for this quarter, which is lower than the maxim availability. However, in this quarter, we take a more liability-related account, and that is where availability really down. However, on the year-to-date basis, we are doing as per plan and defer on timing that [ incident ]. In asset management [indiscernible] we spoke about a few quarters now, where we are implementing this IBM. We have implicated across 8 STVs and balance we are expecting by this fiscal end, which we would move to a digital way of asset management by the end of this financial year. We acquired ERS statement to restriction system this year. And we have deployed it across different parts of the country as well as trained our team members to be able to restore the lines in case any uncolored insurance. With respect to our CSR projects across the portfolio, we are following the teams of commuting education, health care, real development projects and also in a lead way as initiatives. Last one is a strategic decision that we took in the last quarter where we won a first TBCB win to evacuate power from Ari projects in Maharashtra on a new basis. It's about INR 15.7 crores of levelized tariff at repeatedly small. And however, it just allows us to exhibit our execution capability and create an organic growth pipeline for the platform. We believe that such organic growth opportunity by NBCF and reserves plus using our capacity. We'd be able to create compounding of 10% of additional cash flow available by channeling this towards the development side of the business. We intend to keep it limited in size. However, we intend to grow this eventually to ensure that we create an organic item. On the next part of the presentation is about the operational highlights of the quarter. I would like to invite Satish Talmale, Chief Operating Officer of IndiGrid to take to win that trend.

Thanks, Harsh. So I would like to share the operating performance for the quarter. So on availability performance, we achieved 99.53%. Again, this is a consistent performance quarter-over-quarter. And then we will always have an effort to improve it better. But as Harsh has rightly said, we planned a couple of scheduled outages to take care of a few annual shutdown activities for the -- in this quarter. On reliability, again, in the last previous quarter, you might have noticed that the indicator was same at 0.10, which means how many number of trips happened across the portfolio. So we are consistently maintaining -- so it looks like they are stabilizing here, and again, efforts will be put to improve it at next level. But this is the best-in-class record reliability index what we are monitoring for the asset. Digital Asset Management Platform, it has gone live for 8 assets and seamlessly got implemented for these 8 assets. And by end of March, I think we are going to complete all the assets and the portfolio to manage all our day-to-day operating activities in a digital manner. Emergency prepayments, ERS has been already inducted and teams have been trained to take care of any surge emergency event. So now there is a huge amount of confidence in case any force majeure kind of events happen, will be able to restore the system as per -- within the time limits as adviser regulation. On HSE, again, as a culture of a very proactive reporting and closure of timely answers at time conditions have been continued, we had very minor 2 injuries in the portfolio in Q3 and those are being mitigated quickly and a lot of character actions and rent interactions have been planned around that. But the focus on 0 is being continued. Just a quick bite on COVID, as we all know, in Q3, we had a lot of stringent restrictions in the way the operations has to be carried out with respect to the number of people. A lot of outages were planned, but all the outages were carried out very safely without any much larger COVID impact. All the business continuity like subscription operations which happens 24/7 continued, and there was not any impact on COVID issues. In the last, I think, we do have 100-megawatt solar power plant, so that has also delivered the generation, as not expected because of a bit of cloud cover and local events in that area. But I'm very hopeful that we will catch up in the coming quarter on the solar performance. That's it, Harsh, back to you.

Thank you, Satish, and we'll go for the financial performance, Jyoti Agarwal, please take us through that.

Thanks, Harsh. I'll take you through the financial performance for the quarter. So in this quarter, we clocked revenues of about INR 571 crores and EBITDA of about INR 518 crores. So these were a healthy 32% higher compared to corresponding quarter of the last year on the back of acquisitions that happened during the intervening period. We also generated an NDCF of about INR 259 crores, which was 17% higher on a year-on-year basis. And as already mentioned by Harsh, we are in line with our guided DPU of 3.1875 and the Board has declared that for the quarter, which is higher than the corresponding quarter of last year by 3%. If you take a slightly longer-term trend of the last 4 and 5 years, then we do demonstrate a very healthy revenue as well as EBITDA growth of more than 50% over that period. This is largely on account of very value-accretive acquisitions that we have done over this period, and this trend hopefully will continue going forward. The collection trend for the quarter has also been in line with expectation. Collections are at 103%. And while this is slightly lesser than the corresponding quarter of last year, [Technical Difficulty] basis the collections are very much in line with what happened in FY '21. Our DSO days are actually better than last year at 54 days this year compared to 70 days in the corresponding period of the last year. I'll move to the distribution update. As already mentioned, the Board has declared a distribution of 3.1875, which is in line with our DPU guidance for FY '22 of 12.75 per unit for the year. The breakup of this distribution is it comprises of INR 2.52 as capital repayment. The record date for this distribution will be February 2, and the tentative time line for distribution will be around the 11th of February. The NAV for the quarter is a little bit higher than INR 132, at INR 132.53. Including this quarter's distribution, IndiGrid has distributed in excess of INR 55 a unit, amounting to more than INR 2,700 crores of money to the investors since listing. And based on current visibility, we should be in line for our quarterly DPU run rate in line with our 3% or 4% year-on-year growth. I'll move forward to the bridge between EBITDA and NDCF. So we did an EBITDA this quarter of about INR 520 crores. Adjusted for the finance cost at the SPV level, marginal debt repayment, some working capital movement and CapEx and tax, this translated to an NDCF at the SPV level for an amount of about [ INR 400 crores ]. Adjusting this for the expenses at IGT finance cost and tax, the gross NDCF generated, which is available for distribution in this quarter, at the trust level is INR 259 crores. And we are distributing INR 223.2 crores as guided for this particular quarter, leaving a reserve of about INR 35.4 crores to be added to the existing NDCF reserve. Post this addition, our NDCF reserve would stand at about INR 152 crores. And given that there's 1 quarter remaining, we are well in line to meet, if not exceed, the reserve amount that we started the year, which you might remember, we started the year with a reserve of about INR 170 crores. We're already at INR 152 with 1 quarter to go. So we should, based on current visibility exceed the opening reserve at the end of this financial year. Move to the next slide, which talks about our balance sheet composition. I mean we do have a very robust balance sheet, AAA rated, well-diversified debt book between the capital market as well as the loans. And each of these constituents well diversified between the various players. 76% of our borrowings are fixed rate. So we're sort of very much immune to any interest rate risks that might be there out in the market. The marginal cost of debt for us in this quarter was 7%, and this is well below the average cost of debt of 7.81% at the end of the quarter. And given the marginal cost continues to be lower than the average cost, there is sufficient headroom to see a further declining average cost curve for the coming few quarters. If you look at the repayment profile, we've been able to extend the repayment profile quite a lot as well as even it out, and it's well within INR 1,500 crores for each of the years, other than FY '23, which is higher for legacy reasons. But here, again, out of the INR 2,400 crores which is coming for repayment, we've been able to tie up already through an advanced loan facility, almost INR 650 crores, almost 45% is already tied up at very attractive rates. And for the balance, we are at very proactive as well as advanced discussions with a variety of lenders, both in capital markets as well as in the loans, and see no challenge to be able to refinance this particular amount at rates which would be sufficiently lower -- significantly lower than the legacy rate at which these loans have been carried. Now I'll hand it over to Meghana to take through the next part of the presentation.

Sure. Thanks, Jyoti. I'm on Slide #14, culmination of all our efforts in terms of acquisitions and robust asset management. We can see we've been delivering consistently to figure risk-adjusted total returns. Our total returns here comprised of distribution, that is already INR 55 per unit over the last 19 quarters, and the price change of about 58%, which leads to a total return of 114% since the time been listed in June 2017. On an annualized basis, it translates to 18%. This as we compare with pure debt instruments of GSEC bond 10-year as well as 30-year, you can see, IndiGrid has outperformed. And at the same time, if you compare it with pure equity portfolios like NSE, Infra Index, BS Utilities, or even individual stocks within transmission sector, you can see that IndiGrid has significantly outperformed. An important metric to also look at is the EBITDA, which provides -- what is the volatility that the stock has in the market. And you can see that integrated EBITDA is amongst the lowest, 0.05, which translates into a very significantly superior risk-adjusted return for the investors. Moving ahead, as we look to FY '22, the last quarter, our pillars of focusing on portfolio growth continues. We are seeing significant pipeline getting added with respect to the bids, which are coming up, already INR 400 billion worth of tenders have been notified by CEA. In addition, all of us are aware about the national monetization pipeline, which talks of are almost around INR 450 billion worth of transmission assets likely to be monetized. In addition to that, on the Kallam Transmission Limited, which is the recently greenfield asset that we acquired, we are focusing on timely execution over the next 15 to 18 months. The last of the framework assets, Khargone Transmission Limited, has also achieved COD in December. So we are looking to acquire that project as well from Sterlite Power in addition to other operational solar and transition assets. Jyoti already mentioned, we are very much looking to cover the DPU guidance of INR 12.75 for FY '22, excluding the fourth quarter. On the balance sheet part, the refinancing opportunities in FY '23 and otherwise, we are proactively looking to elongate tenures as well as reduce the interest cost and are comfortably placed there, in addition to maintaining adequate liquidity measures included. On asset management side, our focus on maintaining more than 99.5% availability continues to be there with focusing on certain self-reliant O&M practices. Digital, we've already spread across 8 assets, we are looking to cover that across all our portfolio by end of this fiscal and at the same time ensuring world-class EHS and ESG practices. On the policy advocacy front, we've seen reduction in lot side. We have seen expansion of our debt sources. In addition to that, we are now also working on certain policy initiatives to remove the tax annually between equity and index in terms of holding periods for capital gains or also including InvITs and REITS as part of various investments. So we are working with the exchanges and SEBI on that matter. All in all, essentially, our focus remains on providing superior total returns, and at the same time, maintain the sustainable growth in DPU without losing focus on operations, firstly. With that, we close the presentation, and I think I will hand -- to open for question-and-answer session, please.

[Operator Instructions] The first question is from the line of Swarnim Maheshwari from Edelweiss.

Congratulations for a decent performance. My first question is for Jyoti. So Jyoti, if you see there has been a very sharp spike in the same with GSEC and then interest rates are likely to go up. So I mean do we still expect our blended cost of debt to come down from current 7.9%? Or do we expect some sort of reversal over the next quarters?

Yes. So good question, Swarnim. You're right, I think the interest rate environment is towards the hardening side. But given that there is a sufficient headroom available in terms of our marginal cost of debt being significantly lower than the average cost, we still feel that we will have headroom to lower our average cost of debt over the next 2 or 3 quarters. You must also remember that the debt which is coming for refinancing is not at the average cost, but at significantly higher rate because they were locked in at a time and interest rates are in a very different trajectory. So if you look at the net delta, the rate that we are refinancing of the existing rate at which the debt is getting refinanced versus the new rate at which we are borrowing, there's a significant delta. Just to give you an example, there is a INR 1,400 crore NCD facility due in June this year, which was locked in at 9.1%. It's all public news, right? Our marginal cost this quarter is at 7%. So even if you, let's say, see a little bit of headwind, it goes up by a few basis points, still there is significant room to continue to sort of optimize on the average cost of debt. So to answer your question, we would have been able to do a much lower rate of financing if the interest rate environment was more benign. But nevertheless, even with a slightly more adverse environment, there is sufficient headroom to continue to reduce our average cost of borrowing over the next 3 or 4 quarters.

Got it. Got it. No, that's clear. Secondly, we have already folded into the acquisition -- sorry, we are already following into the greenfield transmission assets now. So what is really the benchmark for us that we would be targeting what should be the percentage of AUM for this under construction assets as a percentage of the overall? I mean, do we have any kind of benchmark? So as like, can this be about 5% of the overall AUM under construction?

Yes. So Swarnim, Harsh here. So I think we are looking at it as I would say, a strategic part. We have something in mind at this point in time. As you already know, SEBI has taken a cap of 10%, that is going to be a maximum percentage that we can reach it at a point in time. However, I think our plan is to focus on 2 principles, right? One is that there are certain projects that we like because of the risk return for that project. So certain risks are lesser, and we feel they are adjustable to us. And if the returns are interesting, we will go for that. Now it means that there is a very good opportunity which allows us to lower this projects at a better return, yes, we may reach 5% or even cross 5%. But on the other hand, if we see that there are no such opportunity available, we'll remain at 1% of the aggregate. So even 5% is the sizable number for us today, 5% would be around INR 300 crores of overall development AUM. So at this point in time, we do have a goal to reach it. We are looking at it incrementally. If we find opportunities which are interesting. We will go for it. And if we think it is worth pursuing, we'll not go for it. Again, retaining at low percentage. So we are looking at it in an opportunistic manner but also strategic. We want to develop our assets to improve the capability that we can do it, right? And that's how the first half is done. But opportunistically our only assets which makes sense to us is that the REIT.

Right, Harsh. And then one just last question. So when we had acquired FRV, the valuation framework was very different. And I think over the last 12 months or so, the valuation framework for renewables have changed. So do you see that any kind of acquisitions at the current valuations that the renewables are, that would be value accretive for us? And are we still searching aggressively for renewable assets? .

So I'll just address the last part. We are never setting aggressively for business. We are not an aggressive company. We are not an aggressive entity. I think our focus is to be the right capital allocation and play the capital cycle in an efficient way with the right vision. We were never searching aggressively for assets. And so, I think your assessment is right. In renewable space, especially in solar, our view is that the valuations at which sector transactions are happening are, I would say, expensive and we keep looking at assets, but if the valuation go start up, we are happy to walk away. For example, I mean, 2 years ago, we decided we will do solar, we acquired FRV a year before. And since then we have not found valuations to be attractive. And we are more specific, right? If you don't find the assets in the right value as we said for development, we are still not acquiring, because we don't have -- we do not have a rigid policy number on a particular [Technical Difficulty]. And I don't think it is prudent to do accept. And if you see on the borrowing side, we have diversified, and that means we want to maintain a healthy mix between capital market instruments, which provide long-term fixed rates and banks, which has a restriction of, I would say, fixing rates for a longer period of time. But on the other hand, they give capital available for a really long period of time, like 15 years, 17 years. So we take a balance between the 2. And then today also, I would presume we are about 75% -- 76% fixed rate borrowings, which is sizable and 26% is borrowing, which is largely from banks, which is really a long-term capital and substantial capital as of today. So there is always a lag between the interest to moving down with respect to bank cost of borrowing. We believe that 25% topic is a healthy mix because see this, when you say floating, doesn't mean it is short term. It was a long-term capital at a floating rate. And there is a primum value in having long-term capital even if it integrate, because that ensures that you are less prone to shocks in the capital market because capital markets the way the debtors in India, you can see for a quarter sometimes expensive on to mixes in shocks and difficult fine. Whereas on the bank side, is a far deeper and stable market. So it is a healthy balance that we maintain. And our focus is more on maintaining balance at the balance sheet level for risk management other than optimizing fast for a particular type of loan.

[Operator Instructions] The next question is from the line of Subhadip Mitra from JM Financial.

Harsh, I had a question with regarding to the TBCB landscape. So we keep hearing about a new surge in TBCB related ordering that is going to happen. And we hear of TBCB pipeline being as high as INR 24,000 crores in the current year. Just wanted to understand your perspective of how you see this resurgence in transmission CapEx? And do you see this kind of trajectory continuing for 2 to 3 years?

Sure. So I think my outlook is that the transmission market, again, it's not a year-on-year market. In every 3 years, what happens in 1 year, there is a peak ordering of INR 50,000 crores, other years there is a gap. And certainly, we're in the midyear of INR 20,000, INR 25,000 crores. So I think it works in -- it doesn't work in a linear fashion opportunity. So one needs to take a 2- to 4-year outlook of this. I think current year is great because, I mean, as you rightly put, there is INR 20,000 crore, INR 24,000 crores of tender that we clearly see, which is I won't say a phenomenal year but a decent year in terms of pipeline for a number of payments that are there. And I think even for FY '24 and FY '25, I think this momentum will continue. I don't know, suddenly, if there is a INR 50,000 crore plan or not. But this momentum will surely continue -- and the directional inputs that we see is that Minister Power has incrementally reducing the layers which were delaying some of the bids to come out, right? So there were 2 layers at NCT earlier. Now there is just one layer of committee and all that. So that will take the process faster. In addition to that, G&A dropout -- G&A has to become precent. The ministry wants to make P&L success, which clearly they want to. G&A can only succeed if there is more investment in transmission, because there's no other way. G&A is like just to have more transmission so that we can evacuate power more efficiently. So clearly, at the policy level, the direction is to make G&A work, which is the right position. And to make G&A work, there will be investment in transmission which will be required. And I think all the power sector planners understand that very well. And therefore, maybe for 1 year, there can be a lag that bureaucracy and in the pipeline will take time. I mean, but it will catch up in the next year. So eventually, if you take a 3 year of it, and a pretty optimistic of the number that will come out to be. And in addition to that, for payer-like Individual, we also are looking actively at the state monetization routes. So we are seeing after MMP tremendous amount of entities powers to state to look at monetizing the state transformation assets as well, which, to be honest, with a very, very large market. However, we don't know when that will come out specifically. However, the interest, the committees are formed, CAA is looking into it. There has been a lot of debates and discussions with private sector guys as well. So the intent is in the right place. And if the intent is right, I don't see why she's there, don't be a person like auction that happens in distribution, in transmission as well. So we are pretty optimistic on that part, which will come in large chunks. So for us, we have a wider set of target businesses as well to look at.

This is really helpful. Lastly also, we hear of PGCIL coming to the market to also offload their TBCB projects. I think the number that they're counting is every year you look INR 10,000 crores to INR 15,000 crores. Can that also potentially be a market for us?

Sorry, can you repeat that?

What I meant is Power Grid's TBCB assets has been matured, they are also looking at offloading those into an InvITs platform. And as I understand that PG InvITS doesn't have a offer. So is that a potential market that you can look at?

Certainly. We will be looking at that, and I hope that government of India runs a transfer in bidding process as it should be run. Because at the end of the day, Power Grid is owned by taxpayers money. And for government-owned assets, it is important that our international transparent bidding process is run. And if the transparent international bidding process is run, we would be very active and happy to compete for this asset.

The next question is from the line of Kayur Asher from PNB MetLife.

Congratulations Harsh and team for a good set of numbers. I have a couple of questions. So just on the foray into greenfield solar, if you could talk about our internal capabilities in executing this. And what kind of IRRs are we looking at in this particular segment?

So internal capabilities -- question is huge. We have a substantial amount of capability in terms. We have monetization talks within the leadership team. Many of us are the people who built some of the assets that we have acquired from Sterlite as well. And also many of us are also people who build the assets and we're continuing to do O&M at an operating level. So we have teams which have built thousands of kilometers of lines, design them, build them on their own, et cetera, in their earlier roles. So in terms of people capability, we have substantial amount of capabilities in-house to develop assets. We also have a separate vertical within the company to ensure that our basic O&M practices are not or other one's function is not mixed with the construction team. So that's the second development teams that are made in the company. So we have sufficient capacities on the front of development side of the business. On the IRRs, I think we look anywhere -- as you said, we are giving specific numbers, but we look at least a couple of hundred bps higher than operating projects IRR in -- on development stage. But again, it depends. If it is a risky project, we would like to do higher return project, but we don't plan to do risky project and integrate to about 2,500 bps higher than -- up to -- that is something that we look at.

Sure. That's really helpful. And secondly, on the availability performance this quarter, specifically on the outages seen in one of the assets, that is EMEA, can you help us understand the impact of this on the financials? So I understand there are penalties involved for -- the ability goes below 98%. So some light on that.

Sure. So there is actually not material impact on the financials on account of this, because the incentives are on a cumulative basis typically. And while we are presenting a quarter 3 number, at the end of the day we are in the allocation business and capital cycle will turn around, and we have seen part of that playing out in the monetary cycle and the cost of interest factor as well. So eventually, we see that it is talking -- able to take a 5-year view. And fortunately, as team as well as the stable business that we have in transmission, we are not in a hurry, and we can take a 5-year view and say, let's wait for a year, and that will be prolonged, consolidation is part and we will remain intact assets which are available at the better size and we can do it. But I think -- but to address the question, yes, accessories are impacted potentially and we haven't seen something interesting that -- and that's the reason we have not acquired anything.

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

Congratulations for another steady quarter. So first question is for your DPU growth as such, one of the levers is the reduction in the cost of fund. But in the absence of that, given the commentary on solar assets anyways there, you may not find any interesting assets for a while. And somewhat slower execution in terms of the newer sort of greenfield project because that is front which can -- we have just started it and project allocation would be lower. So where -- do you see any other lever for DPU growth going forward apart from this, because it looks like at a moment where we cannot increase that even much. So that is question number one. Second is more of a long-term question. Have you done any analysis on, let's say, EVR option in India rises to a particular level, let's say, 30% or 40%? And in that case, what kind of electricity demand and hence, what kind of additional transmission capacity will be required? And do you see any action on the ground towards that which may help us being larger? Do you see any additional investments being made to come up to that? I mean, first of all, one needs to understand at the delta itself because of EV adoption is going to be large. So that's the first part of that question. And secondly, do you see anything related to that on the norm?

Sure. Cool. So I'll take your first question first. I think the way we are distributing approximately 12 -- rather, we are distributing INR 12.75 a unit, which comes to around INR 892 crores of -- INR 900 crores of NDCF on year-on-year basis. A 3% growth in that is what we are looking for and what we have done in the past is about INR 30-odd crores of NDCF growth, right? If you look at our YTD NDCF, we are substantially higher than the INR 3.2 growth that we are promising, and that's one of the reasons that our reserve itself today is about INR 150-odd crores. And if we continue with this run rate and correction, reserve will be substantially higher at the end of the financial year. So this enables us to -- or rather, let me reverse it, we can increase DPU this year itself, if we wish to do. It's just based on the current assets. We are not dependent on new assets necessarily to increase the DPU. I mean these assets that we have already is sufficient to provide for DPU growth. So we don't need to worry about business that what if you don't acquire new assets this year, how will the DPU growth take place. And that is the whole strategy from IndiGrid side, that we do not look at the business in a 1-year horizon, we look at the business more longer horizon. It enables us to take long-term decisions. For example, as I said, if the assets are not interesting, we don't buy assets for 1 year, we still have a sizable DPU that we have earned over the last few years and provide DPU still based on the numbers that we have within. So the cycle is on the ongoing infrastructure. And one should look at every year acquisitions to result in every year DPU, but look at whatever we acquired at the right time provides DPU growth for a significant period of time. So that's one. Second, as Jyoti answered, our marginal cost of borrowing is still substantially lower than our average cost of borrowing. And if you look at our FY '23, there is about INR 2,400 crores of refinancing taking place in FY '23, which is at least 150 basis points more expensive than that incremental cost of borrowing, right? So even if we were to execute just the INR 2,400 crore refinancing, that is result into a 3%, 4% of DPU growth here and now for a [ FY '20, ] right, theoretically. In addition, we are insulated from interest rate increase to some extent because our FY '24, '25, '26 repayments are substantially lower, as you can see. So even if the interest cost was to go up from here, we are still talking about less than 10% of our cost of borrowing going on year-on-year, right. So we have a balance sheet, which is interest rate resilient today, even if the cost was to go up in, let's say, 3 year's time frame, any year, year-on-year. And we have a shorter-term opportunity to refinance INR 2,400 crores, which is going to result into a substantial NDCF operation. So your hypothesis that interest rates are going up, that will result into lack of NDCF is incorrect, because we are on the other side of the curve. That DPU growth itself might happen from interest rate reduction, because the interest rates that we are refinancing are higher cost capital structure and we are getting into a much lower cost in relation to that. And the third is we still have substantial headroom for acquisition, right? So we are today at 56%. And if we want to go to 70%, we can still acquire assets worth INR 5,000 crores, INR 6,000 crores at a substantially cheaper incremental cost of capital, which will give us a sizable growth. Now at what IRR do we acquire, what are the assets is the decision that we make depending on type of assets and what is available. But as I said, we are not dependent on a particular asset to acquire or something to happen to provide DPU growth. As we have sufficient reserves based on the current assets, which creates a decent capacity for the right time. In addition to that, we clearly see the next INR 2,400 crore yielding NDCF bump because we are refinancing higher cost debt with a substantially cheaper cost of debt. So we are kind of conveniently placed on that. On the second question on EV, I think I don't have -- we have not done any studies. But see, it is a vision, to be honest. Directionally, we don't know how much EV adoption will happen. The key driver remains the cost of vehicles coming down, right? And that has nothing to do with electricity. Electricity costs are substantially cheaper to make it viable. But the cost of battery and cost of vehicles coming down in manufacturing place and while the government push is remaining -- I mean, when the government push is there, we need to wait and watch if cost of vehicles come down materially to reach a 35% penetration. But let's say -- I mean, 35% is phenomenal. If we were to reach 30%, 40% penetration -- imagine that 20%, 30% oil and gas sector getting added to electricity sector in terms of value, right? So that is the size we are talking. And if that much of size is getting transferred to electricity sector, then about 10% of that investment has come from transmission more or less, right? So that is a very high-level rule of thumb one can look at. But we haven't done a specific study around that. And we feel it will take at least 5 years, if not 10, to really reach that 30%, 40% penetration.

Understood. Just one more follow-up. So I think the percentage of our borrowings, which is coming through fixed rate that, has that been become lower than what it was a couple of years back? And is there any policy or a rule at the Board level that we have not come below a certain number because our revenues are fixed, so how do you manage that risk? And has that number come down?

Yes. So I think -- see, we do not have a rigid policy number on a particular opportunity over there. And I don't think it is prudent to have. And if you see on the modeling side, we are well diversified and that means we want to maintain a healthy mix between capital market instruments which provide long-term fixed rates, and banks which has a restriction of, I would say, fixing rates for a longer period of time. But on the other hand, they have capital available for a really long period of time, like 16 years, 17 years. So we strike a balance between the 2. And today, also, I would presume we are about 75% -- yes, 76% fixed rate borrowings which is sizable, and 25% is [ POP-based ] borrowing, which is largely from banks, which is really a long-term capital and substantial super capital as of today. So there is always a lag between the interest rates are moving up or moving down with respect to bank cost borrowing. And we believe that 25% floating rate is a healthy mix. Because see, this -- when we say floating, it doesn't mean it is short term, it was a long-term capital at a floating rate. And there is a tremendous value in having long-term capital even if it's floating rate because that ensures that you are less prone to shocks in the capital market. Because capital markets, the way the debt in India, you can fail for a quarter or 2, sometimes a substantial amount of mix, if the trends and shocks in difficult time. Whereas on the bank side, there's a far deeper and stable market. So it is a healthy balance that we maintain. And our focus is more on maintaining a balance at a balance sheet level for risk management rather than optimizing cost for a particular type of loan.

[Operator Instructions] The next question is from the line of Subhadip Mitra from JM Financial.

Harsh, I had a question with regarding to the TBCB landscape. So we keep hearing about a new surge in TBCB-related ordering that is going to happen. And we hear of TBCB pipeline being as high as INR 24,000 crores in the current year. Just wanted to understand your perspective of how you see this resurgence in transmission CapEx? And do you see this kind of trajectory continuing for 2 to 3 years?

Sure. So I think my outlook is that the transmission market, again, it's not a year-on-year market. In every 3 years, what happens in 1 year, there is a peak ordering of INR 50,000 crores. Other years, there is a gap. And suddenly, there's a midyear of INR 20,000 crores, INR 25,000 crores. So I think it works in enough. It doesn't work in a linear fashion unfortunately. So one needs to take a 2- to 4-year outlook of this. I think current year is great because -- I mean, as you rightly put, there is INR 20,000 crore, INR 24,000 crores of tender that we clearly see, which is I won't say a phenomenal year but a decent year in terms of pipeline for a number of payments that are there. And I think even for FY '24 and FY '25, I think this momentum will continue. I don't know, suddenly, if there is a INR 50,000 crore plan or not, but this momentum will surely continue. And the directional inputs that we see is that Ministry of Power is incrementally reducing the layers which were delaying some of the bids to come out, right? So there were 2 layers at NCD earlier. Now there is just one layer of committee and all that. So that should take the process faster. In addition to that, [ G&A ] graph is out. And if G&A wants become a success, right -- it is with the Ministry wants to make G&A a success, which clearly they want to. G&A can only succeed if there is more investment in transmission because there's no other way. G&A is like this, too, have more transmission so that we can evacuate power more efficiently. So clearly, at the policy level, the direction is to make G&A work, which is the right decision. And to make G&A work, there will be investment in transmission which will be required. And I think all the power sector planners understand that very well. And therefore, maybe for a 1 year, there can be a lag that bureaucracy and tender pipeline may take time to come in, but it will catch up in the next year. So eventually, if you take a 3-year overview, I'm pretty optimistic of the number of bids that will come out today. In addition to that, for player like IndiGrid, we also are looking actively at the state monetization routes. So we are seeing up for NMP, tremendous amount of emphasis from the Ministry of Power to state to look at monetizing the state transformation assets as well, which, to be honest, is a very, very large market. However, we don't know when that will come out specifically. However, the interest, the committees are formed, seniors looking into it. There has been a lot of debates and discussions with private sector guys as well. So the intent is in the right place. And if the intent is in the right place, I don't see why should there not be an Odisha like auction that happened in distribution in transmission as well. So we are pretty optimistic on that part, which will come in large chunks. So for us, we have a wider set of target businesses as well to look at.

Fine, sir. This is really helpful. Lastly also, we hear of PGCIL coming to the market to also offload their TBCB projects. I think the number that they're counting is every year you look 10,000 crores to 15,000 crores. Can that also potentially be a market for us?

Sorry, can you repeat that?

What I meant is Power Grid's TBCB assets has been matured, they are also looking at offloading those into an InvIT platform. And as I understand that PG anyway doesn't have -- so is that a potential market that you can look at?

Certainly, we would be looking at that and I hope that Government of India runs a transparent bidding process as it should be run. Because at the end of the day, Power Grid is owned by taxpayers money. And for government-owned assets, it is important that our international transparent bidding process is run. And if the transparent international bidding process is run, we would be very active and happy to compete for this asset.

The next question is from the line of Kayur Asher from PNB MetLife.

Congratulations Harsh and team for a good set of numbers. So I have a couple of questions. So just on the foray into greenfield solar, if you could talk about our internal capabilities in executing this. And what kind of IRR are we looking at in this particular segment?

So internal capabilities question is, we have a substantial amount of capability internally. And I think within the leadership team, many of us are the people who built some of the assets that we have acquired from Sterlite as well. And also many of us are also people who build the asset and we're continuing to do O&M at an operating level. So we have teams which have built thousands of kilometers of lines, designed them, build them on their own, et cetera, in their earlier roles. So in terms of people capability, we have substantial amount of capabilities in-house to develop assets. We also have a separate vertical within the company to ensure that our basic O&M practices are not -- rather O&M function is not mixed with the construction team. So that's separate development teams that are built in the company. We have sufficient capabilities on the front of development side of the business. On the IRR, I think we look anywhere -- as we said, we avoid giving specific numbers, but we look at least a couple of hundred bps higher than operating projects IRR in undevelopment stage. But again, it depends, if it is a risky project, we would like to do higher return projects. But we don't plan to do risky projects in IndiGrid. So about 200 to 300 bps higher than IRR is something that we look at.

Sure. Sure. This was helpful. And secondly, on the availability performance this quarter, specifically on the outages seen in one of the assets for 1 year, can you help us understand the impact of this on the financials? So I understand there are penalties involved if your InvIT goes below 98%. So some light on that.

Sure. So there is actually not material impact on the financials on account of this because the incentives and penality are on a cumulative basis typically. And while we are presenting a quarter 3 number, the cumulative number from quarter 1 to quarter 3 is decent. So we are not really impacted materially by this mix. So there are no -- I mean, there are very limited financial impact in single-digit or rather very small real impact, well, that impacts us in a material way. And some of the issues that we have seen at the first outage, we are also looking to recover from insurance. So we, be honest, feel that it will be also have a very, very small impact from the...

Understood. Understood. Yes. And lastly, any expected time line on KTL that you will want to...

Okay. So KTL is -- Yes. So KTL is commissioned and that's what we understand. We will be following a framework process over there with Sterlite Power. And as for that, we would start with delivering soon. And once we do the delivery, we'll be able to communicate in a better way of when we will be acquiring that.

The next question is from the line of Nitesh Shah, individual investor.

Hello. Am I audible?

Sir, your voice is too low. Can you speak a little louder?

Am I audible?

Mr. Nitesh, we cannot hear you, sir.

Am I audible now? Am I audible now?

Yes.

Yes. Congratulations to the management team on a good set of numbers. There is a 97% availability for NER transmission line. So I think it is also covered under the insurance. So just any color on what can be the cash flow [indiscernible]? And when -- by when generally it can be recovered? Second question is on -- basically, is there any disruption in this sector with -- from a long-term perspective, which we can -- we could be looking at, for example, wireless electricity transmission or something on those lines? [indiscernible]. And second question is that the IndiGrid InvITs not allowed to be pledged on margin. Other exchange rated instruments like shares of Reliance or mutual fund, et cetera are allowed to be placed as margin. So this is not yet done. I think in the last investor conference call also, this question was brought up. If the management team can [ write to the extent it maybe considered ].

Sure. Thank you. So coming to your first question, we just addressed it, but as I said, it is a very, very little or real impact, like single-digit crore impact, so it's a very, very small impact on the background of P&L for [indiscernible]. So we don't really see it as a larger impact. The second question on wireless. I think people have been talking about it. That transmission is driven by physics in terms of transmission of electricity and hasn't changed over the last 56 years. It doesn't mean that it will not change, but I think the technology that can disrupt, this is at a primitive stage is what I believe. And I'll give you a parallel. You have heard about 5G rollout, right? And 5G rollout, there's nothing but a microwave in the air. And we all heard about the environmental issue, issue on the bird, issue on the flights in the latest discussion, right? Transmitting electricity in the air is going to be a million times more to powerful waves in the air, right, even at a [ photo space ] that has been down, the same amount of energy. Because energy has not changed. If you want to transfer 100 megawatt hour of energy, then say that energy needs to transfer via waves in wireless, which will be kind of millions of times more heavier wave than 5G waves that we have been talking about, right? So I think the widespread use of wireless is done at a primitive stage and extremely narrow shorter distance manner. So we are not really worried about that kind of disruption in the sector today. The real disruption that people are thinking about on the ground is a micro grid that it don't need transmission altogether, which is a business model disruption rather than technological disruption. But again, electricity is the cheapest form of transmitting power. So there will always be cheaper to reduce electricity where fuel is best. So there will always be Rajasthan will cheapest source to produce electricity and translate it to the rest of the country. So the micro grids will coexist with the main highways or the main grids. But other than these, we don't see a material amount of disruption in the business per se on that front. There's a third question also, I actually missed the third question.

Meghana here, I think that was on the margin [indiscernible].

Yes, sorry. Yes. I think see what we would request is, Nitesh, why don't you write to us. We see as a company you as an InvIT, we writing to exchanges and SEBI, we do not get the same kind of response because as a company can't say that a lot of shares to be pledged, right? And so investors need to write to us. We are happy to forward those mails if we receive formal request to SEBI and exchanges, in which standalone doesn't have a local standard to go and say, allow our shares or units to be pledged. It looks very awkward. So we'd request investors to write to us. That will enable us to write to exchanges that, look, this is what our investors are looking for. Can you work around that? So we'd request you to write to us.

Does that answers your question, Mr. Nitesh?

Yes.

[Operator Instructions] The next question is from the line of Nimish from -- an individual investor.

Congratulations, Mr. Shah, for the good number. I'm also from long-term investor point of view, just as the previous investor. What is -- just wanted to look for any attractions or pointers for investments or incentive at debt market price, given that our rights issue was at 110. What is the target AUM and target DPU in next maybe 2, 3 years FY '24 or FY '25? And any other attractions which you can -- do you incentivize the long-term investors?

Thank you. So I would give you a very small answer on that. I can say we, as management, cannot give incentives and cannot predict prices, right? It's not our rule. So -- but I can tell you, I think we have been guiding for a stable DPU. And if you look at our track record over the last 5 years, we have grown our DPU from quarterly 2.75 to 2.9 -- 3.19, sorry, change -- which was around 3% growth on a year-over-year basis. And as we have guided in the past also, whatever DPU we have forecasted for the year, we keep it in a way that it is a stable DPU for a long period of time. And then on an annual basis, we give a forecast of DPU growth at the last quarter. So we have provided for DPU growth guidance for FY '22, and we are on track to achieve that for the last 2 quarters and so. For FY '23, we will be giving guidance in quarter 4 or rather full financial year results. However, I think as we have said, our DPU of 3.1875 or 3.19 is a stable one for a considerable time. So that will continue. And the growth guidance specifically, we'll give in quarter 4, but we've been providing a stable growth over the last 5 years. So I think beyond that, it is inappropriate for me to write on [indiscernible] or incentives for long-term investor, right? One needs to make their decision on their own.

Yes. And what is the target AUM for FY '24 and FY '25 will be?

We would work on a target AUM basis. We'll work on -- to get a good business we'll acquire. If we do that, we still have a stable DPU to look for, right? So we are not really aware of it. We don't have target AUM, even with our evaluation metrics, right? So believe AUM as a target is not a right target and key role is to be capital allocation. So we are just waiting for the good opportunity to acquire assets and build, but we don't have a specific target AUM for us.

The next question is from the line of [ Advit from HSBC ].

Congratulations to the management team for a steady DPU this quarter again. Sir, my question was with respect to the foreign greenfield. So given that in other projects we have seen delays for many TBCB projects to achieve COD and finance cost is one of our levers to maintaining the DPU. So how do we mitigate this risk of project delays affecting the DPU going forward? I understand that this piece is very small currently, but I'm sure going forward, it may increase.

Yes. No, I think it's a very, very valid question. I think we keep evaluating this risk in a big way and a tremendous amount of focus is provided for this. I think like any other, our businesses are -- strategies measured and conservative. We choose projects which has relatively lesser inherent risks. For example, the project that we have acquired right now, the Kallam Transmission Limited does not have forest clearance, does not wild life clearance, does not have railway clearance, does not have defense clearance, doesn't have environment clearance. It has a majority of sub-stationery project. It had a small land acquisition and a very small land. So we mitigate this risk by first choosing the projects, which we feel are less risky. So it starts from our choice. Second, it starts -- second point is that we have freedom to choose, right? Many of the businesses, [ however, old it may ], but many of the businesses are completely dependent on new bids to come in and they have to bid every year. There's no option but to bid for all projects, right? And they cannot be as selective as we can be. And therefore, we have an advantage in terms of selecting the projects we want to bid and getting out of them. So we can bid probably 2 projects that we want and won't bid for the other which we [indiscernible]. So that way, there is the advantage that we have. So we are firstly choosing projects which are less risky and which do not have material amount of causes for those delays. Second is, as you rightly said, these are small projects. And even if we do more projects, it will remain small in the balance sheet. So the impact of those projects, if at all, that was to get delayed by a quarter, is going to be limited on the overall balance sheet of the business, right? So I think these 2 bid principles we are keeping with us, which allows us to mitigate it besides all the project-related risk mitigation that we take. But these 2 are the strategic filters which allows us to remain conservative.

I just had a follow-up. Once this COD is achieved for the Kallam project, what would be the AUM that would it -- that it would add to our portfolio? Would you be able to share that?

Yes. I can give you estimate, I think it's going to be around INR 170 crores to INR 180 crores or something like that. It's a small size, yes.

Next question is from the line of Ravish Chandra, an individual investor.

Congratulations, Harsh and team, for the consistency in results, everything. I have 2 questions. One is I'd like to know what is the total percentage of our AUM today when you consider as a whole India? Are we at something like 25% of total asset -- transmission assets, transmission lines we are having in India?

Okay. It's a very difficult question to answer, but I'll try to give...

Approximate.

Yes, approximate. See, there are 2 types of transmission assets, inter-state transmission assets and intra-state transmission assets. The intra-state network is not well matched, so I don't talk the estimate of that. But inter-state assets, which is the TBCB portfolio and ISPS portfolio, which is the larger lines, we would be approximately 6% to 7% of the country today, approximately. And this we know because of our revenue rate in the overall pool, but that's what we are looking at, approximately 6%.

Okay. Okay. Yes, I think we just want to know the exposure. See, I know Power Grid is growing in a big way and getting into a lot of transmission lines. Now really a vague question, but...

Sorry to interrupt there, Power Grid is around 80%, 85% of the portfolio not because they are doing more of incremental book. They have the legacy portfolio with them because they've built 20 years exclusively, right? So that's why their share is only going to be a very, very high in the overall sense.

Okay. Okay. Okay. Sorry, the economic question only. I don't know -- are we -- see, recently, I read one article. Power Grid has taken some project internationally to build the transmission line. Like that, in the future, down the line, maybe a decade later, whether IndiGrid also can do the similar activity in -- internationally because you get foreign revenue?

We haven't thought about it, but as on date from SEBI regulations, we are prevented to do it. So we cannot do business outside India.

Okay. Okay. Because small buildings doing in PPP participation in Africa, anything on building...

We don't plan to do it. We don't -- we have not even thought about it. And importantly, we are not allowed legally. So...

Okay. Yes. Fine. Fine. The last point, what I observed in presentation Slide #19, I was under impression KKR and GIC put together is having around 54%.

Yes.

But in the slide, it shows 44%, maybe, well, a print or typo error.

Where do they own 54%, they own 44%, so where is it -- okay, okay. So it mentioned including [indiscernible]...

Right. Right. Yes. Yes. Yes.

Other FIIs like Schroders that you see below in the brands, like Schroders and others. So 11% are other FIIs.

It's a good growth, and congratulations for everybody to maintain the same and best wishes.

The next question is from the line of Nitesh Shah, an individual investor.

[indiscernible]

I'm sorry to interrupt you, Mr. Nitesh, but we cannot hear you, sir.

I hope I'm audible now.

Yes.

I'm just curious that now that Sterlite KKR is the sole promoter for the sponsor. And now that Sterlite is not there, would there be any impact on building for Sterlite projects especially the India Grid to get first [indiscernible], first right of refusal on many of the projects. So any color on that?

Yes. So I think the first right of refusal of [indiscernible] manager. At the end of the day, we are all big business, right? So why would somebody sell us cheaper if there is a better price available. And why would we pay somebody a higher price if there is a cheaper asset available, right? So all transactions are typically arms-length pricing transactions. And if Sterlite decides to monetize, we would continue to participate. And I'm sure they will invite us because we executed it into a good way. And if Sterlite calls for a bid, we will certainly bid for it. So I think IndiGrid on account of KKR being manager or sponsor that has another -- we have done, put together, over INR 15,000 crores, INR 16,000 crores of transaction with Sterlite. So we understand how the business works. We understand how the business works. And if their view is to monetize assets, I'm sure we would be invited and we would love to participate in the bid.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Subhadip Mitra for closing comments.

On behalf of JM Financial, I'd like to thank the management for giving us this opportunity to host the call. Harsh, any closing comments from your side?

Thanks a lot, Subhadip. And I'm very, very encouraged with the kind of question investors have asked for, and I'm very happy because of the last 20 quarters of results, I think we started explaining what IndiGrid is and now we are talking about the real business questions. And I'm very, very encouraged with continued support of our investors and participation on the call. We look forward for all of you to continue to remain invested and we would keep our focus on superior risk adjusted return. So thank you for joining the call today and wishing you a great and healthy and safe time ahead. Thank you.

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