Indigrid Infrastructure Trust (540565) Earnings Call Transcript & Summary

Good day, and welcome to the Q4 FY '22 Earnings Conference Call of IndiGrid, hosted by JM Financials. [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.

Thanks, Jacob. Good afternoon, friends. On behalf of JM Financial, welcoming you all to the Fourth Quarter FY '22 Results Conference Call of India Grid Trust. We have with us today the senior management represented by Mr. Harsh Shah, CEO; Mr. Jyoti Kumar Agarwal, CFO; Mr. Satish Talmale, COO; and Ms. Meghana Pandit, CIO. I would now like to hand over the call to Harsh for his opening comments followed by the Q&A session. Over to you, Harsh.

Thank you. Thank you, everyone, and thanks for joining on our which is fifth year conference call. I will take through the deck as we have done earlier, and we'll take some of the key highlights, and subsequently, Jyoti and others will participate and then we'll go to the question answer. On Slide #3, I'm restating our vision. Our vision is to become the most admired yield vehicle in Asia focused on focused business model, value accretive growth, predictable distribution and optimal capital structure. I think in this -- over the last 5 years, as we'll see through our growth rate journey, we have certainly tried and lived up to the core pillars of growth that we had thought process, and we are clearly seeing the results coming out to be in the same line. On the next slide, just a small snapshot of our evolution in the last 5 years presented into the distinct markets. As you can see, not only our portfolio has grown multifold over almost like 50% CAGR, both in terms of number of lines, substations, diversification to solar and number of states that we are operating into a number of little revenue-generating elements. But we have also substantially diversified in terms of our unitholder base over a period of time. Starting since inception in FY '18, the original sponsors Sterlite Power continued to own about 16%. We have almost no insurance company, very limited mutual funds, and no pension funds owning chunk of IndiGrid. As the evolution is evolved in FY '22, we have institution like KKR being as a sponsor and substantial -- rather single largest shareholder. We have 9 insurance companies working about 8% stake on the company on the trust. Retail holding has increased multifold from INR 450 crores or INR 445 crores to INR 2,300 crores standing in this quarter. FPI, including KKR and GIC, is holding around 54%, which is also a healthy jump from earlier 39.9%. And we have done additional capitalization via rights issue, preference issue and added more investors. Incrementally, PFRDA and insurance lending is enabled as well as pension funds we started acquiring -- integrate but PFRDA is enabled there. And as you already very well know, the liquidity has improved with trading lot size being a single digit. Along with the size and maturity, I think most of the financial parameters as we can see below, has grown in a substantial fashion, whether it's our revenue, EBITDA, NDCF or AUM. And with that in mind, we have also consistently focused the strategy of a stable growth. On Slide 6 is just a snapshot of what IndiGrid is today because this is India's first power transmission yield platform. And with assets under management of INR 21,000 crores spread across 18 states and 1 UT, we have almost covered majority of India and with the residual contracts being 30 years of life, we are very confident of providing a predictable distribution. On the next slide, which is Slide #8, is just sectoral trends. As we have discussed before, I'll reiterate that we see the power sector into a decadal growth favored by technological disruptions that are taking place in metering, in solar, in hybrid systems. We are expecting demand patterns shifting and electrification of more and more energy needs, whether it is EV or other sectors, be it hydrogen, we're going to see more and more demand of electricity on that regard. Unfortunately, the government has been showing dynamic steps with respect to whether it's G&A or other decisions that are needed to [ rewind ] the sector. So as a core center of all 3, we are really looking forward to [indiscernible] growth in the sector. Coming to the Slide #9, it is our quarterly -- quarter 4 highlights and also some of the annual highlights. To start with, I think there has been a lot of organizational update. And coming from my side, I have decided to move on from IndiGrid. It's been a phenomenal journey with all of you. Over the last 5 years -- I would say, 6 years since inception and to the extent of naming IndiGrid and to listing and to bring it to the scale, it's been a very, very rewarding experience. And I'm grateful to our shareholders, stakeholders, regulators, team members at IndiGrid, who really contributed to this journey and make it worthwhile. To me this has a very emotional decision considering such a long association with the company. However, I'm looking forward to a little bit of by the canvas and more development experience, and therefore, I decided to move on earlier this month. And do what we have been communicating as a professionally managed platform, we have substantial leadership pipeline within the company. And quickly, the Board has identified the successor for my role, which is Jyoti Kumar Agarwal. You have met and heard over last 1.5 years as the Chief Financial Officer. He has been elevated to CEO of whole time later on Board of IndiGrid's manager, take effect from 1 July '22. And Divya Bedi Verma, who has been associated with the business for 5 years, and she was Deputy CFO, will be taking over as the new CFO from July 1, 2022. So as you see, the platform is very well-equipped for the seamless transition and strong management team in place. So we are pretty confident that this change is not going to result into any opportunity now so to integrate Jyoti and Divya will remain in the system and they are -- [ remain in this company ]. Coming to the quarter 4 highlights on the performance side. As you can see, revenue and EBITDA, we've grown about 10% and 29% year-on-year. The DPU increased by 3% year-on-year to 3.19% versus 3.1%, and that's what is we have delivered, which was promised for this quarter. And the collection has been substantially healthy with 110%. So we are really happy with the overall collection trend that we are seeing as well. In terms of capital, we are well capitalized. We are just about 56% of net debt to AUM. There is significant headroom to grow as per InvIT regulations. In terms of asset management, I think our average availability has been maintained at 99.75% for most assets except for one, and we'll cover that in the retail side, where there is a cost measure even that took place. However, our revenues are going to be covered into that, and we are fighting for them. In terms of DigiGrid that we've spoken about, which is the digital asset management platform across all SPVs, across all states, and asset light has been implemented, and we are looking forward to reap the reward from FY '23 onwards. And I'm sure with Satish leading the charge from the front as COO, we will have a substantial benefit of scale in the operating cost side. As we discussed last time, we purchased 2 ERS towers, which allows us to put 400 kV and 765 kV powers and systems in case of emergency use. We've also been training our teams, and we have a set of people who can really operate that in India seamlessly. In line with our ESMS framework with several CSR initiatives are taken across environmentally, climate, health care and redeveloping across the country, and we'll see as we speak in a detailed reports for other details around the same projects. In general, with the -- all these updates, I think, our focus remains for the underwriting side. There's superior total returns, sustainable increase in DPU and steady operations. With that, I would invite Jyoti and Satish, to really take on the operating performance side.

Thanks, Harsh. This is Satish here and happy to share Q4's performance. So typically, Q4 is a month wherein we planned a lot of annual maintenance activities, and that's slightly reflecting in the availability numbers for each of the asset. On an annual basis, as Harsh said, majority of the assets have achieved target availability of 99.75%. So one asset, which is NRSS, is showing 90.22% availability. That is share due to a force majeure event rather we proactively taken steps to avoid tower collapse situation, which was created due to the reasons beyond our control. And we are working with all the regulatory bodies to consider it as a force majeure event and get the deemed availability certificate. And once we get that, we will be back to our target availability target. So on EHS, we had a -- again, a zero harm quarter, no major incident or injuries happened, and the reporting culture on unsafe acts and conditions continues. On reliability, this quarter was lowest by far as far as record is concerned is at 0.07, which is a trips per line indicator. Defect correction activity is helping us to achieve this record trip per line indicator. More than 99.5% of substation equipments are defect free. On DigiGrid, which is the integrated digital asset management platform, happy to share that all the assets, including solar are live. And the teams are fully using all our operating activities in a digital manner. On emergency preparedness, emergency restoration system is well in place along with a very unique weather forecast platform, which will help us to provide swift response and restoration during any unplanned events. On third wave COVID, there was a limited impact and all our critical O&M activities continued in quarter 4. On the couple of important metrics, I spoke about its per line, which is 0.07. Training effort continued on EHS aspect. LTI, it was 0, which is lost time incident. Unsafe reporting condition was close to 1,900 numbers. So those are all indicators looking good. On utility solar, we achieved 58.11 million units of generation, which represents 19.50 CUF and availability of 99.79%. Thank you. Handing over back to Harsh or Divya, probably. Yes.

Yes, I'll take it forward from there, Satish. Thanks a lot. We move to Slide #11, where we'll go through the financial performance of Q4 as well as for the year. So on the back of our acquisitions, we've seen a quarterly growth of revenues of about 10%. EBITDA growth is higher at 29%. There are 2 reasons here: one is, there is an operating leverage in the model [ or ] expenses are sort of semi-fixed or semi variable in nature, and so that is benefiting the EBITDA growth. But there were some one-off expenses which were booked in the quarter 4 FY '21 because of some earn-out payout, which are not there in this quarter. So on a like-to-like basis, the growth in EBITDA adjusted for that would be about 13% or 14%. The NDCF Generated grew by about 5% as our growth was largely funded through debt. So adjusted for the interest cost, the NDCF Generated was higher by about 5% and DPU in line with our guidance was higher by about 3%. For the full year, again, on the back of a few acquisitions, we saw part of the benefit last year that have seen full benefit this year. Our revenue grew at about 33% in EBITDA because of the operating leverage grew at about 40%, and NDCF Generated were at about 3%. Collections were a little bit short of expectation in January, February, but more than made up in March, ended this quarter at about 110% collections and DSO says of about 49% -- 49 days. If you look at the distribution breakup, this quarter in line with our guidance. We are paying with INR 3.1875. INR 2.55 out of that is in the power interest and INR 0.64 is in the form of capital repayment. The record date for this distribution is going to be May 26 and the tentative date of distribution June 4. We ended the year at an NAV of just short of INR 132, at INR 131.71. With this distribution, we would have paid close to INR 3,000 crores to the investors since listing. We have been maintaining sort of a steady state of DPU increase over the last few years in the range of between 3% to 4%. In line with that trend, the Board has sort of decided to keep the DPU outlook for the next year higher by about 3.5%. So from the current INR 3.1875, we are guiding a DPU per quarter of about INR 3.3, adding up to about INR 13.2 for the full year. So this is sort of in line with what Harsh mentioned earlier, superior returns and sustainable increase in DPU backed by stable operations and a prudent capital model. I think this is in line with all of that, and we do expect to be able to meet this guidance relatively easily. If you move to the next one, this is nothing, but an EBITDA to NDCF bridge. Essentially, for the quarter, we had a net accretion on the back of good collections of about INR 70 crores to the gross NDCF reserve. And for the full year, we've added about INR 52 crores to the NDCF reserves. We started at about INR 171 crores, and we are ending this year at about INR 221 crores. So just a little bit short of the quarterly DPU more or less in line. So we have almost one quarter's DPU as a reserve. Should there be any headwinds in terms of collections or mismatch, and there's a healthy DPU reserve of [ 70.2 ] and continue to maintain a predictable and sustainable distribution profile. Our balance sheet, which is the next slide, continues to remain robust. We raised money in this quarter, in the quarter 4, at about 6.91%, which is a little lower than our average cost of debt of about 7.76%. Even despite the headwinds of a higher interest rate environment, we have been able to tie up a substantial part of the refinancing needed in FY '23. These are all almost done INR 2,200 crores of the INR 2,100 crores, which is coming for repayment. And all of it is tied up in the -- [ this growed up ] about 7%. And this is coming to replace debt, which is watermarked at about 9%. So there's sufficient sort of loan available for us to sort of continue to reduce the average cost of debt, which will add to further cash flow generation in the coming year. We carry a healthy cash balance, about INR 1,700 crores, but this was -- part of it, almost INR 700 crores was for repayments, which were due to be made immediately after March. Rest of it is the combination of the HRAs and NDCF as well as the DPU. Our EBITDA by interest in full year is more than 2x, and we do have enough headroom to grow because our net debt to AUM is about 56%, and given the regulatory cap of 70%, there is a room enough for us to sort of continue to pursue growth opportunities. A large majority of our borrowing is fixed rate. More than 3 folds is fixed, so we should be able to withstand the near-term headwind that we are seeing on the rate environment. If you look at the refinancing profile other than the FY '23, which is sort of a tall bar, rest of them are in a comfortable zone of less than INR 1,500 crores, which is about 12%, 13% of our pool. And even for this INR 2,400 crores, which is coming for repayment in FY '23, we sort of tied up, like I mentioned, almost 80% of it at pretty attractive rates. So we don't see any challenge in terms of our ability to refinance the debt coming from maturity. Our book continues to remain well diversified across both entities and bank loans and as a wide variety of investors, including mutual funds, public and private banks, insurance companies, et cetera. I'll let Meghana take you through the Slide 15. Meghana?

Yes. Thanks, Jyoti. I'm on Slide #15. We're in the 20th quarter since listing. We continue to provide superior risk-adjusted total returns. So the graph essentially talks about total return, which is a combination of distribution plus price change. And we compare ourselves with, on one side, pure debt, 10-year GSEC as well as 30-year GSEC. And on the other side, pure equity like instruments with like NSE 500, NSE INFRA, BSE Utilities indexes plus pure-play transmission entities also. And as you can see on total return plus the annualized return for that matter, we have outperformed all of them. More importantly, on the risk side, which is depicted by the beta, our risk -- our beta continues to be amongst the lowest compared to all the other indices as well as companies. Moving on to Slide #17 in terms of FY '23 business outlook. It continues to remain very strong. I think the topmost priority is portfolio growth that we are focusing on. We are seeing some significant pipeline being created on the transmission side with a lot of tenders being floated for the infield projects as well as the national monetization pipeline coming up, essentially monetizing the existing assets, which, of course, remains pipeline for us. More importantly, we are looking at acquiring the framework asset, Khargone Transmission Limited, which is the framework asset, which became operational in December 2021. In addition to the other operational solar and transmission assets, there was one greenfield project that we bid for in January. So we are evaluating other bidding opportunities in the power transmission sector with partners as well as we are exploring a couple of opportunities on adjacent spaces like utility-scale battery storage, which are again backed by very strong counterparties like [indiscernible]. As Jyoti mentioned, although we've increased the DPU guidance for FY '23 to INR 13.2, so we remain focused on delivering on that. In addition to portfolio growth, our other areas of focus, continue to be on improving and maintaining the balance sheet strength by whatever refinancing opportunities in addition to what have already been refinanced. Look at that in terms of a long-dating tenures and reducing the interest cost and at the same time, maintain a healthy mix of liquidity to mitigate any headwinds that will come across. As Satish rightly mentioned on the asset management side, we continue to focus on ensuring that availability remains robust, increasing more than 99.5%. We have started the O&M practices in-house. So we're looking at that along with stabilizing the DigiGrid that has been adopted across all the assets now. On the other hand, industry stewardship is something which we have been working on right since we listed working with various regulators and industry participants on various policy initiatives, which is essentially some of them being streamlining the tax anomalies between equity and risk looking at any big inclusion for in different region at the same time, continue to increase awareness about IndiGrid as well as about IndiGrid in general. So with that, I think we will stop here and Subhadip over to you. We can start with the Q&A now.

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

So first of all, congratulations for yet another stable and strong quarters and raising the guidance again. I have 2, 3 set of questions. First, if you look at over the last 12 months, our AUM has hardly moved from [ INR 205 billion to about INR 210 billion ]. So it's like just about 2% kind of a growth. And even though KTL is a confirmed acquisition, just wanted to understand more on the growth perspective and what kind of AUM are we targeting by FY '23, '24 end?

Thanks, Swarnim, for the question. And you're right, and AUM has been stable. It was partly by design. If you look at the growth in the immediately preceding quarter and that was a very, very steep 70% AUM growth. And a large part of it came because of NER acquisition, which happened towards the fag end of the last year. So essentially, if you look at that AUM, you can very well count in FY '22. And it was important to sort of stabilize the portfolio on the back of that kind of a growth and that is what we were focused in this particular year. As we speak, I mean there are a few opportunities in the transmission side. One is, of course, a framework asset, which is KTL. There are 1 or 2 assets that we are looking on the inorganic space and should fructify and announce in due course. There's also an under construction asset. As you may be aware, we have taken that up. It's important to get that up and going. And we are also discussing with a few players for, let's say, replicating the framework agreement that we had with Sterlite. Hopefully, we should be able to get similar framework done. We are also looking at some adjacent spaces. We have talked about it in the last quarter around utility scale battery storage. It's a bit evolving situation on technology, on the commercial and regulatory framework, but we feel given our substation presence and our connectivity to the grid, we should be in a very good position to be able to play a role here. So net-net, so I mean the point I'm trying to highlight is that the growth agenda is very much on, and it's just that it was important to stabilize the portfolio. And now sort of on a very good yield as far as the portfolio is concerned, we should be able to see reasonably good growth in the coming few quarters. In terms of any target, well, there is a sort of a headline number of about INR 30,000 crores or $4 billion by the end of this calendar year that we have been highlighting at some point of time, but that's not a sort of a hard target. Idea would be to grow that figure even if it happens a little bit later down the road then that's fine. The important thing for us is to ensure that whatever we do for growth reason is in line with our objectives of ensuring that it's sustainable, is value-accretive and sort of is in line with our focus in predictable distribution model, even if it takes a little bit longer and that's fine, yes.

Right. So just as a follow-up on that, and this is -- I really wanted to understand this that when you are acquiring the new assets, same time talking more on the acquisition side, we have seen some sort of heightened competition due to entry of new players. So what's really the hurdle rate over here? And I just wanted to better understand that whether we give a preference for the DPU growth really in the near-term side? Or really, it's the HTM that we look at?

No. So while on the competition base, I would split the market into 2 categories: the renewable side of the business is seeing intense competition, you're right. On the transmission side, I would say that there are not that many assets Swarnim as you would be familiar with, but there are assets. I don't think the competition is that intense compared to renewable. And then we look at an acquisition, we look at the overall the life of the asset. The asset has to sort of fit into our strategy of predictability of revenues, accretive to our NDCF to DPU for a reasonably long period of time. Hurdle rates are not hard casted. It's a function of how does the new assets fit into our funnel of ensuring that it's value accretive at the end of the day and accretive on the DPU for some time, right? We are a little bit flexible a little bit here, a little bit there on the IRR of the asset, but it's important that the predictability of the cash flow is not in question. At the same time, it's accreting to the unitholders for a reasonable period of time. I don't know whether that answers the question.

Yes. No, it partly answers that. And just one last question, just a bookkeeping. Was there any penalty amount for NRSS in FY '22, given 90% availability?

So there was no penalty Swarnim, but obviously, there was a loss of incentive. So that there was an opportunity lost, but no penalty therefore we had to pay.

Got it. Before I just sign out, I mean I would just like to thank Harsh, who have been really instrumental and played a pivotal role in India Grid's whole journey. So I would just like to congratulate you for that and wish you all the best for a new venture. And Jyoti, I mean all the very best for you also for your new role in India Grid.

Thank you.

Thanks.

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

Congratulations on fifth year anniversary, sir, and congratulations to Harsh and the entire team for bringing the IndiGrid to this scale. It has indeed been a wonderful journey for you all. Sir, first question is, does the DPU guidance of INR 13.20 include the acquisition of any new assets? And can we expect the DPU to grow further on the -- because I understand the leverage is still around 57% or 60-odd percent, 10% additional space, in my opinion, to provide roughly INR 2,000 crore for the workup asset. Am I right?

Yes. So Mohit, let me address your question. The first one is, whether the DPU guidance of INR 13.2 is [indiscernible] M&A assumption. So that answer is, not correct in the sense that we have a sort of a model -- a business model and that is sort of bakes into any new acquisition that we take that irrespective of any asset growth, the organic NDCF generation must be able to sustain that DPU for a foreseeable future, including a potential increase along the way. So there is no M&A dependency on this INR 13.2 guidance that we are giving. And in terms of whether this DPU will increase further, while we cannot obviously guide you for beyond FY '23, but if you look at our positioning and if you look at how we have performed over the last 5, 6 years, we have been steadily increasing the DPU in the zone of 3% to 4% every year. And our endeavor is to ensure that we not only have a sustainable DPU, but also a sort of a predictable stable increase in DPU at every point of time. So when we do an acquisition and when we look at our business plan over the medium term, there is a little bit of an increase in DPU that is built into the modeling. Obviously, what will be that increase, if at all, for FY '24, we'll have to wait 1 year, we'll come and guide the market at that point of time. But for now, we can tell you that the INR 13.2, we feel very confident and comfortable to be able to meet this guidance for FY '23.

My second part was the, how much the space we have for the acquiring of new assets, if you can tell the number? Is it [ INR 20 billion ]? Is that a fair assumption?

A little bit more than that. I think we have a debt of about INR 13,000 and against that, we have an asset of about INR 21,000. So I think we can do easily about INR 5,000 crores to INR 6,000 crores of asset acquisition, but like we have been maintaining, we don't want to sort of go right up to the 70%. That is too close to comfort, especially in the light of current volatility in the interest rates. So once you are sort of reaching the 65% plus/minus mark, at that point of time, we would look at sort of bringing this level down a little bit through equity raise. Right now, there is no such plan and so there is sufficient headroom. And we feel that we should be able to grow comfortably at least in FY '23 without any further equity range [ required ] from the market.

So KTL acquisition requires -- the size is roughly around [ INR 13 billion to INR 15 billion ]. Is that number right?

We would not be in a position to guide you...

Broadly, it's pure [ INR 30 billion ], right? Lowest...

Yes, it will be around that mark. We need to take KTL and 1 or 2 others. I mean, I think we'll be still well within the 70% mark. I would say, more well within the 65% market share, yes.

For clarification, sir, the total headroom is around [ INR 65 billion to INR 70 billion ], right? Headroom available for us?

See At INR 5,000 crores, we'll be hitting the 65% mark, right? So -- and that's where we sort of benchmark our internal guidance because we don't want to go too close to the 70%, yes.

Lastly, sir, how do you think about under construction asset? Are you willing to do more of the only transmission and battery storage? Or are you also looking at some [indiscernible] asset in the renewables where you want to participate and improve the yield for us.

Yes, it's a good question. We want to do the first project, and based on the learnings of that project, we want to take a call in terms of how aggressive we want to be. And so far, we won one asset, which is, [indiscernible] and it's looking pretty good. It was a deliberate choice to sort of pick an asset, which was not very complicated in terms of long transmission line or any sort of [ for us ] or any complicated approvals. There's a lot of learning Mohit that you would know on a -- in projects mode, and we are already seeing that. We feel that once we sort of implemented this project, if not fully, maybe just 70% down the road, at that point of time, we will use the feedback loop to take a call as to whether we want to sort of go ahead and do more bidding under construction route. There is anyway the regulatory cap. As you would know, we cannot do more than 10% through this route. So there is anyway sort of auto check as far as this is concerned, but we obviously would like to explore more under construction assets with the framework where we can also sort of play a role in terms of how the project is being put up by a framework partner and that we are more keen to look at. At this point of time, we don't want to spend ourselves too thin on this front. So any sort of under construction assets will primarily be in transmission other than the assets, which depending upon how we can develop we are exploring. I think on the pure renewal of solar and wind, there is no such plan to sort of enter into the kind of bidding ourselves.

One more question if I may, excuse me, sir. What is the proportion of our debt, which is variable -- linked to variable rates?

So our fixed rate is about 77%. So 23% of our debt is variable for the year basis.

The next question is from the line of Vivek Ramakrishnan with DSP Mutual Funds.

My question -- there are 2 questions I have. One is on the collection efficiency. What it is the ebb and flow of collection efficiency for this -- for your sector? We've seen it tip down and go up. So I just wanted to understand that. And the second question is on the under construction projects. With capital costs going up because of higher raw material costs, what is your key learning there? And how do you see it affecting your ROE?

Thanks, Vivek, for the question. So on the collection, there is a pattern that we have seen over the years as far as collections are concerned. Generally, the first quarter of the year is the lowest and the last quarter of the year is the highest. It's a usual general pattern across a variety of discoms that are there who are new to the NTPC. It varies a little bit month-on-month. There's no real signs today, but generally, you will see March collections to sort of make up any sort of shortfall that is there during the year, but it tends to be the weakest in the first quarter and the highest in the fourth quarter. Thankfully, the collection pattern for the industry as a whole as well as for us has been reasonably stable in the high 90s, 97%, 98%, 99%, and that's largely because the CTU pooling mechanism, which exists in transmission. And we've seen that work very well even during the depths of COVID, and that is one of the reasons why we feel transmission as a business should be able to do very well in terms of predictability of cash flows and consequent predictability on the DPU side. In terms of the project cost, we did tie up an LSTK contract with reputed EPC company, KEC actually. And most of our costs are sort of hedged, that means there's obviously going to be some bit of impact because of the inflation on the deposit cost as well as on the marginal cost of borrowing, but we don't think it will be material enough to affect the project in terms of being value accretive to DPU as far as unitholders are concerned.

The next question is from the line of Rahul Marathe with ICICI Prudential Pension Funds.

Congratulations on a very good set of numbers. So I would like to ask more on the strategic side. As we see that competition is quite heating up in the transmission space, would we be looking into newer asset classes like, say, data centers to grow our AUM?

So good question, Rahul. We have been debating internally and also with our key stakeholders, the Board and investors around adjacent spaces or even nonrelated diversification. But if you look at our strategic intent, which you can find in our vision, we want to be true to our positioning that we have built over the last 5, 6 years to the market and our stakeholders of having a really focused business model based on predictable distribution, right? As part of this soul-searching, for lack of a better word, we have pivoted over the last few years, for example, we foray into renewable cleaning as part of that deliberation. We've also sort of weared a little bit into under construction, and now we're exploring the BESS space. We do look at all kinds of opportunities. We explored data centers as well. We explored a few other areas, but it has to filter through our funnel of ensuring that it's a focused approach with very stable and robust cash flows, and you're operating rich, ensuring that we have a good line of sight on cash flows to be able to guide the market on DPU, right. As of now, I don't have anything to talk about, but in case there is a development where we feel that based on our analysis, foray into any particular business, maybe adjacent, maybe not so adjacent, then obviously, we'll come and inform the market. We also depending upon what that is, word with the unitholders and take the approval. But as of now, we want to be pretty much focused in terms of what we have outlined, which is transmission -- renewable transmission, including under construction there, and maybe depending upon how the whole BESS space evolves, given the synergies with our substation assets maybe foray into that. Other than this at this point of time, I don't think there's anything that I can talk to you about.

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

Harsh, thanks a lot for being in this very good journey for creation of wealth as well as creating this platform, which is unique. And congratulations on creation of this, and all the best for your future journey. I had 2 questions. One is, if I look at this repayment -- sorry, the refinancing of the debt, that itself should save you around INR 45 crores a year, which is like maybe INR 0.65 sort of accretion in your DPU. So compared to that, the DPU guidance looks a tad bit lower than what I would have imagined because from INR 12.75 to INR 13.20, that is like INR 0.45, against that INR 0.65 you will gain just from this refinancing of the debt of INR 2,300 crores. And then we are also talking about some of the other yield accretive -- DPU accretive acquisitions. So could not get a hang of how we have arrived at INR 13.20. So that is one. Second, while I agree that there are adjacent opportunities, but let's say, over the next 3 years, what is the kind of pipeline of assets that are available to us in terms of operational transmission assets that we feel that we may be able to add to our AUM? And if you can give some color on how we are thinking around that. So just these 2 questions.

Yes, Sarvesh, very good questions. So first one, on the DPU guidance, when we look at the DPU for a particular year, there are a variety of factors which go into it, and one of the most important factors is sustainability and the trend -- longer-term trend of that DPU growth. As I had said earlier, our longer-term ratio of growth has been between the 3% to 4%, and we would love to increase this to beyond these zones so long as we are confident that over the medium term, we will be able to sustain that kind of an increase. We took -- the Board took a judicious call, management as well. Given the at least perceived headwinds that we're seeing across the broader market, interest rate, overall inflation, overall economic sluggishness, it's better to sort of have a higher cushion of higher NDCF reserve, which has been a historic high, almost 1/4 DPU to tide over any challenges that we might see and ensure that the DPU increase is more in line with whatever we have sort of guided in the past. A higher-than-normal increase would have meant that based on our current outlook, the sort of runway of maintaining that higher degree would have been shorter. And frankly, we felt that better to sort of have a longer runway of a more predictable DPU, sort of DPU increase, then to sort of move to a higher gear and reduce the runway. So it's a trade-off at the end of the day. And one of our core pillars, which we've been highlighting, is sustainability of our cash flows and whatever we do, and we took a call more in favor towards having a longer sustainability than sort of moving up the north as far as DPU is concerned. As far as the opportunity space is concerned, I think we did touch a little bit in the presentation. Beyond the immediate opportunities, which we are already looking at, there's a fair bit of tenders which have been announced, almost INR 40,000 crores plus of tenders for which bidding will happen, some of it has already happened. And we believe that once these -- some of these projects are ready, not all of them, but let's say, the projects which are not going to core asset keepers, will be available to us in the secondary market once they are ready. And typically, these projects take anywhere between 18 to 36 months. So we do see some bit of it coming into the market, and we'll be a very active player, very competitive when it comes to some of these projects. There's also almost INR 45,000 crores of monetization pipeline, which has been announced under the NMP, which is based on just the transmission sector, right? We want to play a very active role here, and we've been in touch with the various authorities, regulators as well ministry that it has to be an open process, including PGCIL's asset monetization. So we believe that what we've seen in NHAI should also happen for PGCIL. And that set of assets will also be available for us to sort of play a role into. So this -- combined these 2 add up to almost INR 80,000 crore to INR 90,000 crore assets, which all of it will happen over the next, let's say, 3 to 5 years. This is a fair bit of pipeline on the transmission side. What we're also doing, as I have mentioned, is in some of these biddings, there are some EPC players who are foraying into transmission, and we are actively in discussions with them, to sort of help them gain their understanding of the transmission fees, given the expertise that we have and to sort of look at framework agreements as they participate in the bidding. It's a win-win, we get sort of a captive look into an asset, and they based on a takeout can be a little bit more certain and aggressive in the bidding as well as benefit from better financing and better overall product execution. So we will be using this as a good mechanism to tie up some of the assets which are coming up for bidding over the next 3 or 5 years. So this is on the core transmission side. Of course, on the renewable side, it's a different ballgame, given we have a very different filter in terms of what kind of assets pass muster. They have to be complete, must have a good track record of cash flow generation, has to be with -- PPAs have to be with counterparties like SECI, NTPC or maybe Gujarat. And that is a very narrow space and the market is quite heated right now. So there, in all honesty, I do not see a lot of opportunities sort of filtering through to come our way. But on the transmission side, we are very, very positive that we will be seeing industrial framework, also the inorganic opportunities coming our way over the next 2 or 3 years. On the battery, it's an early stage in terms of the evolution, both globally as well as locally, but the government is very intent. And we've seen a couple of large tenders from NTPC and SECI sort of being floated. There are lots of positives as far as the space is concerned for IndiGrid. Counterparty risk is minimal. These are all AAA quasi-government or government counterparties, and there are lot of synergies with our business, especially the substation land that we have, a lot of areas where we can benefit and have a competitive advantage. We are connected to the grid -- part of the grid. And one of the bigger challenges with BESS would be to ensure that we have an empty OES access, right? So that is not so much of a challenge for us. Obviously, there are some other types of issues around the technology as well as the regulatory cum commercial framework, it's an evolving framework. So far, we've sort of done a lot of diligence. We're getting comfortable around some of the aspects and more work to do on some of the other aspects. Whatever we do, it will have to ensure that it fits into our strategic intent of having a stable DPU profile over the foreseeable future, but we feel that this is an area that we can play somewhat more.

Sure. So broadly, I mean, we are on our way to maybe achieve INR 30,000 crore AUM in the next 2, 3 years. Is that something which is possible with most of it being the current operational transmission assets?

Yes. We feel very confident that is a number that we should be able to get over the next 2 or 3 years.

Okay. And one more question is on DigiGrid. So is there a plan to -- or can it be sold as a service and get us ancillary revenues? Because maybe if you have done some proprietary stuff there, and there are a lot of independent assets who may not have such sort of a service available or the resources available to do it properly.

So yes, we haven't really thought it like that, but maybe I'll let Satish answer first, and then I'll come in. Satish, do you want to take a stab at this?

Sure. Sure. Yes. Basically, the DigiGrid is an aspirational platform, which we made for IndiGrid purpose only right now. It's more like an enterprise asset management platform. So as Jyoti has rightly said, we haven't thought like that it could be as a service to other clients or other utility customers. As of now, there are no plans like that. So it's purely meant for internal purpose.

Sarvesh, number one, this is not the only solution, and different sort of operators use different types of solutions, some use captive. So I'm not too sure how replicable -- how widely replicable this is, plus probably from a size of the opportunity, I don't think it will add up, it would be a sort of rounding error. So I don't think this is an area that we thought about or will think about. But one interesting sort of adjacent space that we are looking at, and we're seeing good traction in that, given our transmission network, there are lots of change of the transmission line that needs to happen because of infrastructure development maybe a road project is coming, so we have to divert the line for a few kilometers, et cetera. Given our in-house capability now both on the project as well as maintenance side, we are looking at doing these projects ourselves and seeing reasonably good margins available on this project. It has seen -- beyond the returns, it also helps us in being better in control of this project, which are right in the middle of our transmission network, so affecting our core lines in any way. This is an area where we've seen a lot of traction, and we expect given the amount of infrastructure development that we are seeing in this country or likely to see, this is an area which can contribute a little bit more meaningfully to our top line and bottom line besides there are strategic advantages of being more in control of your assets. DigiGrid, I'm not very sure.

Thanks, Jyoti. And congratulations and all the best for the new role.

The next question is from the line of Abhilasha Satale with Monarch Networth.

Just I had a couple of questions. Seeing the interest rate scenario wherein we are likely to see the increase in debt rate. So how are we seeing the IRRs for the new projects? Are we seeing, there is an incremental pressure on IRR for whatever the new credits we are bidding for? And secondly, like we have refinanced debt for the current year. However, as we move forward, do we see this refinancing cost also increasing over a period of time?

Yes. So thanks Abhilasha for the questions. And the first question, it's been too recent in terms of the uptick in the rate environment in India and globally. So we're not seeing that much impact directly. But definitely, there is going to be an extra consideration both in terms of the cost of doing the project as well as the cost of financing in the way people are going to bid probably from the hard lining point of view. In terms of equity return expectations, I'm not so sure that will change that much. Maybe a little bit here, a little bit there. But yes, in terms of baking in the cost of debt as well as baking in the higher cost of the project, even in the inflationary environment, we hope that, that will translate into the way people will bid. On the interest rate cost, there is a lot of tailwind that we still have in terms of our refinancing, which are coming for maturities over the near future. Our marginal cost of borrowing in first quarter of this financial year has been around 7%, so not very different from what we did in the last quarter. Our average cost is at about 7.76% and the maturities which are coming up are even higher than our average cost. So even with the interest rates going up, there is still net benefit or net accretion, which will happen to the bottom line into the cash flows out of this refinancing. But compared to prior to the rate increase cycle, I mean that number will be lesser. I reckon that we do have about 18 to 24 months to go before we average sort of converges to our marginal cost of borrowing, after which the benefits will probably stop. At this point of time, our marginal costs have gone up, not so much as the broader market, but definitely has gone up in line with what is happening in the border financial world. But we should not have a negative impact at the end of the day on the bottom line because whatever incremental debt is coming, it's still much lower, even at a higher cost it's much lower than the debt that is being refinanced with that money.

Okay. Sir, can you tell me the number out of this INR 30,000 crores, how much is the -- how much debt is at 7%?

We don't give that kind of detail Abhilasha, but all the debt that we sort of refinanced over the last, let's say, 2 years would be in the zone of, let's say, between 7% and 7.30% and 7.40 %. Tied to that, it used to be a higher watermark. And some of the debt which has come for refinancing in the first quarter is as high as 9% where it increased it from 7%, so substantial savings, which will flow through in FY '23.

Okay. Okay. So I mean we can comfortably take the cost of debt remaining in the range of 7.5% to 7.7%, average cost of debt over, say, next 2 to 3 years?

I would like to say that in the immediate near term, you will see the average cost trending down over the next 2 or 3 quarters and then probably stabilize there before sort of inching up, but that will be a function of how the interest rate environment is over the 18 to 24 period, yes.

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

Jyoti, congratulations and best wishes for the new addition. And Harsh, we actually -- I think it's a long -- 5 years we are hearing from Harsh on this one. And congratulations on building excellent team and sustained growth, and best wishes for Harsh for your endeavors. Coming to the questions, I have 2 questions. One is, it definitely looks like future power grid may come with AUMs leasing instead of directly selling. So right now, all INR 21,000 crores, we are having our own asset. So we might go for lease. Any thought about it? If so, what are all the problems or issues from the lease AUMs? And the second question is, do you have any assets where we have inflation adjustment rent increase?

Yes. Thanks, Mr. Chandra, for good wishes. As far as the first question is concerned, there are some discussions more in line with NLP model to sort of explore transfer of the rights of the asset without transferring the asset. I guess you're talking about that.

Yes.

It is a bit complicated, Mr. Chandra, given power is a very regulated business, and there is an electricity act, which sort of overrides how the business will be conducted in this particular sector. There is also a GST constraint on leasing where leasing is a GST leviable activity where as powering assuming is out of GST. So it is a bit complicated, and we're not sure. I'm not so sure that, that complication can be solved so easily and so quickly. But be that as it may, if an asset is available, whether it is through an asset transfer basis or through a leasing model, a model that works for the industry, we will be an active player because we are in the transmission business. At the end of the day, any transfer will have a risk reward sort of flowing through the transfer, it will not be an asset transfer, but we will be very keen to sort of look at the new model. We are already in discussions with some of the interested parties. It's a little bit more complicated than it seems firsthand. But if there is a model available, then we will also be an interested party as far as that particular model is concerned. And if you can just repeat your second question?

Yes. The second question is, this inflation adjustment, do you have any asset -- out of this INR 21,000 crores, any asset, are we having any inflation adjustment, rent increase or something like that to take care of operation costs so that it will not hurt a DPU?

Yes. So we don't have an inflation adjusted sort of asset in our portfolio. There is only one asset, which the PrKTCL asset, which is a Section 62 asset, where it's -- because of Section 62, there is an interest cost pass-through. So to that extent, the inflation is linked to interest rate. That flow-through will be passed through in the tariff. But again, it's a very marginal asset as a share of our overall portfolio. Other than that, all our assets are Section 63, including our solar asset where there is no inflation impact in terms of the revenue trajectory.

Okay. Okay. Yes. Maybe one final, if you have time, that's regarding operations. I think the project management is totally with us now, not with any partners, this DigiGrid controlled software. I think all projects is controlled at our level, not subcontracted to somebody else, isn't it?

Yes, sir. Yes.

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

Congratulations to you, Jyoti and Harsh. My first question is, in terms of -- we spoke about that instead of maybe constructing our transformation asset as such, we might take framework group with a third-party developer. From a risk perspective, is it -- is there a major difference between that? I mean is there a benefit if we go with a third-party developer?

So given that we cannot do more than 10% under direct -- sort of under construction plus our main strength is around operating and maintaining transmission assets, not really developing, there is -- for EPC developers, the main business is actually developing assets. We feel that better synergistic combination could be that we enter into a framework where we benefit from their core capability of developing an EPC of the asset. And once the asset is ready, we can then buy it from them, provided all the parameters that we agree in the framework have been taken care of. That would be a better model. It will not limit us in any way from a regulatory point of view as well as we commit capital only when the project is sort of ready and some of the key project risks are already addressed, whether if you do it yourself, and you're also facing direct project risk, facing the infrastructure, as you know, could be tricky at some point of time. So that's why we prefer -- we would prefer if we have a framework model. And in any case, as far as under construction is concerned, we want to sort of, like I mentioned a bit earlier, stabilize the first asset, learn from that feedback loop before we sort of commit more resources or capital into that, yes.

So basically, we don't take any construction risk when we go ahead and sign a framework with someone?

So the model can be of many types. I mean there can also be a model where we take a small capital risk of, let's say, 25%, 26% of equity to have skin in the game, depending upon the asset or the counterparty. But yes, predominantly, the construction risk is not taken by us, but by the EPC contractor. And obviously, we work very closely with them in terms of our inputs in terms of how the bidding, et cetera, is happening. But once the project is up and running and pass through the construction project cycle, then the asset comes to us on a pre-agreed basis.

Fair enough. And internally, would we set a benchmark or a cap in terms of getting into these assets, be it solar, battery management, data centers or under construction, something which I would call as noncore or nonoperating transmission assets?

So first of all, there is no plan to enter into data center. I want to make that point very clear. But when we pivoted into solar, we did guide about not having more than 25% of our assets in this particular space. Of course, we are way short of that right now, we are only about 3% or 4%. But I would say that unless we gain critical mass in some of these, what you call as noncore, and based on how we evolve under construction or BESS, I would say, combined together, they will be within that 20%, 25% of our portfolio mark. We would not like to exceed that unless and until along the way we get better visibility and confidence to exceed that threshold, yes.

Sure. Yes, fair enough. And my final question, Jyoti, is -- I think to one of the response to earlier participant, you had mentioned that one of the criteria that you would look at when acquiring any asset in terms of you define accretive where you would want stability in growth in medium-term DPU and you're not very focused -- focus is not a right word, but what your IRR might not be the first contribution. So can you just explain this or explain...

No. See, ultimately, the IRR translates into the DPU, Pratik. The point I was trying to make is that it is not just an IRR-based approach that we take when we look at either inorganic or organic assets. So we also sort of factor in predictability of that IRR or cash flow, sustainability of it and value accretion nature of it. It should be able to extend the runway of our DPU including the accretion to the DPU over a reasonable period of time. And that's an important metric, and we just won't look at an asset probably on an IRR basis. So that's the point I was trying to say. IRR is important. Eventually, IRR flows through all of this, but it's a slightly more comprehensive way to look at an asset acquisition and not just a single metric base. That's the point I was trying to make.

Fair enough. Sir, just for clarity, if an asset that we acquired might not be IRR accretive to what your portfolio of assets that you're holding, it might give us a short-term boost in DPUs, but ultimately, it won't. So would we be shying away from such assets?

So depends, Pratik, what is short term. If it is only 1 or 2 years or 3 years of accretion, then probably we may look at it very differently because at the end of the day, we have to look at our medium-term approach. And where the medium term is, it is 5, 7, 10, that depends on asset to asset. But yes, the idea is to have a slightly more medium-term outlook on our business and not have a very short-term vision.

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

Sir, one question I have. What are the equity firms you are looking forward to or which, say, be discussing right now, which you are aware of, which can help be our industry?

Meghana, do you want to take that?

Sure. So a couple of things, Mohit, that we are working with. One is, as I mentioned, getting InvITs and REITs included in various indices, which essentially promotes liquidity ultimately for investors. So that is one thing that we're actively working on. A couple of other things include removing the tax anomaly, like the long-term capital gains tax for InvITs is after 36 months, whereas for equity it is 12 months. So we won't -- considering this is also an equity-like instrument, we're trying to feel that it should be provided the same status. So these, and then a couple others on the regulatory aspects from rights issuance, regulations or fundraising regulations as long -- to remove the anomalies between pure-play equity REITs as well as on the InvITs. So these are few more that we are working on.

Our last question is from the line of Sunil Shah with Turtle Star Portfolio Managers.

First of all, I would like to congratulate Harsh on being the pioneer to get InvITs into India and for all of our shareholders, it's been a great journey. So thank you very much, Harsh, and Jyoti and Meghana for all the things that you people are doing there for all of us. Happy that the DPU has gone up as well, and Jyoti, I heard all your comments in terms of how you want to see the company forward in terms of accretive DPU cash flow, focus on the quality of earnings, framework assets, all of it. So very happy to then go on as an investor in the journey going forward. Look forward to a long time invested in the company as well. So most of the questions have been answered. Just one point which I would like Harsh to take it up. Harsh, as we all know, you're moving on, any unfinished agenda in your diary, if you could let us know and just share that with us as well in terms of IndiGrid?

Sure. Thank you, first of all, Sunilji, thanks for the wishes. And anyway if I can answer, I won't call it an unfinished agenda because I think it's moving on online, and we'll see its like as it progresses. There's a principle that in country as a policy, we have government assets, which the taxpayer owned asset be monetized on a bilateral basis, right? I think this question comes up on many forums and equally important for us. If at the end of the day, power grid or state transformation assets gets monetized, we strongly believe that it needs to be via transparent action. And any other process chosen by the government would be against -- be chosen by the government or the competition, the pricing that we have set for ourselves in the country. So I think people understand that. We have seen NHAI also coming out clearly after the InvIT that they will call for an auction for the further NHAI bids. We are expecting that same kind of message coming from power grid or Ministry of Power or we have not yet received. So I would say, it's -- people are moving in the direction, but yes, I would say that as long as government follows and calls for an auction, that's something which we would really like to see and hoping that it comes up soon.

Welcome to Jyoti on the new role. You have always been part of IndiGrid, but we look forward to welcoming you on the new journey as well.

As there are no further questions from the participants, I now hand the conference over to Mr. Subhadip Mitra from JM Financial for closing comments.

Thank you. On behalf of JM Financial, I would like to thank the management for giving us this opportunity to host the call. My congratulations to Harsh and Jyoti and best wishes for their new roles. Any closing comments from your side, Harsh, Jyoti?

Thanks, Subhadip. So look, we are well on our track to our stated vision and guidance of running the platform in a stable and producible manner. Harsh has done a tremendous job in setting this platform the way it is and having all the systems, processes as well as people in place, ensuring that the balance sheet is well capitalized. So while it will be a big loss personally to me and to most of us here IndiGrid, but it is what it is. So we wish Harsh all the best in his new role. But as far as IndiGrid is concerned, I can assure you that it's a value script for a very, very smooth and seamless transition in the coming next few years.

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