Indigrid Infrastructure Trust (540565) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the India Grid Trust Q3 FY '23 Earnings Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jiten Rushi from Axis Capital. Thank you, and over to you, sir.

Yes. Thank you, Inba. Good evening, ladies and gentlemen. On behalf of Axis Capital, I'm pleased to welcome you all for the India Grid Trust Q3 FY '23 Earnings Conference Call. We have with us the management team of India Grid Trust, which has been represented by Mr. Harsh Shah, CEO and Whole-Time Director; Ms. Divya Bedi Verma, CFO; Ms. Meghana Pandit, CIO; and Mr. Satish Talmale, COO. We thank the management for giving us this opportunity. We shall begin with the opening remarks from the management followed by Q&A session. I would like to now hand over the call to the management for opening remarks. Thank you, and over to you, sir. Yes, sir, Harsh, yes.

Yes. It looks like sir's line has just dropped. Ladies and gentlemen, we request you to please remain connected. We'll get Mr. Shah back on the call as soon as connected. Over to you, sir.

Yes. Hi. Good evening, everyone, and thank you for joining the call today. Thank you, Axis team to host us and to start with as we have done, we would have to like to reiterate our vision on Slide #3. But we have -- we had set out to become the most admired deal vehicle in Asia. And I think all the actions, decisions that we have taken is to keeping in mind to achieve this vision. And we believe our strategy of focused business model, value accretive growth, predictable distribution and optimal cap structure has contributed significantly on this vision over the last 5 years. We continue to strive to live up to that. Now coming to the quarter on Slide 5, where I'll have a quarterly update regarding the highlights of the quarter. In this quarter, particularly, it was an action maybe quarter with 2, 3 acquisitions or different types getting signed. At one point, we have signed around INR 1,500 crores of acquisition of KTL from Sterlite Power, which is part of Framework asset. On the other side, we have signed a framework agreement with GR Infra Limited for around INR 5,000 crores of assets where we look to bid and eventually monetize the assets of IndiGrid.

Sorry to interrupt, Mr. Shah. We're unable to hear you very clearly, if we can just switch to handset mode and speak probably we'll be able to hear.

Sure. Okay, okay? Sorry, is that better?

Yes, sir.

So the GR Infra one where I was talking about, we did a INR 5,000 crores in teamwork where we'll bid for certain assets together, and then we also signed [indiscernible] -- I would say, term sheet and framework agreement for specific asset, Rajgarh Transmission with GR Infra. And in the same quarter, we concluded the acquisition of Raichur Sholapur Transmission Company Limited from 3 developers. So, we see this quarter as a very successful quarter with respect to the business acquisition. On the other side -- on the financial performance we have continued our robust performance, where our EBITDA and revenue both grew by 4% year-on-year. Collections have remained at 100% this quarter. And DPU increased versus last year versus this year, we are at a 3.5% growth, which we are confident to deliver this year, and we'll pay the INR 3.3 DPU this quarter. Our net debt to AUM remains at 58%. This is pre-acquisition of KTL, but significantly below the 70% leverage cap as per SEBI regulations, which provides us ability to grow [indiscernible] In the operating performance side, our average availability remains at 99.76%, which is what provides us maximum incentives, out to achieve 2 million safe man hours achieved in and is still going on. On the BI platform, which we have developed, which is utilizing the earlier digital investment that is yielding a lot of results in terms of ability to optimize the cost and I would say this, a huge event room technology to ensure that a long-term orient cost remains lower. So that's the three highlights of the performance. On the next slide, Slide #6 is about the industry update. And in general the power sector remained strong and it is one of the good high-frequency indicator of economic activity. And in general, the demand growth has increased and has continued to increase. And to be honest, demand growth has surpassed the economy and what historically, people gets addicted. So we do feel confident that the demand growth in India on electricity side will continue to grow on account of a variety of short-term and long-term measures. And short term, may be linked to the economic activity, but the longer run, like [indiscernible] of transport, might add a substantially big boost in years to come. On the transmission side, again, CEA recently released a report, which showcases about INR 250,000 crores of CapEx required to modernize and set up the country for 500 gigawatt of RE capacity and achieving energy transition. So all-in-all, I would say that in general the transmission network in India, we believe that it's going to expand substantially on account of the general load growth, second India's efforts toward energy transition. So we believe with that there is going to be a substantial amount of CapEx, and we will have a reasonable amount of business out of that. With that outlook on quarter and the year, I would hand over the, I would say, mic to the colleague, Satish Talmale, who is Chief Operating Officer, to take you through the operating performance for the quarter 3, FY '23.

Thank you, Harsh. Happy to share quarter 3 operational performance for IndiGrid portfolio of the assets. So again, we focused our objective on zero harm on HSE perspective. For the quarter we had no major incident, no fatalities; 0 LTI; 0 MTC, Medical Treatment Cases; and 0 First Aid Cases. As Harsh mentioned, we are really prouder to achieve 2 million safe manhours milestone and we will strive to continue that performance every quarter. On transmission availability performance, we have achieved portfolio-wide 99.76% availability. Typically, quarter 3 and quarter 4 are the quarters for performing all the annual shutdown activities. As you can see on the right-hand side, there are a few assets where it is slightly below 99.75%, that is attributable to the plant shutdown outages, which we have undertaken to improve the reliability of the asset. And majority of the assets are on the track to achieve 99.75% target availability. On reliability, this quarter was one of the record quarter for us in integrate DigiGrid. We achieved 0.08 trips per line, which is, I think, best in industry at the fuel comparison level. And this is all due to all the hard work which is how things are putting to make sure the assets are reliable and there are no defects in the system. Digital Asset Management, as we updated previous quarter, all the assets on the portfolio are operating via DigiGrid platform. And now we are working on advanced analytics, which will help us to make better fact-based decisions to improve the performance on reliability, safety as well as on the cost optimization. I'm happy to share that we completed our 2 solarization project at Bhopal and Dhule substations. Idea was to achieve net-zero auxilliary power consumption via renewable energy sources so that we achieve our net zero objectives, which is part of our ESG framework. Again, as far as ESG framework is concerned, biodiversity is the major initiative, which we have undertaken and already action planning study has been initiated for all the critical portfolio assets. On the left-hand side chart, again, the focus on training continue in the quarter. As I said, there were no lost time incidents in the quarter. Unsafe conditions reporting, there is a focus so that there is a culture to report all the unsafe conditions at sites. Near miss is something which helps us to prevent any future accident. So that is also being continuously reported. Our solar utility in megawatt power plant has generated 46.32 million units for the quarter with a performance of 20.97% CUF with availability of 99.41%. And it is one of the best performing plant in the entire solar plant. So we are trying to achieve our consistent to our track record of maintaining superior availability. With that, I will hand over to Divya.

Thank you, Satish. Good evening and thank you to everyone. We are on Slide #8. It's good quarter with a stable performance as compared to the previous quarter, previous year, we have jumped in the revenue of INR 590 crores with a 4% growth. EBITDA at INR 536 crores. NDCF generated for the quarter is INR 294 crores. And we are at around guidance committed and the board have approved the distribution of INR 3.30 per unit. Collections for the quarter were good at 100%. We collected 100% of the revenue. And although for the previous year, similar quarter the collection percentage was at 103%. But collections have improved over previous quarter. In quarter 2, we were at 96% of the collection. DSO days stands at 63 days as of December '22. And that's a month-on-month collection efficiency for October, November, December. We have seen a good progress that was 100% -- 200% collection for the quarter. Coming on the next slide, #9. DPU is INR 3.30. It will be distributed in the form of interest and capital repayment. Interest is INR 2.80, and capital repayment is approximately INR 0.50. The outstanding units at end of the quarter is around INR 70 crores. And the gross distribution through all the unitholders come to active [indiscernible] is coming from INR 231 crores. Record date for the distribution is 31st January and tentative date by which the unitholder will receive the distribution is 9th of February. NAV as on December stood at INR 133. Post this quarter, distribution IndiGrid has distributed -- would have distributed INR 68.41 per unit with a total distribution of around INR 3,646 crores distribution. On the right-hand side we showcased the trend of distribution year-on-year basis, which is stable and a scalable growth of 3% to 4% year-on-year basis. We are on track to meet this year-on-year guidance of INR 13.20 per unit. Coming on the next slide, we showcased a waterfall from our EBITDA to the NDCF generation. At an SPV level, we have a consolidated EBITDA of INR 530 crores, net of the finance cost, working capital movement, CapEx, tax at SPV, NDCF related at SPV comes to around INR 543 crores, the net of the trust level expenses, interest costs and tax. We have generated NDCF of INR 294 crores, which is well above our guidance requirement, which will be distributed INR 231 crores. And this quarter, again we are replenishing reserves. So we -- this gives us an upside of INR 63 of reserves. With this the total reserves end of the quarter 3 at a consol trust level is around INR 217 crores. So that's all. I hand over to Meghana to take the subsequent slides.

Thank you, Divya. Good evening, everyone. I'm on Slide #11, given the snapshot of the balance sheet as on 31st of December. We remain strictly rated by the 3 rating agencies and our average cost of debt hopefully continues to be at around 7.5%. We ended -- this is the quarter with a cash balance of about INR 1,039 crores, which includes the distribution for this quarter and [indiscernible] and balance cash. The mix between the fixed rate borrowings and rate borrowing approx the total gross borrowing of INR 1,300 crores continues to be tilted towards fixed rate of more than 3/4 of the book. Net debt to AUM as of 31st December continues to be at 58%, it will be a significant headroom for acquisition. Interest coverage ratio remains at a healthy margin over 2.2x. The incremental cost of debt in line with the interesting cycle in the market has -- for this quarter was slightly higher at around 7.8% for the third quarter. The pie chart on the right-hand side, provide the mix of the sources of the borrowings. So, which today stands on the bank loans side about 60-odd percent, NCDs about 40%. NCDs being subscribed by various investors of mutual funds, corporates, retails, HNI, insurance companies, and the banks are also between [indiscernible] The bottom chart provides the repayment/refinancing schedule of the loan book over the next 10-15 years. And as you can see that broadly not more than 10% to 12% of the overall loan book comes up for repayment/refinancing in a particular year ensuring that we have not -- we are not going like a bunched up about any debt maturity coming up in a single year. Moving on to Slide #12 on the total returns chart. As on 31st of December, we continue to provide the superior-risk adjusted returns. Annualized return being about 14% and total returns of 105%. Breakup of the total returns between IndiGrid and price change of 65% and 40%. This doesn't include the third quarter distribution. On the risk basis, again, beta continue to remain very close to 0 and both on the debt side as well as on the equity side, we have continued to outperform previous and [indiscernible] Infra stocks. Just to spend a couple of minutes on the next slide, Slide #13 on the framework agreement signed with GR Infra. This is an agreement to acquire Rajgarh Transmission Limited with GR Infra one. This is a lnter-State Transmission and Tariff Based Competitive Bidding transmission project. This is due [indiscernible] for the establishment of Pachora SEZ and acquisition of 400 kV Bhopal transmission line as well. The scheduled COD for this project is expected to be by December 2023. It's again is on a BOOM basis, awarded on the BOOM based payment, it will be under the lnter-State Transmission PoC mechanism by the CTU. The levelized tariff for this project is about INR 41 crores. So with the TSA tenure of 35 years. IndiGrid we will be acquiring this project up on its COD in the third quarter of next year. In addition to this, we've also signed an MoU with GR Infra to jointly bid up to INR 5,000 crores of transmission projects which are coming up. This is a jointly bid for identified transmission projects, alias is both GR as well as the IndiGrid will be working jointly on this bid and IGT will acquire TBCB projects from GR Infra. Going to Slide #13. This is we signed a binding share purchase agreement with Sterlite Power or acquisition of Khargone Transmission Limited project. This is one of the framework assets that we are acquiring. And this constitutes for revenue generating elements, again an industry transmission project, part of the PoC mechanism by the CTU. And is a project with 35 years, the balance life remaining for this project is about 32 years. This has become operational and revenue generating since December 2021. The levelized tariff is about INR 159.1 crores. Price of the project from an acquisition perspective includes about INR 1,500 crores and likely to expect -- likely to add about INR 85-odd crores in the net distributable cash flow for IndiGrid on yearly basis. This acquisition of this project, the AUM for IndiGrid will increase to about INR 22,700-odd crores. And completely fits into this IndiGrid's strategy of acquiring value accretive assets. The main feature about this asset, again is, there is an existing synergies with one of our existing 765 kV network in Bhopal Dhule Transmission Project. So one transmission in this terminates in the Dhule substation, by which we are able to optimize on the operations and maintenance for Khargone Transmission post this acquisition. I will just request Harsh to take the next couple of slides on the business outlook over the next few quarters, please.

Thanks, Meghana. So on Slide #15, we have tried to capture a historical track record and what might happen in the future. And I think some of you might have been investors since IPA or even have been present around that. So we have showed this chart at that time, 5 years ago, to showcase how the DPU chart would look like if there were only IPA assets, which is -- IPA assets I've mentioned above. Then there was a set of assets which we targeted to acquire, which is in the dark blue acquisitions #1. We acquired other two big asset acquisitions in 2019, which was ENICL, OGPTL, NRSS, that are in the green. And subsequently, we have been continuously doing that. Now what this chart showcase is that the way in which and the yield can actually deliver predictability and it to be growth is by acquiring assets consistently at the right size and right growth, which would enable us to not only streamline our DPU predictability, but also increase it over a period of time. And that's why this chart is showcased. Because this is showcased, if you look at from FY '28 behind, it is the value accretive growth that has panned out and year-on-year we've increased by 3% to 4%. And as we stand today in FY '23, we not only have headroom to maintain what we are distributing for a long time, but also ability to grow by given acquisitions as well as the acquisitions that we have done through now. Going on Page 16, is the business outlook for us for the rest of the year in a few months. So on the portfolio strategy, I think we will remain to continue to maintain our assets well and ensure that you know what we have committed and promised, it's delivered as a sustainable distribution to our investors. This year, we will look to deliver the DPU guidance of INR 13.2, 9 months of which we already done. We'll continue to acquire assets. We have acquired about -- or signed to acquire about INR 2,000 crores over the last, last quarters. And the future outlay that we see in the transmission sector, about INR 250,000 crores is a sizable opportunity. In addition, as and when the state assets become monetizable, we believe that's going to be a large-scale expansion as well. We are also proactively looking for other power transmission bids as well as adjacent spaces like utility-scale battery storage, which do provide sustainable cash flows. The balance sheet side, I think, as we mentioned before, we like to remain in the means and when interest rates were falling too fast, we didn't fall too fast in the interest rates, it's rising too much. Our cost of debt at a portfolio average level, it is going to pretty much remain lesser than the growth that has taken place in the interest rate. So we try to remain in the means to ensure that there is less variability in terms of our interest rate and cost and we can provide predictable distribution. On the asset management side, we continue to maintain maximum availability and incentives. In one of our portfolios we have done self-reliant O&M practices, which pretty much means that there is no contractor, no [indiscernible] our own team members at IndiGrid are maintaining those assets. In addition to, we are looking at more business acquisition platform, which will further allow us to optimize the cost and increase reliability. We commit to and try to maintain the world-class EHS and ESG practices across our portfolio. On the next point, while many of them are linked, especially the first 2 is with respect to certain amendments and the tax anomalies that we are seeing between new taxation and others, I think it's -- let's hope what the budget shows, but this is something which we do believe that will result into more liquidity and better liquidity for investors and InvITs/REITs and therefore, attract more capital. I think that's where we kind of end the short presentation for the quarter. We can please open for question-and-answer.

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

Sir, first question is on the framework agreement. So have you identified the projects? And are these projects going to bid out the next 3 months? Or is it a slightly longer term in nature?

Yes, we have identified the projects. They are specific projects that we are working on. I think the bid pipelines are specific. But they are the ones which are already announced by [indiscernible]. So it will be one of those projects.

I think, what will be the leverage post all the transactions, all the acquisitions, especially once you finish the KTL? And how much is the limit you have to borrow and acquire the assets? Have you increased the capital FY '24?

Yes, yes. So Mohit, I think that's a math I can run, has not a guess, but I think if you add in our AUM and debt INR 1,700 crores will be adding between -- actually this will give that number. But Meghana, do you have the specific number handy which you can share?

Yes. So Mohit, today, we are at [ 58% ], which is already submitted after Raichur. After acquiring Khargone Transmission, it will go to somewhere between -- close to 61-odd percent. And that's the identified assets. After that, post acquisition, of course, even added both depending on the size of the acquisition, it will get added to the debt as well as to bottom line. But even after acquiring Khargone, you can see there is still a significant headwind that is available to us.

Last question, sir, what is holding up the monetization of that power grid asset? And is there anything thinking to bid the asset out. Is that something you heard of?

So I don't know about the [ Jersey ] part, but I think, see whether power will monetize or not those assets, which are with power grid is [indiscernible] Assistant Manager of financial [indiscernible] any public asset monetization. Sale of asset of concession should go through a competitive bidding process. And that would be the right thing to do because at the end of the day, the assets are built with taxpayers' money. And it's important that right transparent bid process takes place for any monetization, be it power grid or others. So I think that's our view is, whether power grid decides to monetize or not, obviously, it's a listed company with a separate board. It's their choice and decision. But I would rather say even state monetization. If you look at the OMT guidelines, they are very, very clearly identifying that it should be in auction. And I hope that states come up with that process very soon because that's where most amount of capital is also needed.

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

So if you would like to take me through this MoU that you have signed with GR Infra. So just wanted to get some clarity like are there any kind of greenfield risk that we would be exposing ourselves to industry-wide bidding?

Yes. So I think, I would say that to MoU is a more like an alignment, right? There are different projects under that. And I would say that in the framework that we have signed for Rajgarh Transmission, we are not taking -- we are not taking any greenfield risk. But projects where we may have synergies with like, let's say, an expansion or connecting that with our own substation or a small lines, we don't mind taking that risk. We've already taken it in Kalam and that's going well. So -- but it is -- both parties will need to agree to a particular project and what is -- at the end of the day, what is the maximum value that both parties bring to table. That's what one evaluates to win in a competitive process. So such MoU allows us to talk freely and develop -- explore different options. And one of the options can be that in a project where IndiGrid feels, there is more similarity and more value for IndiGrid, you might pick under construction risk as well.

Sir, what would be the total exposure of such kind of risk in our total AUM? Like you would have some risk management on that framework.

So I would say, we might have management risk management framework, but that's not public and we can't make it. But there is a clear guideline of SEBI that we will never be more than 10%. So that is like a law for us, right? We cannot meet, and we would not like to be even closer to that number. But what exactly we do within which percentage is more a risk management framework at a management level.

Our next question is from the line of Pratik Kothari from Unique Portfolio Manager.

And congratulations for a particular potential activity in such a long time. Some highly appreciative are in the indicative DPU chart. As for my first question regarding the MoU again, is it seems to be a very interesting opportunity for us as in terms of record to going forward. If you can just highlight any risks that we need to be aware of why did you get into such agreement? Or what are you cognizant of?

So the MoU itself doesn't pose any risk, right? As I said, MoU is a Memorandum of Understanding. So we are working with a common understanding for a certain set of projects that itself will never pose a risk. But as I said, we will look to do different type of arrangements for bids, which are more strategic or polluted to IndiGrid. So there may be an under construction project, which we undertake. But then it only decided by many other parameters. So that risk on today is not there. We may take it, but that will be considering if we are getting substantial synergies over there.

But in such MoUs is it that which in this case GR Infra would be the developer it and once that is done [indiscernible] takes on. So where does this underconstruction risk coming?

Okay. So one is what you described as a framework type of assets which we have done before and that's what we have done for Rajgarh. And when we say under construction risk, for example, right now, we have taken Kalam Transmission as a 100% under construction at IndiGrid, right? Well, it's going well. But there are projects in which we might have synergies and the risks, which are not suitable for IndiGrid, we might partner with somebody. And that could be with GR Power, one of the projects, right? So it depends on where IndiGrid can add value, in those projects, you might take underconstruction risks. So to have to say that we might bid for it.

And just one small clarification. You mentioned this from levelized tariffs are particular -- can you please explain what does that mean?

So any bid document have a number which get compared that whomever is the lowest number will be declared a winner. And that number becomes public. So the levelized tariff is that number. We quote for 35 numbers in the model and the bid. So to compare with one number, the bid process coordinator may use a discount rate. It can be 10%, 12%, different, depending on what they have explicitly stated in the bills. So -- and that gets discounted and called the levelized tariff. When they announced that this bidder has won this project at this level as that. And there's a public announcement. So that is the number that bid levelized tariff is referring to.

And is it fair on our part to compare what you're seeing for the CapEx versus levelized tariff for that underlying assets?

Not for CapEx, yes. One, there are 2 anomalies in that, because levelized tariff will change depending on what big processor coordinator took the discount rate, right? It can be substantially different than the other. So the mathematics did not play out very well. And second is that we don't pay for CapEx, where we pay for acquisition value. So if -- and again, most of our assets have a tariff publicly available. So you can use a particular discount rate and then compare that to the cost of acquisition that we have paid, not CapEx, cost of acquisition.

Our next question is from the line of Chandramouli M, an individual investor.

Sir, INR 0.50 per unit, which you are distributing as a capital repayment, is it a tax free credit holder?

Sorry, I could not hear you. Your line was not clear.

Mr. Chandramouli, if you're not on speakerphone, can you switch to a handset and talk please?

Hello, can you hear me?

You can ask your question. You'll have to repeat your question.

INR 0.50 per unit, which you are distributing this quarter as a capital repayment, is it tax free credit holder?

Okay. So there is a disclosure on one of our old website and exchanges. For any tax treatment, I think it is best to refer to that. Because taxes -- and we do not have area of expertise at how individuals will get taxed. But we have taken a lot of advice and then a tax statement -- potential tax statements. I think best is to refer to that to check the tax statement of that. We can tell you we are not [indiscernible] on that, because we are not required to. That's the view from the [indiscernible].