Indigrid Infrastructure Trust (540565) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the India Grid Limited Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. [Sushil Dhoot] from Nuvama Wealth Management. Thank you, and over to you, sir.

Good afternoon, friends. So on behalf of Nuvama Wealth Management, welcoming all to the India Grid in its first quarter FY '24 conference call. We are joined today by the senior management of India Grid, represented by Mr. Harsh Shah, CEO and the Whole Time Director; Mr. Navin Sharma, Chief Financial Officer; Ms. Meghana Pandit, Chief Investment Officer; Mr. Satish Talmale, Chief Operating Officer. So we'll start with the opening remarks with the management, followed by a Q&A session. I would now like to hand the call to Harsh sir for his opening remarks. Over to you, sir.

Thank you, and thank you, everyone, for joining on the call today. We had a good beginning of the financial year, and I would like to take you through the presentation first, and then we'll be happy to address any more questions on the presentation and the results. On the Slide #3 of the presentation, we reiterate our vision. Our vision is to become the most admired [indiscernible] in Asia. And we believe that with a focused business model, value accretive growth, predictable distribution and optimal cap structure, we'll be able to achieve that. On the next slide, Slide #4, is a portfolio overview at IndiGrid that we have today. This does not include the recent acquisition that we have signed up for. And then this represents the current portfolio of IndiGrid assets. So we have about INR 22,900 crores of assets under management across 19 states and UT, about 8,500 circuit kilometers and 17,000 MVA transformation capacity. Coming to the quarter 1 FY '24 highlights on Page #6. We completed our sixth years of value-accretive growth and sustainable distribution and best in class governance practices since listing. It's been -- it's our sixth anniversary for IndiGrid in this quarter, and we are proud to have delivered superior risk adjusted return to unitholders over the last 6 years since listing. We signed for Virescent Renewable Energy Trust last quarter and announced the details for unitholder vote. The transaction closure process is underway. We received unitholder approval as well as SEBI approval. And we are targeting closure of the transaction sometime in the last week of August '23. We also received both unitholder approval and subsequent SEBI approval of declassification of Sterlite Power Transmission Limited as a sponsor. In addition to the above 3, we have received and started work on several augmentation projects, which are allotted to us on a regulated tariff mechanism across 4 of our substations in Kallam, Patran, Prithla and Amargargh, and that's something which we have started CapEx on. Financially, as we increased the DPU growth last year, last quarter, we have continued with that and we are distributing with a run rate of INR 13.8 a unit. And we were able to do it with our revenue and EBITDA both increasing around 11% to 12% versus last year. Collections are at 86% in line with usual quarterly trends. Typically, the quarter 4 is higher and quarter 1 is marginally lower. Our AUM stand at INR 22,098 crores with a net debt to AUM at 60%, which is well below the 70% cap provided by SEBI. On operating performance, our average availability is at 99.5%. Solar CUF of the small portfolio that we have is around 28.05%. And there is a temporary impact on availability in NER due to some insulator flashovers and I'll discuss that in subsequent slides. All-in-all, it's been a robust performance, which has allowed us to deliver a sustainable DPU of growth that we promised last quarter. On Slide #7 is about industry update. The power demand continues to reach past peaks and it is again, one of the highest power demand that we've seen in the country. And we are confident that with growth in GDP as well as the electrification initiatives that have been done in the last 5 years. We do see this power demand growing on year-on-year basis. Forecasting this consistent growth in the power consumption, there has been a lot of development on the transmission side, which are part of the National Electricity Plan, which was notified by CEA, which provides short-term framework, provides capacity additions where both in the grid as well as the storage. It provides measures to have RE available for 24/7 through BESS and pump storage. So all of this has translated physically into about INR 1.4 lakh crores of TBCB bids in the sector that we are seeing in the near future. And these are identified projects which are approved by NCT. And therefore, we think that this is going to result into a sizable pipeline for transmission business. On the Slide #8, which is just to provide an update on how IndiGrid would look post Virescent acquisition. So as an update, as I mentioned earlier, we received the approval from unitholders on June '23. On July '23, we received -- on July 2023, we have received see approval for closing this and August '23, we are targeting to close this timber. With this transaction, IndiGrid AUM is almost going to grow up to around INR 27,000 crores. The watt mega peak capacity will grow almost [500] to 626. And number of employees will also substantially grow because we are taking over most of the employees of Virescent, which will allow us to operate the portfolio smoothly. And in general, number of projects are almost doubling to what we had earlier. So in general, it is a substantial growth that's taking place as we integrate [indiscernible]. Coming to quarter 4 -- quarter 1 FY '24 for operating performance, I would like to invite Satish to brief you around that.

Yes. Thanks, Harsh. Good afternoon, everyone. So for quarter 1 operations performance, we achieved 0 fatality for the quarter, and there were some minor incidents towards first-aid medical treatment, which are part of our continuous improvement program to achieve our Zero Harm mission. On performance -- on power transmission, we achieved more than 99.5% availability across the portfolio. Solar generation, this is relatively 6% higher generation compared to last year, which is at 61.26 million units at a 28.05% CUF. On [NERs], particularly, if you see there is a slight dip on availability that is due to insulator issue, which we understood the root cause and we are trying to mitigate that in next quarter. On reliability, we achieved 0.24 target. Generally, in Q1, the number of trips due to weather-related events are higher, but still due to all the reliability improvement measures, we achieved a lower score compared to last financial year quarter. Few technological initiatives we have initiated our process to implement remote access server technology, installation across our substation and also automatic fault analysis system, which will help us to troubleshoot all the faults in a timely manner and even help our ability to restore trips in a most efficient manner. On solarization, we installed a small capacity in Bhopal and Dhule substation along with battery storage. We are also targeting to solarize all other substations and we are planning to implement those in coming quarters. On cybersecurity, there are no material threats which are identified and recorded by our 24/7 security operations center. Yes, that's it. I guess I will hand over it to Navin on next slide.

Thank you, Satish, and good evening, everyone. We are on Slide #10. Good quarter with robust performance as compared to the same quarter previous year. We have recorded a revenue and EBITDA of INR 629 crore and INR 567 crores, respectively. This translates into 12% and 11% Y-o-Y growth. NDCF generated for the quarter was INR 173 crores, and Board has approved a distribution of INR 3.45 per unit, which is in line with our guidance and this translates into a DPU growth of 5% on Y-o-Y basis. Coming on to the collection for the quarter. It stood 86% as compared to 79% collection in Q1 of FY '23. Historically, Q1 collection remains a bit low after a superior Q4 collections. In Q4 FY '23, collections were at 114% level, which translates into 100% collection over last 2 quarters. The DSO as of 30 June stands at 66 days, which is similar to Q1 FY '23 DSO. Coming on the slide -- next Slide #11, DPU for the quarter is INR 3.45 per unit. It will be distributed in the form of interest, dividend and capital repayment, which is INR 3.18 to INR 0.06 and INR 0.21, respectively. The outstanding units at the end on the quarter is around INR 70 crores and the gross distribution to all the unitholders at INR 3.45 comes to INR 242 crores. Record date for the distribution is August 3, and tentative date by which the unitholders will receive a distribution is August 12. NAV as of June 30 stood at INR 130.5 per unit. Over this quarter distribution, IndiGrid would have distributed INR 75.3 per unit with a total distribution of around INR 4,130 crores. On the right-hand side, we showcase the kind of distribution on Y-o-Y basis, which is stable and scalable growth of 3% to 4% over the year. We are on track to meet this year's guidance on distribution of INR 13.8 per unit. Turning on the next Slide #12, which showcase a waterfall summary of our EBITDA to the NDCF generation and distribution. At an SPV level, we have a consolidated EBITDA of INR 573 crores. Net of the finance costs, working capital movement, CapEx and taxes at SPV level, NDCF generated at SPV comes to around INR 479 crores. The net of the interest level expenses, interest costs and tax, we have generated NDCF of INR 173 crores. As we started off the healthy reserve of INR 322 crores, we have utilized our reserves by INR 16 crores -- INR 68 crores, and our closing reserves stand at INR 254 crores, which is in excess of one quarter's DPU basis current guidance. So that's all from my side. I hand over to Meghana to take the subsequent slides.

Thanks, Navin. Hi. Good evening, everyone. I'm on Slide #13, snapshot of our balance sheet. We continue to remain AAA-rated by all the 3 rating agencies. At the end of the quarter 1, our average cost of debt remains at a healthy 7.58% with a cash balance of about INR 1,041 crores. This includes DSRA of around INR 370-odd crores and about INR 241 crores of distribution for the quarter and balance free cash. Almost 83% of our overall borrowing book of INR 18,600 crores is fixed rate to the extent of around at least 3 to 4 years. We ended the quarter with a net debt to AUM of 60.1% and again, very robust interest coverage ratio of more than 2x. During the quarter, we drew IFC's loan of around INR 1,140-odd crores at a cost of debt of about 7.7%. The borrowing book remains fairly diversified between bank loans of almost about 53-odd percent and NCDs of 47%, which are subscribed by a diverse set of investors, including mutual funds, insurance companies, HNI, retail, corporate provident funds, et cetera. The bottom chart talks about our repayment or refinancing schedule. For this fiscal FY '24, the refinancing number is close to about 3.5-odd percent of the overall book, very small. And the remaining year, as you can see, is very smoothly distributed with not more than 10% to 11% of the borrowing book coming up for refinancing. Moving ahead on Slide 14, just depicts our risk-adjusted total returns that we are providing to the unitholders since inception. So our total return is close to about 109% and annualized return of 13%, which compared to both debt and equity indices continues to remain superior, especially on the risk side, if you compare with the Beta, we remain at the lowest 0.08. Slide #15, the business outlook as we look at it. So the first one, currently, we are focusing on completing the Virescent transaction. Along with that, the framework asset that we have -- we are looking at from GR Infra, Rajgarh, as and when it becomes operational, we will look to acquire that also. In addition to that, with the significant attractive transmission bid opportunities coming up, we will look at synergistic greenfield bidding across both transmission. Battery energy storage system is also an area that we are closely looking at. With the current guidance that we have provided on the DPU of 13.8%, we continue to focus on that. And post the Virescent acquisition, as we have mentioned before, we are looking to provide a 2% to 3% increase in the DPU after the acquisition is completed. Parallelly, our focus on improving the balance sheet continues to exist in terms of optimizing the interest cost on all the incremental borrowing that we do alongside ensuring that the tenures remain pretty long. We have always focused on maintaining adequate liquidity to ensure any sort of emergencies that come about can be looked at. We have taken unitholders' approval in June to raise equity to the extent of INR 1,500-odd crores. And this was with an intention that after Virescent acquisition, our net debt to AUM would be somewhere about 65-odd-percent and with that in mind, we are looking to raise equity to the extent of up to INR 1,500 crores, which will bring the net debt to AUM back to around 60% level. Parallelly, asset management continues to be the focus with ensuring that the maximum availability is there across the portfolio. Self-reliant O&M practices continues and the EHS and ESG practices that we have adopted, we will continue to improve on that. On the industry part of it, we continue to remain very active across various industry bodies and we are working on ensuring more and more private sector participation in the electricity sector, similarly on the national monetization pipeline. So we make representations across various industry bodies and improving investor education about specifically IndiGrid as well as InvIT as platform continues to be the case. With that, we'll take a pause here, and we can move to the Q&A session, please. Over to you, Sushil.

[Operator Instructions] First question is from the line of [Shirish Vaze] from MoneyLife Advisory Service.

My first question pertains to the agreement with GR Infra. So I just wanted to understand this framework agreement is only restricted to one asset or it will also extend to subsequent assets as and when they come up for acquisition?

So this agreement Praneeth you are referring to is only for one asset and subsequent asset, there will be different agreements depending on what is the arrangement for each bid.

Got it, sir. And my second question pertains to, I just wanted to understand, are we also looking at metering infrastructure concessions to complement the portfolio of -- our current portfolio?

I think we keep evaluating different businesses and certainly metering in fact has become a large opportunity. Having said so, we are at a very early stage in evaluation of the same. And if it becomes interesting, we would pursue, but at this point in time, it's very, very early stage.

[Operator Instructions] Our next question is from the line of Usha Virendra from Acharya.

Your Slide #12 says the quarterly report of Q1. EBITDA to NDCF shows a reserve of INR 681 crores was used to distribute DPU. Am I correct, sir?

Yes.

So then what is the reason to dip into reserve?

Okay. So typically, what happens is that our collections, while they look very flat and maintaining 100%, on a quarter-on-quarter, they typically vary. So as Navin mentioned, last quarter, it was 114%, this quarter it was 86%. And therefore, on a quarter-on-quarter basis, quarter 1 is low, quarter 2 is a little higher, quarter 3 is little low and quarter 4 is high. That's what we have seen historically. So we keep a reserve about a quarter of distribution, which is generated out of the 10% flexibility that SEBI provides, which allows us to streamline the quarter-over-quarter variability. Otherwise, if it is 100% pass-through, there may be more volatility that may come into our distribution. So we keep this reserve. And then this reserve gets refilled when we receive our collection back on a quarter-on-quarter basis. So quarter 4, we added to the reserve; quarter 4, we are consuming; next quarter, we will see what the collections are and then reflect that. So the reserves are just amount that allows us to smoothen the quarter-on-quarter variability on the tax collection.

And sir, how is this acquisition being financed like loan or equity? I think I heard some equity portion.

Sorry, what is it? Can you repeat that?

How is the acquisition of Virescent being financed? How are you getting the funds?

So acquisition of Virescent will be a mix of equity, debt and internal accruals, all 3 put together. In the shorter term, we might raise debt and then repay equity as we need it. So it's going to be a mix of all.

Okay. So do the current unitholders get to apply for any rights or something, something like that?

If we come up with a rights issue as a mode of capital raising, yes, unitholders will get a right to apply.

[Operator Instructions] Next question is from the line of Pradyumna Dalmia from Lansdowne Investment.

I just wanted to understand more and if you could elaborate a little more on the INR 1,500 crore capital raising plans. What are the timelines, et cetera, that you have in mind for this? And what is likely to be the debt and equity split of this?

So just to clarify, the INR 1,500 crore is the unit capital raise. So it's entirely equity. In terms of timeline, I think it's difficult to communicate what timeline will it be, but we are evaluating all options, including what earlier unitholder asked about rights issue, preference issue and institutional placement. This specific approval that we have taken was for institutional placement. And each capitalization method has its own nuanced advantage or shortcomings. So we are evaluating that. At this point in time, we don't have a, I would say, timeline to conclude that. It's kind of an approval we have taken, but we'll keep evaluating.

Okay. So you cannot comment at this stage whether this will be completed in this quarter, next quarter or FY '24 at least?

Yes. We cannot commit to that, but I think the approval that we have taken is valid for a year so.

Okay. And you will obviously make the necessary announcement, et cetera, as and when you do decide which route you're going to take?