IRB InvIT Fund (540526) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the IRB InvIT call hosted by the company for discussing the unaudited financial results for the quarter ended December 2023. We have with us on the call today, Mr. Vinod Menon; Mr. Anil Yadav; Mr. Rushabh Gandhi; and Ms. Swapna Vengurlekar from IRB InvIT team. [Operator Instructions] Please note that the duration of the call will be 45 minutes, and any queries left unanswered after the call can be subsequently mailed to the management for adequate response and resolution. Please note that this conference is being recorded. I now request Mr. Menon to give you an overview of the significant development during the quarter. Over to you, sir.

Thank you. So a very good morning to all. I would like to welcome all the investors and analysts on this call. Hope you have reviewed our detailed numbers as well as the presentation. Being investment manager of the InVIT, our endeavor is to maximize the value of our unitholders. Value can be maximized in 2 ways, either by adding more assets or through efficient financial management. We would like to present some interesting data points to our unitholders. Based on the valuation report, total asset size is INR 8,194 crores, and the debt is INR 2,416 crores. So debt-to-asset percentage is approximately 29%. Weighted average life of the debt is approximately 7.5 years. [Audio Gap] So as I was speaking, there are some interesting data points to the unitholders. Based on the valuation report, total asset size is INR 8,194 crores. Debt is INR 2,416 crores. And the debt-to-asset percentage is approximately 29%. The weighted average life of the debt is 7.5 years against average portfolio concession life of 15 years. So we will evaluate various options to elongate this debt tenure to increase the distribution. IRB have assets. The Vadodara Mumbai Package 7 and Pathankot-Mandi are expected to complete in the FY '25. Chittoor-Thatchur is expected to be completed in FY '26. Six months post completion of these projects, they will be available for offer to the Trust. We are distributing INR 2 per unit for the quarter ended December 31, 2023. This quarter, we will be distributing INR 1.70 in the form of interest and INR 0.30 per unit in the form of dividend. The Trust has announced its maiden distribution in the form of dividend. Dividend has been distributed by the MVR SPV. The said SPV continues to follow the old tax regime. Accordingly, based on our knowledge, the said distribution in the form of dividend shall be exempt in the hands of the unitholders. As compared to the corresponding quarter of the previous year, we have observed a growth of 11% in the toll revenue. The key contributors to the toll revenue growth are Jaipur Deoli, Tumkur Chitradurga and Omalur-Salem project. The investment manager, on behalf of the Trust, continues to evaluate potential investment opportunities. The net debt to value of assets of the Trust is 0.3:1, providing sufficient debt capacity for acquiring new assets, and the Trust continues to have a AAA credit rating from 2 of the rating agency that is CARE and India Ratings. I would now request Mr. Rushabh Gandhi to take you through the financial performance for the quarter and the year. Over to you, Rushabh.

Thank you, sir. I will now present the financial analysis for the quarter ended December '23 compared with the corresponding quarter of previous year. The total consolidated income for the quarter ended December '23 stood at INR 283 crores as compared to INR 285 crores for the corresponding quarter of previous year. The consolidated toll revenue for the quarter ended December '23 improved to INR 233 as against INR 209 crores for the corresponding quarter of previous year, registering a growth of 12%. EBITDA for the quarter ended December '23 stood at INR 210 crores as against INR 179 crores for the corresponding quarter of previous year. Interest cost, which includes interest on premium deferment, for the quarter ended December '23 stood at INR 69 crores as against INR 58 crores in the corresponding quarter of previous year. This is primarily on account of the interest cost from the newly acquired Vadodara Kim HAM asset. Depreciation, which includes amortization for the current quarter stood at INR 58 crores as against INR 46 crores for the corresponding quarter of previous year. The profit after tax for the quarter ended December '23 stood at INR 81 crores as against INR 100 crores for the corresponding quarter of previous year. Now I will request the moderator to open the session for question and answer.

[Operator Instructions] The first question is from the line of Dhiraj Dave from Samvad Financial Services.

Congratulations to management team for maintaining the distribution at INR 2 per unit. My first question is on the portfolio asset. I refer to Slide 7, where we get toll performance for Pathankot-Amritsar Project. In FY '24, as per the data, we get around daily toll collection being INR 4.1 million vis-à-vis INR 4.3 million. And basically, can you explain why there was a drop in December month? Because in November, which was 30 days month, it was INR 4.3 million, while in December, we are getting INR 4.3 million (sic) [ INR 4.1 million. ] And do we see change in trajectory now?

I think Amritsar-Pathankot being a north project typically affected if there is a -- if cold increases and if we have a situation like fog, then definitely that impacts overall traffic and that led to lower collection. But if you look at the earlier months, as highlighted by you, the growth was better as compared to the last year. And we expect that momentum should continue beyond January.

Okay. So basically, it's a seasonal phenomenon. And how you see -- because I believe that situation is, in fact, not so great in January also. So do we see collection being on same line? Or we see marginal drop and expect some improvement?

I think, January will have some marginal drop, as you might have seen from the newspaper that we are seeing fog situation in a few days. So then definitely, there will be marginal drop, but I think that should improve from February onwards.

So it was a pattern. And, again, connected to same, what do you see Amravati project -- when do you see Nagpur bypass or something, which was affecting. So we shall expect some -- means, that thing is over, the project which was -- Metro project, which affected our traffic movement?

I think the restriction is still on. But sir, one interesting data point that if you look at the September month collection, that was close to INR 19 crores. And from INR 19 crores, that has improved to INR 21.66 crores, roughly 13% growth witnessed in Talegaon Amravati as compared to the trailing quarter. So I think we believe that it's on a recovery path. And we should -- we have not seen a decline from -- as far as trailing quarter is concerned. And in fact, there was robust growth. And if you look at other projects also, the growth as compared to trailing quarter was close to 5% to 6%. Some projects have 4.5%, some 5% and 6%. But Talegaon Amravati was roughly 13-plus percent growth as compared to trailing quarter. And that provides us also a good kind of -- from here on, we believe that there will not be any decline on the traffic, but it should start improving. But the restriction, which was there, that is still continuing.

And if I may squeeze one more, basically, particularly on the expected NCDF calculation for next year. I believe there is some kind of amount which was deferred by NHAI, particularly for the Tumkur Chitradurga project and that we need to, in fact, start -- repayment will start probably from FY '25 onwards. So what is an expected outflow? And with that expected outflow, what do you see a distribution -- kind of impact of distribution from FY '25 onwards?

I think, sir, based on the current cash flow, we should be able to maintain the distribution of INR 8. But as CEO, sir, has also suggested that if you look at our debt, debt is only 0.3x of the total assets. And the life of the debt is only 7, 7.5 years as against the life of asset is more than 15 years. So we are trying to balance out both the things because typically, the projects are funded through debt or equity. And your equity, that is the unit capital, is costlier than the debt. So our thought process is that we should elongate the debt tenure and -- at least to 10 to 12 years so that the distribution to the unitholders should increase. We are working on that line. And once we highlight that number, probably the distribution should increase between 7% to 10% from hereon. Probably we'll move from INR 8 to INR 9.

Okay. And just a specific question. What is the kind of expected NHAI payment of the deferred premium in FY '25 for the Tumkur Chitradurga project?

I think the deferred premium, apart from the regular premium in 2022, I think '23 -- '22 -- '24, we were paying close to INR 184 crores kind of premium payment, and that should increase close to INR 250 crores in '25.

Okay. And with that, sir, INR 65 crores also, approximately, we see that we can mimic that distribution at INR 8, assuming everything goes as it kind of it?

Yes.

The next question is from the line of Satinder Singh Bedi from Eon Infotech Limited.

So just 2 housekeeping questions. So what is the deferred premium outstanding as of 31st of December on account of Tumkur Chitradurga? And like you said that there will be INR 250 crore payout in FY '25 on account of this project, how much of it would be the annual premium grant? And would there be some part of the new premium deferment that would be part of this INR 250 crores?

Yes. There's a -- INR 250 crores is part of including the deferred premium, and total outstanding deferred premium is close to INR 600 crores at the end of December '23.

So it's about INR 600 crores?

Yes.

Okay. Okay. My understanding was that for FY '25, our normal premium grant should anyway be in the range of about INR 260 crores, INR 265 crores or there, so is that an incorrect understanding?

For FY '25, I think INR 250 crores to INR 260 crores is the premium payment.

So this does not include any premium deferment that we have to pay back?

Just one sec. So that includes the normal premium, but there was a -- we will check and confirm back to you shortly.

Yes. Right, right. So -- okay. And sir, at the time of the VK1 acquisition, it was estimated that, that acquisition should lead to a bump of about INR 25 crores -- INR 20 crores to INR 25 crores in the profits and hence, about INR 0.30 bump-up in distribution. When do we expect the impact of that to flow in? Because the distribution at 2, it was stable even before that acquisition. So any sense on that, sir?

Yes. So VK1 probably should increase the payout from FY '25. That is one thing. Second thing, because of the lower collection in Talegaon Amravati and Pathankot, that has led some kind of dip in the revenue. Or else even in this year, we would have paid around INR 8.3 to INR 8.4 per -- to the unitholder.

Okay. Okay. Right, sir. And what is the cash retained at the Trust and the SPV level as of 31st December?

Total cash is close to INR 260 crores.

Okay. INR 260 crores, okay. And which includes the payout which will happen now?

Yes, yes.

The next question is from the line of Manish Goyal from Thinqwise Wealth Managers.

Sorry, I would like to continue on Tumkur Chitradurga. The deferred payment outstanding is INR 600 crores, so when is this amount to be paid, like over what duration?

So I think the deferred premium should start from the FY '26 till, I think, another 5 to 6 years.

Because I'm just reading the rating report, and it says that the deferred premium obligation was approved up to FY '24. And FY '25 onwards, we'll have to pay the amount. Now if INR 600 crores is to be paid over 6 years, then it's additional INR 100 crores impact for us in the cash flows. So in such scenario also, you mentioned that we'll be able to maintain a distribution of INR 8 per annum?

Actually, as per the premium deferment scheme, the entire premium along with the -- the entire deferred premium has to be repaid 1 year prior to the end of the concession period. That is how the policy has been framed; however, we are trying our best to repay this deferred premium within 6 to 7 years from now. That is how it is being planned. But it is all based on the cash flow available, and the deferred premium has to be cleared 1 year prior to the concession period.

So when is that ending, sir?

That concession is, I think, till 2036.

Okay. No, I'm just a little worried in terms of -- because in opening remarks also, it was mentioned that a couple of projects are completing their concession in FY '26, which, in turn, will also lead to lower cash flows for us. And on other side, if we have to pay INR 100 crores more, then just wondering as to how can we expect it -- the payout to remain at INR 8.

So I would like to just draw your attention to the concession agreement and waterfall mechanism. Waterfall mechanism for the TC says that toll collection, less OEM payment, less interest, whatever the surplus will be left, that will be paid as a premium. And if we are able to service the premium and if any amount is left, that will be utilized for the deferred premium. So the Trust -- what debt Trust has extended to the SPV, that will have a priority over premium. That is mentioned in the concession agreement itself so that whenever the deferred premium will be paid, that will be paid out of the surplus left post the servicing interest to the Trust. So considering that, I think we should be able to make the payment of INR 8, and probably a large portion of the premium will be paid after 3 or 4 years post FY '25.

No, I agree, sir. But the point is that on other side, we have been saying that we want to defer our debt scheduled payments. So I'm just like wondering that technically for us, this liability does exist and I believe that annual interest rate also we have to keep building on the pending amount. And if you probably want to do NPV of the asset, then definitely, it will take a hit on our NPV, right?

I think if you are deferring the debt, that has lower cost than the cost of equity, typically, the NPV should increase.

No, I'm saying that if we factor this INR 600 crores number, which is anyway we have to pay, maybe if we pay after the cash flows improve, but technically, we have to pay. So I'm just saying that the NAV, what we have disclosed, does it factor this payout of INR 600 crores?

Yes, yes. Valuer factors this deferred premium also in their valuation.

And assuming that if we don't buy any more assets, then probably for us, yield to maturity would be what? Today, we are paying out INR 8. But if I'm holding till the end of concession of all the projects, which probably get over, then what would be our yield to the maturities?

So I think the yield to maturity will be somewhere between 13.5% to 15%, depending about what kind of growth you are assuming in the traffic growth and the kind of inflation you build in your projection.

Okay. No, no, what I'm trying to say that we have a definite life of these projects, 5 projects what we have. So ideally, there is a definite life where it will -- probably concession period will get over. So if we were to build in that with 13% or 12% growth, annual growth rate, both on traffic and inflation, I'm just trying to understand that probably will this INR 8 continue over a life of till the concession is done? That is what I'm trying to understand.

INR 8 will continue, and probably from latter years, from after 2029 or so, that should increase to -- significantly increase to INR 12 or INR 13 because at that time, there will not be any debt left on the Trust. And that will significantly increase in the latter part of the life.

Okay. So basically, unitholders will get back its capital. And in turn, then the -- probably, it will have the impact on the NAV also and resultant share price?

Yes. So basically, I will just give you an example. If you are investing INR 70 today, and over the -- that is the outflow for you. And over the life of concession, the Trust will pay the payout. And based on 9.5% revenue growth, the IRR on today's date will be close to 13.5% to 15%, what I had discussed.

Okay. And last question in terms of like we have a lot of room on the -- based on our debt equity. So are we contemplating to buy more assets and in turn -- probably which in turn can help us to increase our payout?