IRB InvIT Fund (540526) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. Welcome to IRB InvIT Fund's call hosted by the company for discussing the audited financial results for the quarter and year ended March 2024. We have with us on the call today, Mr. Vinod K. Menon; Mr. Anil Yadav, Mr. Rushabh Gandhi; and Ms. Swapna Vengurlekar from IRB InvIT team. [Operator Instructions] Please note that the duration for the call would be 45 minutes and any query 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. Vinod Menon to give an overview of the significant development during the quarter and year. Over to you, sir.

Yes. Thank you. A very good evening 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. During the quarter ended March '24, we observed robust traffic growth across all our projects. As compared to the corresponding quarter of the previous year, we have observed 12.5% growth in the toll revenue on a like-to-like basis, that is excluding the Surat Dahisar project. On an annual basis, the toll collection has increased by 10% reflecting robust traffic growth across the portfolio. For Talegaon Amravati project, we have witnessed positive recovery in toll revenue from February 2024, and the same has continued in the month of March 2024. We are distributing INR 2 per unit for the quarter ended March 31, 2024. 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. With this, we have distributed INR 8 per unit for the financial year 2023, '24. This distribution includes the distribution in the form of interest of INR 6.80 per unit. Distribution in the form of return of capital of INR 0.60 per unit, and a maiden distribution in the form of dividend of INR 0.60 per unit. So till date, since the IPO way back in 2017, its cumulative distribution has reached INR 3,852 crores, that is INR 66.35 per unit, which amounts to 65% of the aggregate fund raised. During the financial year 2023, '24, the Trust has announced its maiden distribution in the form of dividend. Dividend has been distributed by 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. The net debt to the value of assets of the Trust is at 0.3:1, providing sufficient depth capacity for acquiring new assets. On the acquisition front, HAM assets from the sponsor group that is VM7 and Pathankot Mandi are expected to be completed in FY '25. Another project Chittoor Thatchur is expected to be completed in FY '26. Six months post completion of these assets, they will be available for offer to the Trust. During the month of February 2024, Pathankot Amritsar SPV company has received the arbitration award in respect of compensation for toll suspension on account of farmers strike. As per the arbitral award, NHAI is liable to pay additional compensation to the said SPV for INR 28.54 crores, and as on date of the award plus applicable interest till the date of payment. In addition to this, the honorable tribunal has granted an extension of concession period by 472 days to the SPV. On the refinancing front, the Trust is in an advanced stage of decision with the lenders. We will update once this transaction is concluded. The investment manager on behalf of the Trust also continues to evaluate potential investment opportunities. 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 year ended March '24 compared with the previous year ended March '23. The total consolidated income for the year ended March '24 stood at INR 1,086 crores as compared to INR 1,039 crores in the previous year ended March '23. The consolidated income for the previous year excludes revenue from arbitration award, which has been appropriated to the EPC contractor. EBITDA for the year ended March '24 stood at INR 886 crores as against INR 828 crores in the previous year ended March '23. Interest cost, which includes the interest on premium deferment for the year ended March '24 stood at INR 272 crores as against INR 193 crores in the previous year. This is primarily on account of interest costs from the newly acquired HAM asset, which was acquired in the month of October '22. Depreciation, which includes the amortization cost for the year ended March '24, stood at INR 230 crores as against INR 261 crores from the previous year. The profit after tax for the current year stood at INR 373 crores as against INR 370 crores for the previous year. I would like to request the moderator to open the session for Q&A.

[Operator Instructions] We have our first question from the line of Dhiraj Dave from Samvad Financial Services.

My first question is, basically, what is the revision in toll, like the presentation talks about 1st April 2023. So 2024 onwards what has been toll revision?

Yes. In terms of the toll rate revision based on the WPI as of December 2023, the rate revision will be a close to point 3.35 to 3.5%. And as you might be aware that Election Commission has asked to put a hold on tariff revision across India. And probably, this tariff revision will happen once the code of conduct is lifted.

Okay. So we should expect around 3.5% improvement for say, June something, whatever is that post-election code of conduct lifted?

Yes, June 1.

June 1. Okay. So that was the first question. Secondly, just a kind of thing like is there any specific reason why we are distributing -- are we keeping anything in reserve? Since basically, we have -- what is the distribution percentage to NDCF for current quarter?

It's more than 95%. We are distributing more than 95%.

Okay. And any scope to increase the distribution? Because like, in fact, if you compare this to last year, it was INR 8.05 or INR 8.5. And we see since listing while you have given a very good distribution considering the asset. But is there any scope where we can see some improvement even acquiring a HAM asset, actually speaking, may have not moved distribution for the investor. Any view of management on say?

I think this year, we have seen an increase in the interest cost across the project or whether we have data at project level or InvIT level. So that has increased the outflow. And considering this year, there will be increase in the collection, and we expect that the distribution will increase in this financial year. And to guide the exact number, probably you have to wait until Q1 of this financial year. And at that time, we will be providing the guidance for this financial year. But what I can assure you that this financial year, distribution will be higher as compared to the last year.

Okay. And just one suggestion, while we give this presentation, all the details, one slide, if you can add, one basically, what is the variable interest rate on our debt and what is the fixed income? So proportion of fixed income and variable interest debt? And second is what is weighted average cost per year and all up to a particular quarter. If you can present them, that would be very helpful for us to evaluate.

We have a next question from the line of [ Tanvir Suri ], an Individual Investor.

Yes, am I audible?

Yes, [ Suri ], go ahead.

Okay. So the first question I had was that in your slide where you show the gross income, project wise gross income. Is there any possibility to also show the HAM asset income that is achieved during the year?

I think you are on speaker phone. Can you just switch off the speaker. Because, last portion we missed.

Okay, sorry. Am I -- is it any better now? Yes. So my question was on Slide #12 where you show the toll revenue breakup, any particular reason why we don't show the collection for the year to the HAM asset as well?

I think we have one slide for HAM. That is the Slide #14. There, we provide what kind of income we get from the HAM.

Yes, but -- yes. But what I was asking was if you could show it as in the same -- in the gross toll connection wouldn't that just be easier to read from all the projects, how much toll connection we get or how much total revenue we get?

I think there, we are disclosing the toll collection and in HAM project, we get annuity from the government. We have to suitably modify to include this HAM distribution or HAM annuities, whatever is coming from the government. We can basically, create one more subgroup, and we can disclose that.

Yes, there would be better, and you'll get the annuity twice a year, right? If I'm not mistaken?

Yes. Yes.

Okay. And in which months, you will get it?

First annuity in the month of October and second in the month of April.

October and April?

Yes.

Okay. And sir, on Slide #18, your net distributable cash flow for FY '24 is showing around INR 464 crores, whereas the net distributable cash flow working for the FY '24 is showing INR 496 crores. So I believe the INR 496 crore number is correct, right? Is there anything that I'm misreading for the 18th Slide?

The INR 496 crore number is correct. This is the actual cash distributed.

The INR 464 crore is what you're saying is actual cash distributed?

Yes, yes. That's actual cash distributed.

Okay. So that is different. That is not the NDCF what you're saying...

Yes, yes, that's true. That's true.

Okay. Okay. It should be good to spell out the difference then, it's just a little confusion.

Yes, yes. We will specify that. This is actual distribution. Thanks for highlighting this.

We have our next question from the line of Mr. Saurav, an individual investor.

Am I audible?

Yes, sir.

Yes. Okay. So how much cash do we have at the Trust level currently?

Is it March '24, the closing?

Yes. I mean after distributing the -- I mean, after distribution, like how much cash we will have?

I think that surplus distribution excluding that DSRA will be INR 15 crores to INR 20 crores.

Okay. Now related to this, right, I mean, this is consistent. I think we have INR 15 crores to INR 20 crores always from quarter-to-quarter that I see. And if you go back last year, it was 8.05, right? I mean, the DPU for the whole year. This year, it is 8. So what -- and we say, on one hand, that we -- like the revenues or the toll collection has increased by 11%. So are we saying the -- like are we saying because of the financial cost almost done -- like the DPU has not changed. So what gives? Is it the financial cost that has eaten this up?

Yes. So I think you are absolutely correct. If you look at the interest cost, what we have paid last year was INR 193 crores. And this year, we have paid INR 272 crores. So almost roughly INR 80 crores of higher interest we have paid in this financial year. Your observation is...

So basically then, like in the last call, management has informed that you will be taking certain steps to obviously refinance it. Can we -- like what is the interest? Is it a floating rate that we are paying? Is it like what is -- can we give that guidance? Like how much interest -- what is the rate of interest that we are paying currently?

I think currently, the rate of -- weighted average rate of interest is around 8.65% to 8.7%.

Okay. Because we are AAA rated. So I was, like, and 8.65% is still decent. And last year, what it was?

Last year, I think it was sub-8% close, I think, 7.8% or 7.9%. We have got almost 100-basis-point increase over 1 year.

Okay. And with refinancing, what we are trying to achieve as in like what -- how much reduction are we expecting?

I think apart from the interest rate reduction, definitely, our endeavor is to reduce the interest rate. And secondly, what happens as of now, the rates are linked with the various benchmarks. We have different lenders and different lenders have different benchmark. And as we are foreseeing that going forward, the interest rate will start reducing and different lender will have different time frame to reduce their MCLR. So then the full impact will not flow to the InvIT and to have one lender at a trust level, we are trying to refinance the entire debt with one lender. One will some cost, 20-, 30-basis-point cost in the refinancing itself. But if you look at on the long run basis, if you have one lender typically where the MCLR is typically given the adjustment on priority or the bank, which is first in terms of to move lower the MCLR once the RBI reduces the rate. So having that kind of lender will definitely help the unitholder and the trust to reduce the interest cost in the future.

Okay. So basically, we are elongating the tenure, right? I mean that will also help. And also with one lender, we want to have some 30 bps of savings. Is that understanding correct or fair?

Yes, upfront, I think 20, 25 basis points of interest saving. And plus, we will have further benefit coming because of the one lender. And third thing, as you rightly mentioned, the tenure will also get elongated.

We have our next question from the line of Dipen Shah, a shareholder.

Yes. I had a question on the acquisition of new projects. We have spoken in the initial remarks that we will be looking at new assets probably in FY '25 or maybe FY '26 because the sponsors assets are actually becoming operational in the current year. I just wanted to understand, apart from the sponsored assets, are further assets available in the market at good IRR. And what are the current level of IRR, which -- at which the deals could happen? So just wanted to understand like how should we look at asset additions, apart from the sponsor assets in the next 1 to 2 years?

I think in terms of asset addition, the IRR will be definitely one yardstick, but one has to also look at what kind of assumption is there to basically to reach that particular IRR, if it is dual asset, then one has to look at what is the traffic increase? What is the tariff increase assumed and what is the cost of debt and the O&M considered. So that -- because if you have -- one is considering very high traffic growth and high inflation, then definitely the IRR may be higher, but it will be difficult to realize that particular IRR. And for annuity assets, as you are aware that interest rate, everybody is talking about, we are on peak of the cycle. And with respect to the annuity asset, if I acquire the annuity asset on the current level, further -- in future, NHAI's payment of the interest is linked with the RBI bank rate. And if the bank rate reduces, then automatically the interest coming from the NHAI will also reduce. So while evaluating for the project, one has to look at the other variable like interest cost and the -- what kind of O&M one has factored because if the O&M is not properly factored, and then definitely, there will be additional costs going forward and which will basically have an impact on the payout. So definitely, so far, we have already evaluated more than 30, 35 project third-party assets. We have given offers also for some of the assets. But so far, we were not -- the expectation of the seller and our expectation, we were not able to match that. Going forward, also we will evaluate whenever the opportunities are available. And if it will make as we are in fiduciary capacity, we will make our efforts to add the asset only when we are sure that it will not be detrimental to the interest of the unitholders.

Okay. And how about the sponsor assets like do you expect them to come at a good level or good within the benchmarks or there also we need to compete with others? Like how does the situation pan out over the next 1 to 2 years?

I think the sponsor has 3 assets, which will be available in next 2 years. And for a sponsor, O&M will be agreed upfront. So whatever the O&M unitholders agree on that particular price, the sponsor will -- since the asset is constructed by the sponsor, sponsor will underwrite the O&M amount. So the one variable in the HAM asset will be over. And by -- since this asset will be added over the period of 2 years, by that time, we will also see a rationalization of interest by RBI, so that will also stabilize what kind of interest we are going to get from the NHAI. So that will rationalize both the variable of the HAM. So then whenever we add the asset, definitely, it will add to the payout to the unitholders.

We have our next question from the line of [ Mr. S.N. Ranjan ], an individual investor.

Yes. Congratulations on a good set of numbers and your encouraging remarks about next year's distribution also. I have two questions. One is, I think our NAV should be in the region of around INR 101 or...

Mr. Ranjan?

Yes.

Your voice is breaking.

Is it better, now?

No, sir.

Is it better now, sir?

Yes, Ranjanji, you go ahead. We are able to listen. If you will miss out something, we will let you know. Please.

Okay. My name is Ranjan.

Sorry, sorry. Extremely sorry because of the disturbance in voice I was not able to...

No worries. I was thinking our NAV should be close to 3 digits. And is there anything that the management is trying to look at this huge discount [indiscernible] I mean as a promoter having watched [indiscernible] in October 2023, individual capacity when this will be done. And my second question would be [indiscernible] what would be the average duration of the total [indiscernible] company?

I think if we look at the InvIT, it's the total duration of the InvIT is around 15 years. And in terms of the per unit value is close to INR 98, INR 98.5. So that is the broad aspect in terms of the life of the asset and the per unit value.

My question is, is there any thought on this huge discount that we are quoting to NAV and anything that can be done? And if -- the company, you would have talked straight away about a buyback or something, so I mean I'm just asking you, have you ever explored?

I think the InvIT basic premise for formation of the InvIT and the object the InvIT is run is to pay out to the unitholder. And if the InvIT decides to buy back, then definitely, all the units cannot be bought back. So then whatever the unit we will buy, we will buy out of the what we are distributing. And that is not the aim or objective of the InvIT. And in fact, InvIT regulation also does not permit that because the aim is to distribute to the unitholder. So that buyback is not feasible. What we are trying that we should try to increase the distribution so that the price -- trading price should reach to a fair value of the per unit.

We have our next question from the line of [ Shrish Vaze ] from Moneylife Advisory.

Am I audible?

Yes, yes, please go ahead.

First question pertains to the acquisition of the 3 HAM assets that you have envisaged from the promoter. So I just wanted to understand, would you be able to complete these acquisitions fully funded to debt? Or would you also required to raise additional equity to fund these 3 assets.

I think based on the current limit available, we can fund it through debt also. But whenever we decide to acquire the asset, where we will reach to the closure, at that time, we can decide the modalities. But what I can say is that, that trust has adequate capacity to acquire these 3 assets with the debt only.

Got it. Like the reason why I was asking is because we are quoting at a high discount to NAV. So in that case, sort of using equity as an option may not be sort of in the best interest of unitholders. So that's why that was the main reason. My second question is regarding our total debt right now. So can you just give us a breakup of what percentage of our total debt is fixed and what percentage is variable interest?

I think as you rightly mentioned, we are today 0.3x of the total size is the debt, and we can easily go up to 49%. And even with the AAA rating, we can go up to 70%. So then definitely considering we are trading at a discount to our fair value. Our endeavor will be always to add assets through debt, so that the unitholder does not get diluted. Now with respect to the debt amount, I will request Rushabh to provide the same.

The outstanding debt is INR 24 billion, and that's entirely variable.

When we say the variable, it's a typically 3 months or 6 months linked with the MCLR, once the -- 3 months -- automatically after 3 months, there will be a change of the rate. And some are linked with the 6-month MCLR, then after 6 months, there will be a change of the rate.

We have our next question from the line of Satinder Singh from Eon Infotech.

So I have a few questions. Mr. Menon, if you could give us a visibility on how the dividend component will move like, so what's the kind of exit dividend for this coming financial year, March '25, what kind of dividend component we see out of the total payout?

I think our endeavor will be to pay close to INR 1.5 to INR 2 by way of dividend or capital reduction, probably a large portion of that will be in the form of dividend. And this year, we have paid INR 0.60 as a dividend, which is tax free for the unitholder. And next year, definitely, this amount will increase in the range of INR 1 to INR 1.5 will be in form of the dividend.

Okay. Right, sir. And your Jaipur Deoli traffic has seen a very smart recovery over the last few months. So is this a durable, okay? Do we see this as durable or -- and what do we attribute this very smart traffic increase to -- hello, hello, hello...

Yes, sir, go ahead. We can hear you.

So this was regarding Jaipur Deoli, sir, we've seen a very smart traffic increase compared to the year before, okay? And this has been sustained for the last almost 7 to 8 months now. So what are the reasons for this? And do we see this as durable, please.

I think the -- as Jaipur Deoli, initially, we have faced some challenges with respect to mining ban. And as we have talked about in the past also, the government has started in the sale manner, started allocation of the mining. And now the mining traffic is back. So considering that, we have seen an improvement in terms of the toll collection.

Okay. Okay. And so do we see some more traction or is mining fully back?

I think 80%, 90% is already back. We may get some traction, but that may not be that substantial.

Okay. And about Talegaon Amravati. So we've seen recovery in Feb and March. So are we back to normal on Talegaon Amravati in terms of those road closures? Or do we have some distance to go on this, please?

So we expect that the road closure has been completed and now similar trends should continue in future as well.

Okay. Okay. Right. And what is the contribution of VK1 to the total distribution in FY '24? So net of the interest cost that we pay out for the loans we've taken, what is the net contribution to the distribution in FY '24 from VK1, please?

I think 50 -- close to INR 0.50 VK1 has contributed in FY '24.

Okay. So about INR 29 crores, INR 30 crores would be the contribution on -- okay. Fine...

Yes. And expect to increase slightly for the next financial year because earlier envisage there was INR 15 crores increase in the DSRA. The projects should have contributed around INR 35 crores, INR 40 crores as against that INR 25 crores, INR 30 crores was contributed. For next year, again, we expect around INR 40 crores kind of contribution from the VK1.

Okay. Okay. Fine. And what is the deferred premium of TC, Tumkur Chitradurga as of 31st March?

Close to INR 650 crores, including inflation premium deferment.

Okay. INR 650 crores. Okay. And regarding this traffic, sir, normally in our growth, the value estimates, about a 5% increase in traffic and about a 5% increase in tariff for a cumulative revenue uptick of about 10%. So this time, the tariff increase is going to be about like 3.5% only on an average, as you mentioned. So do we expect to pick up the slack from traffic? Or do you feel there might be some risk here on discount, okay, because of the lower WPI-based tariff increase?

I think considering the general election the traffic momentum should be good in this financial year. And on the backdrop of the same, we should be able to do close to 10% growth, 9.5% to 10% kind of growth in this financial year also. And we are quite hopeful for the same.

Okay. Okay. Right, sir. And when are the valuation reports expected? So that's probably -- it should have been done already by now, we guess?

Yes, it should be uploaded shortly. It will be uploaded shortly.

We have our next question from the line of Sarvesh Gupta from Maximal Capital.

Sir, most of the questions have been answered. But just one bit. So this year, broadly, we saw around 10% increase in revenues. Yet I think the effect of it was eaten up by finance cost increase because of our yield that we had to pay to the banks. So now considering worst case, interest rate remain as it is. And given that we are projecting for, let's say, closer to 10% growth in the overall revenues, a mix of traffic and inflation. So can we expect at least 5% or 6% increase in the DPU in the coming year?

Definitely, yes. Our endeavor is to pay even the increase will be higher. But definitely, the DPU will increase by 6%, 7%.

Understood. And this will also -- the increase, which will come, a major part of it should come in the form of exempt dividend. Is that the right understanding, sir?

Probably, yes.

We have a follow-up question from the line of [ Tanvir Suri ], an individual investor.

So we said that on Slide #18, instead of that NDCF is cash that is being distributed actually. So in FY '24, we are distributing slightly less cash, although we have made more net distributable cash flow, which is like as compared to FY '23. So your optimism of increasing the DPU and this year being better, is that -- is there any -- is that an indication that we may dip into the reserves or we will not be dipping into reserves for distributing -- for the distribution for the coming year?

I think our endeavor is to pay out of the cash generation, and ideally we should not dip in the reserves.

Okay. Okay. So it's purely out of the traffic growth and on those levels, right?

Yes, yes.

I now hand the conference over to Mr. Vinod Menon for closing comments. Vinod, sir?

Thank you very much all the investors and the team for joining this call. And we would take all the rest of the queries on the mail, which my team would be very happy to reply. And thank you very much.

Ladies and gentlemen, this concludes your conference for today. We thank you for participation and for using Researchbytes conferencing services. You may please disconnect your lines now. Thank you, and have a great evening.