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 financial results for the quarter ended June 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 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.

Good morning to all. I would like to welcome all the investors and analysts on the call. I hope you have received our detailed numbers as well as the presentation. Tariff revision was implemented with effect from 3rd June due to code of conduct on account of general election in India. Core toll road project in our portfolio, that is Talegaon Amravati, Jaipur Deoli, Tumkur Chitradurga, Amritsar Pathankot has received tariff revision -- effective tariff revision of 2.5%. During the quarter ended June 2024, due to general election, we have observed softening of the traffic across our projects. As compared to corresponding quarter of the previous year, we have observed 3% growth in the toll revenue. For Talegaon Amravati, we have witnessed positive recovery in toll revenue from February 2024, and the growth momentum continue in the current quarter as well. We are distributing INR 2 per unit for the quarter ended June 30, 2020. This quarter, we will be distributing INR 1.35 in form of interest, INR 0.29 per unit in form of dividend and INR 0.36 in form of written-off capital. Till date since the trust, the IPO way back in 2017, its accumulated distribution has reached to INR 3,968 crores. That is INR 68.3 per unit, 67% of the aggregate fund raised by the InvIT. During the current quarter ended June 2024, 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 form of dividend shall be exempt in the hands of the unitholder. Investment manager on behalf of Trust continues to evaluate potential investment opportunity. The net debt to value of the asset of the trust is 0.3:1 which provides sufficient debt capacity for acquiring new assets. On the acquisition front, HAM asset from the sponsor group that is VM7, Pathankot Mandi are expected to be completed in FY '25. Chittoor Thachur is expected to be completed in FY '26. Once completed, the said project will be available to offer to the trust. As communicated earlier, we are in receipt of final sanction letter and financing document has been executed with the lender with respect to refinancing. The refinancing of the trust debt and VK1 debt SPV will be completed in the phased manner. For refinancing of VK1 SPV debt, we have applied approval from NHAI authority. Upon receipt of the said approval, we shall complete the refinancing process of the SPV debt. I would now request Sri. Rushabh Gandhi to take you through the financial performance for the quarter. Over to you, Rushabh.

Thank you, sir. I will now present the financial analysis for the quarter ended June '24, as compared with the corresponding quarter of previous year 30 June '23. The total consolidated income for the quarter ended June '24, stood at INR 275 crores as compared to INR 269 crores for the corresponding quarter of previous year. The consolidated toll revenue for the quarter ended June '24, stood at INR 236 crores as compared to INR 229 crores for the corresponding quarter of previous year. EBITDA for the quarter ended June '24, stood at INR 228 crores as against INR 227 crores for the corresponding quarter of previous year. Interest costs, which includes interest on premium deferment for the quarter ended June '24, stood at INR 76 crores as against INR 68 crores for the corresponding quarter of previous year. Depreciation, including amortization on our toll assets for the quarter ended June '24, stood at INR 63 crores as against INR 57 crores for the corresponding quarter of previous year. Profit after tax for the current quarter stood at INR 86 crores as against INR 101 crores for the corresponding quarter of previous year. I will now request the moderator to open the session for Q&A.

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

Yes. Can you hear me?

Yes, sir. You are loud and clear. Please go ahead.

About the, what we said, valuation report, okay. So, valuation report on March [Technical Difficulty] revenue share [Technical Difficulty]

Sorry to interrupt sir, your voice is not clear.

Yes. My question is basically in the valuation report from -- now am I clear?

Yes, yes. Better than expected.

So valuation report FY '39 onwards, we find that the revenue share, particularly in Tumkur Chitradurga -- Tumkur project. So just wanted to understand, is there [Technical Difficulty] particularly looking at extension because there has been at asset shortfall. And that is seem to kind of revenue sharing because valuation report talks about that. So overall what is the reason basically?

I think the project has extension in the concession period. And if one looks at the concession period, we have to pay the premium, including the -- during the entire concession period, including the extension. So for -- during the original concession period, premium is already capitalized and that is getting amortized. And whatever payment we are making to the authority that is getting reduced from the liability. But for the extended period, the premium cannot be capitalized because at the time of origination of the contract, we were not aware about this side. Now during the extension, there will be a premium payment, which we have factored by way of revenue share, but it's a premium payment in line with the concession agreement.

Okay. So basically, if you can classify because it's a heading only, so if you can classify it [Technical Difficulty] leads to confusion in the mind of investment. So that's one part. So secondly, if you look at major repairs in the same valuation report every 5 years, like FY '25 FY '30, we see an MMR provision in that. But once the extension start, we don't find any MMR provision. If extension is almost for 6 years, but we don't find any MMR provision for that project. So any specific reason, like is it a kind of cost being borne by NHAI as well as us if you can just look into that.

We will check that. But typically, major maintenance is after 5 years or 6 years. So during this extended period of 5 years because the original concession was around 24, 25 years, maximum extension is only for 5 years. So we thought that in last 5 years, there will not be any major maintenance. And project will be handed over before the major maintenance requirement will come.

So that's from [Technical Difficulty] are we looking to kind of get [Technical Difficulty] striving hard and you -- team also putting all kind of effort. When we should get to the original payout of INR 3, is there a possibility in say, 3, 4 years' time? Or is it very difficult considering the way things are shaping up?

I think if you look at for next 2 to 3 years, I think the payout will be on a similar level. And if you look at the kind of at the current price, it translates around 12% to 14%. And we expect a similar kind of payout based on the current dynamics, a similar kind of payout, maybe INR 0.50 increase in the payout. But the asset acquisition definitely can add or depending upon the kind of asset we are acquiring that can have an impact on the payout.

Fair enough. And if I can squeeze one more. We basically [Technical Difficulty] you are looking at HAM asset basically in the opening remarks. Can you just repeat the name to [Technical Difficulty] asset, when was Pathankot something and I missed the other one. Can you just repeat the name?

Yes. One is Pathankot Mandi and other is VM7, which is a part of Mumbai-Delhi Expressway, and that is expected to complete in FY '25.

The next question is from the line of Runit Kapoor from Elara Capital.

I have 2 questions. I want to know what's the current status of the refinancing? And are you all looking to add any new assets apart from the announced translate.

Thank you. So our cash [indiscernible] revenue-generating assets, having a weighted average life of less than 15 years current. One of the assets, concession period will be in FY '27. That is the Omalur-Salem project. So you're right in highlighting the need for asset acquisition. It has been our objective to make a trust a perpetual vehicle by adding assets. Since listing, we added 2 assets from sponsors, Pathankot Amritsar project and Vadodara, Tumkur HAM asset. We have also been evaluating assets from third parties. So far, we have evaluated more than 30 assets and even offers for some of them also, but none could materialize, owing to high expectations from the seller. We understand the private InvIT of this sponsor currently has 14 assets, having an enterprise value of more than INR 50,000 crores. Substantial part of the portfolio has matured and have an operational history of more than 5 years. So our trust is a AAA-rated asset, having a net debt to asset ratio of 0.3:1 indicating thereby that InvIT, the Trust at a low debt of relative to the value of asset and it stands one of the lowest amongst the InvIT. So it provides sufficient debt capacity for new asset acquisition. So looking at the reducing weighted average life of the asset, coupled with lucrative debt-to-asset ratio, we are basically well placed to consider the possibility of evaluating mature asset for acquisition to sustain its life and to add value to the unitholder in long-term. So going forward, we will continue to evaluate whenever the opportunities are available, including those from the sponsor book. So basically, our endeavor is to increase the weighted average life of the trust and increase the overall payout to the unitholder for the life of the asset without compromising the AAA rating, which is just currently held at. And on the refinancing bit, as explained by -- in the opening remarks, so we have already completed the documentation with the lenders. And 50% of the refinancing debt has been taken and balance will be waived in phased manner. So for breakeven, we are awaiting the NHAI approval. Once we get the approval, we'll complete that pattern.

Next question is from the line of [ Shirish Vaze ] was from Moneylife Advisory Services.

So my question pertains to the toll collections for Q1 of FY '25. So I think as far as I know the toll hike was delayed this year due to model code and came into system on 3rd of June, if I'm not wrong. And so for April and May, we have seen around 2% to 3% of increase in toll revenues. But despite the toll hike coming in early of June, even for the June quarter, we have seen only 3% increase in toll collections for that month. My question is, like, did we see a decline in traffic in June? Or like what was the reason for that heavy decrease for toll collections in June?

Yes. You are correct, the tariff revision got effected in the month of June, that is 3rd of June. We have got that impact only for less than a month for tariff revision. And as there was a code of conduct because of the general election, typically, overall level of economic activity is lower when code of conduct and election is going on. So typically, we see a heavy decline in the heavy vehicle traffic. And that has led us to slower growth of 3%, which was largely driven by the traffic growth in this quarter.

Sir, my question actually pertains to only to the month of June, like because I think the code was lifted on 3rd of June and so did the toll hike came. So what was the reason for the lower growth during June despite sort of the code being lifted and tariff hike. There will be a decline in traffic across our routes in June or like was there some other issue?

I think this year, monsoon has started early. So that was some impact of the early monsoon also on the toll collection in the month of June.

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

So one more question. Basically, we have short extension from NHAI [Technical Difficulty] particularly Tumkur Chitradurga. So as per the valuation report, we understand that we still -- we have requested by letter, but we haven't got any confirmation from NHAI. So can you give us an update on about all the assets where we sought concession and where we -- what is the kind of timeline we will be looking at to get the confirmation?

I think, sir, it's an automatic process. NHAI confirmation is not that relevant. In fact, just to give you the example of Surat Dahisar, the project we have got 12-year concession and we got almost 465 days extension based on the -- that is a formula driven. And there for the arithmetical accuracy and the traffic survey, which is already carried out by independent engineer appointed by NHAI. So then I think the formality is already completed. And NHAI later is not that relevant. Typically, it comes closer to the end of the concession -- original concession period.

Okay. So that is one part. Second part is suppose there is a deficit, and we got 20% tenure. I think what is the term? This is more from understanding, maximum time we can extend is only 25% or 20% of original tenure? Or is based on other terms as well, some situation where we can accelerate further?

I think, sir, there is a particular clause which called as a target traffic, which is independent of any other extension, which concessionaire is eligible to get because of the COVID or any other clause. So this clause talks about that there is a target date given and target PC was given. And there, the 3 years traffic survey will be done and average of the 3 years will be taken. And if there is a shortfall of 1%, then extension will be 1.5%. And maximum extension can be 20%. And this clause also works as a floor and cap model. On the floor side, if you have higher traffic by 1% on the target date, your concession period can get reduced by 0.75% and maximum reduction can be 10%, so it's a 10-20 formula. It works in the interest of the investor. So therefore, any eventuality, they should get extension of 20%. And for reduction since the revenue is realized early, there can be maximum 10% reduction.

Okay. And this is rolling. So basically, let us say, original project was for, say, 15 years. And the first review came, we have deficit -- the traffic was not as anticipated. So basically, maximum during that revision, which is let us put a date out say 2020, we got a concession agreement started with 15-year tenure. 2023, we have first review of traffic. And then we find deficit of 10% or 15% or whatever, we become eligible for maximum period. So that means 2013 maximum extension can happen is 3 years since 20% is of 15 years. Is my understanding is correct?

Yes. So basically, it's a 15-year concession, the target date is already given. It will not be rolling forward to 3 years, 1 year prior, 1 year later, the traffic will be counted. And on the target date and 3 years average will be taken. On that basis, maximum, if it is 15-year concession, maximum extension can be 3 years.

Okay. Now coming to another part. So it happened -- first review happened in 2023 when traffic was not meeting requirement. And 2026 would be the another review date, right? assuming the 2, 3 years the traffic study is conducted and kind of it but even in 2026, if we find that there is a deficiency of traffic has actually projected, then would that 18 years will become further say 3.6 years or kind of it or no, then that 18 gets programmed? How exactly this works?

So I think if the target date is 2023, they will do a traffic survey 2022 and traffic survey in 2023 and traffic survey in 2024.

No, no. that I understood. First part I understood. I'm saying that every 3 year, you will be doing traffic survey, right?

No, no.

Only once.

Only one quarter is mentioned in the concession agreement, one target date is mentioned.

So only one target date is mentioned or is the frequency is 5 years or 6 years a kind of it?

It's only one target date is mentioned. What you are talking about you were talking about new model concession agreement, which is for the TOT, where there are 2 or 3 target dates are mentioned. That is the reason [indiscernible].

And second is sir basically particularly in [Technical Difficulty] because there have been -- there was no increase in toll. [Technical Difficulty]

Your voice is not clear.

Yes. Pathankot traffic collection, toll collection, and the decline particularly during this quarter. So was it because of some mine related issue which you used to face in the past? Or that's not applicable here?

Yes. So overall, the collection -- the traffic has been on softer side because of the election in the month of May. But particularly in the case of Pathankot, there were some mining related restriction because it is near by -- to the border. And also there was some law and order situation in J&K in the month of April and May. So due to that, we have seen some softening of traffic. But we believe this is temporary and the traffic should get back to us.

Next question is from the line of [ Tanveer Sure ] who is an Individual Investor.

So my question is around basically for referencing Slide 13 and 17 of your presentation, I would just like to understand the gross build the BOT toll that you are reporting, there is INR 105.3 crores for Tumkur Chitradurga project. And then on Slide 17, the total income has shown as INR 936 crores. So I just wanted to understand what's the difference is actually there?

Sure, Tanveer. So basically, in case of Tumkur Chitradurga project, NHAI has provided us an addition of Tumkur bypass. So where is -- we are just collecting the revenue and we are paying 97% as a revenue share with the Authority. So on Slide 17, we see only the net amount as part of our total income, whereas as a part of toll collection, we are showing as a gross collection in Slide 13.

Okay. So -- and it's good that you are also indicating the Vadodara Kim project, so that you can see that INR 273 crores is your total income. And I think the EBITDA from that comes up to INR 229.8 crores. So this is at an SPV level, correct?

Correct.

Okay. And then just to... Yes, sorry, please... Go ahead.

Tanveer on Slide #12, we have provided the breakup also. So regarding the Tumkur Chitradurga project.

Okay. Yes, that will be very helpful also. And then just to understand further from this INR 229.8 crores which is the EBITDA, you all are generating cash flow from operations as INR 173.2 crores, right?

Yes. INR 122.8 crores.

One -- on the NDCF working, it's shown as INR 173.2 crores.

Sorry. That is cash profit. So on Slide #23, the NDCF generation for the current quarter is INR 122.8 crores, out of which we are distributing INR 116 crores.

Yes, yes. That's right. But I just wanted to make sure that the cash flow from operations, which is INR 173.2 crores from SPV comes from that -- from after the EBITDA is done, right? INR 229.8 crores is what you all are generating at SPV level.

Yes, that's correct.

Okay. And sir, just one last question is the cash flow from operating activities at the HoldingCo SP negative INR 7.3 crores. What -- can we have like why is that negative INR 7.3 crores on slide number #23.

So there is a cash flow or the expenditure incurred at that level?

At that level. Okay. Okay. So that's a loss basically for this quarter, right?

Correct.

The next question is from the line of Shirish Vaze from Moneylife Advisory Services.

I just have one question. So since the toll hike this year was delayed by 2 months, considering that we usually get the toll hike in April and this year because of elections which was implemented only in June. Is there any wave set of concessionaires will be compensated for this delay or like appears no way out [indiscernible]

I think the federation has already represented the matter for the compensation. And once we'll hear from NHAI, what they are going to provide, we'll share with the unitholder.

The next question is from the line of Dhiraj Dave from Samvad Financial Service.

Just last one -- basically we are looking at Fast-Track being replaced by satellite based kind of it and there is a discussion in media about them. So when is -- what is the management's views on that? And secondly, how [Technical Difficulty] comfortable for our invite.

I think that will not have any significant impact neither on the cost side, on the revenue side because mostly, we are having the highway project and where the traffic is through traffic. So 90% of the traffic 80s, 90s kind of the traffic is the through traffic and whether you collect a toll on the particular toll plaza or through satellite, the number of vehicles will not change. And secondly, whatever the short distance vehicles are there. Today, we might be losing some of the vehicles if they are not crossing the toll plaza. So those will also come under the purview of the tolling if new system is implemented.

Okay. So per se, we don't see any negative or positive if it's going to be neutral -- revenue neutral for us.

Yes.

The next question is from the line of Tanveer Sure, an individual investor.

Just wanted to understand that given that we have a couple of projects in the private InvIT, which are coming up for maturity. So what is the current -- what are we evaluating in terms -- is it the interest rate environment that is too high? Or is it the price that is too high? So what is stopping us from purchasing this InvIT as of now, just to add to our portfolio?

I think we are still evaluating because as mentioned earlier, the life of InvIT has started reducing. Now less than 15 years is live. And when we formed this InvIT, intent was to have this InvIT as a perpetual structure. We are evaluating that. And once our evaluation is finalized, we will be definitely sharing the details on that. The challenge which you have asked, typically, what happens if you have a 20-year concession, your revenue will be increasing by the range of 8% to 10%. So then if you acquire the project through entire debt, initial years that will have a some negative impact -- when I call it negative impact, that will eat some cash flow of the existing project. But if you look at overall basis, that will improve overall payout to the unitholder that will increase the life of the InvIT and our intent is to continue the AAA status of the InvIT even if we add a few assets from the private InvIT.

Okay. Sir, basically, are you hoping that if the interest rate environment further improved, that negative, which you mentioned, would work in our favor provide us a tailwind and that would be the right time where you would probably acquire it. Is that understanding correct?

I think typically acquiring the toll road assets, when your interest rate is on peak, that will be more appropriate time because if interest rates comes down, then automatically, seller will factor that kind of interest rate. So then buying that asset when interest rate is at peak, that will make more sense than the buying at the bottom of the interest rate cycle.

From what you are saying, we are almost at like peak only. So shouldn't we be buying it sooner than later?

Yes. We also believe the same.

Ladies and gentlemen, that was the last question for today's call. I now hand the conference over to management for closing comments.

We would like to thank all the investors and analysts on the call. We'll see you in the next quarter. Thank you.

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