IRB InvIT Fund (540526) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the IRB InvIT call hosted by the company for discussing the financial results for the quarter ended December 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 of the call would 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. Rushabh Gandhi to give you an overview of the significant development during the quarter. Thank you, and over to you, sir.

Thank you. Good morning to all. We would like to welcome all the investors and the analysts on the call. Hope you have reviewed our detailed numbers as well as the presentation. During the quarter, we have observed tractions in traffic across the portfolio. We have witnessed a notable surge in toll collections, driven primarily by robust traffic growth. Specifically, our key traffic corridors have shown significant year-on-year growth, that is a 7% traffic growth in case of Tumkur Chitradurga project, 9% traffic growth in case of Jaipur Deoli project and 5% traffic growth in Talegaon Amravati project. This strong traffic growth underscores the steady expansion of our traffic base. The farmer protest in the state of Punjab indeed caused disruptions to the toll collection, including the Amritsar Pathankot project in the month of November and October. As per the provisions of Concession Agreement, we are eligible for a relief consisting of 50% reimbursement of interest and operational maintenance cost plus a corresponding extension of the concession period for the duration of the disruption. As we have filed claims under the force majeure provision of the Concession Agreement, we have received compensation for the past disturbances, which further mitigated the impact of this event. Despite these temporary disruptions, we are pleased to announce a distribution of INR 2 per unit for the quarter ended December 2024. This distribution comprises of INR 0.74 per unit in the form of interest, INR 0.24 per unit as dividend and INR 1.02 per unit as written-off capital. Till date since the Trust, IPO in financial year '17-'18, its cumulative distribution has reached INR 4,200 crores, which is INR 72.35 per unit, more than 71% of the aggregate fund raised. During the current quarter ended December '24, dividends 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 unitholders. During the current quarter, the investment manager acting on behalf of the Trust received a preliminary and nonbinding offer from IRB Infrastructure Trust regarding a potential acquisition opportunity. The proposed acquisition encompasses by completed and revenue-generating BOT projects with a weighted average residual life of 21 years. As per the independent valuer's report of IRB Infrastructure Trust, the enterprise value of these assets is approximately INR 15,000 crores. The investment manager is currently evaluating this opportunity on behalf of the Trust. Now I will present the financial analysis for the quarter ended December '24 as compared with the corresponding quarter of previous year. Despite the temporary disruption experienced, the total consolidated income for the current quarter stood at INR 282 crores as compared to INR 283 crores for the corresponding quarter of previous year. The consolidated toll revenue for the current quarter stood at INR 238 crores as against INR 233 crores for the corresponding quarter of previous year. EBITDA for the current quarter stood at INR 231 crores as against INR 210 crores for the corresponding quarter of previous year. Interest cost, which includes interest on premium deferment for the current quarter stood at INR 76 crores as compared to INR 69 crores for the corresponding quarter of previous year. Depreciation, which includes amortization for the current quarter stood at INR 61 crores as against INR 58 crores for the corresponding quarter of previous year. Profit after tax for the current quarter stood at INR 91 crores as against INR 81 crores for the corresponding quarter of previous year. Now I will request the moderator to open the session for Q&A.

[Operator Instructions] The first question is from Dhiraj Dave from Samvad.

So my first suggestion and kind of a request to the management, which has been also done multiple times in the past. Please upload the presentation on BSE or NSE. Your presentation is uploaded on your website, which is fine. But basically, we need to take all effort to visit the website and then check again and again and then we'll come to know it. We'll find time that the presentation is uploaded. It's actually required by -- I mean you can check with your compliance person, it's required -- it's mandatory to be uploading those presentation on BSE and NSE site. Why they are not getting uploaded? I will request, please look into it so that the information is available to all of us on right time. One suggestion is that. Second one is, please keep Chorus Call service for diamond registration, diamond pass registration. It makes life simpler. We need to wait for 5 minutes. And it makes everybody's life simpler. Everybody is implementing all REIT hybrid security listed. You will find Chorus Call, only IRB has taken a call that they would not kind of -- at least when we are facing issue, market is not giving us proper discount. At least do whatever is in our control to make things simpler for investors and larger communities so that they can attend your call and kind of it. So my humble request, please look into it. And I think in the past, you had given assurance that yes, we will upload on BSE and NSE. This quarter, again, I found that being missing. So just wanted management to take care of that part. Unfortunately, didn't got time to go through the presentation because just now downloaded it from the website. So the point is that it's just very difficult. What do we expect when we have a call and we don't have information, do we expect investor just to wait and sit on your website to know that when the presentation is coming? So my humble request, please, please look into this. And I don't have any question because I can't go through the material. My apology for that. But please look into that and make sure that I have a question next time. I hope you'd like to answer my question. Wish you all the best.

We'll take the next question from [ Saurabh Chatri ], who's an individual investor.

So I've got like 3, 4 questions for management. So first thing is regarding those 5 assets, right, that management spoke about, it's been -- and we have...

[ Saurabh ], your voice is breaking. If you're in a hands-free, request you to use the handset. We can't hear you. Your voice is cutting.

Am I audible?

Yes, yes, [ Saurabh ], you're audible.

I'm using a handset, but I don't know. I'll get back in the queue.

Next question is from [ Suneet Dondale ], who's an individual investor.

Sir, I just have 2 primary questions. One was about the potential time line for the acquisition of the offer that was given by IRB InvIT, right? And I would kind of encourage the Trust to buy more vehicles for essentially like an asset class that has an expiry date unlike REITs, right? REITs, you essentially own the building forever in which you only have the concession period for so many years. So like an encouragement to acquire them earlier and more roads would be encouraged. And second is a suggestion from my side, right, is many people are not yet aware about InvIT, right, even though they might be a potential investor. Now many potential investors are driving on the very roads without knowing that there's an investment opportunity. So I come from Bangalore and I see like very close to the tech parks a big banner about a REIT put up. Something like that where you are driving one India's first InvIT -- road InvIT is encouraged, so that more retail investors get to know about this because many people from my own family, I have told them about this InvIT and they utilize these very -- roads very, very often. So just these 2 things.

Yes. I think on your suggestion, definitely, we will try to educate the commuters on the road that this road belongs to so and so InvIT and we will try to provide adequate information on our toll plaza. With respect to the life, as you rightly mentioned, yes, presently the life of the public InvIT is only 14 years. And if the 5 assets gets added, the weighted average life will be close to 19 years. So then definitely, that's added weighted average life to the private InvITs.

The next question is from [ Vivek Sureka ], who is an individual investor.

So first question from my side is for this 5 assets, which has been offered. Let's assume we are going to invest in those assets, so how is the funding look like assuming we are buying out all this INR 15,000 crore assets? So how are we planning to fund that?

So I think the management is still evaluating. And considering the current size of the InvIT, definitely, the entire acquisition cannot be funded through debt. And INR 15,000 crores is EV. So that project has roughly close to INR 7,000 crores of debt, then it means the equity value is closer to INR 8,000 crores and that INR 8,000 crores needs to be funded in the proportion in form of debt and equity. But as of now, we are evaluating. Once we will finalize the final thing, we'll definitely share with the unitholders.

And this 5 assets includes the 2 assets, which were going to be made available to us as per the last con call? Or is that over and above that I missed that?

These are the over and above the 2 InVIT -- 2 HAM assets what we have talked about that will be available from the IRB once completed. So there are total 3 HAM assets, which will be available to the public InVIT for the acquisition. Two assets was expected that by FY '25 -- sorry, FY '26 and those will be becoming operational and will be available and one asset may be in the subsequent year.

And if I can ask one more question. Do we have any time lines for this 5 assets from a management perspective? I know we are evaluating that, but is there any broad time line by which we would be able to make some decisions around it?

Yes. As the process goes, it requires definitely a retail devaluation. We have already engaged an independent traffic consultant, who is doing the survey and report is expected shortly. And thereafter, I think we will start engaging with the investor. And there are certain regulatory approvals are also required with regard to the lender's approval and all those things. Typically, this process takes around 6 to 8 months' time. Almost 2 months is already over. We are expecting that in 5 to 6 months' time should be the ideal time one should look to close this transaction.

Okay. That's good to know. Operator, can I ask one more question? Or should I come back in the queue?

No, no, please go ahead.

Yes. So in the last con call what I heard from the management was we are looking at DPU increase maybe up to INR 8.5 to INR 9 over the next few years. Looking at the current situation, are we in a situation to give any guidance for the next year? Or we should wait for the first quarter of next financial year?

I think this year, as we have discussed that between INR 8 and INR 8.5, we will be paying close to INR 8 in this financial year because there was some -- almost a couple of months disturbance on the Amritsar Pathankot project. So we'll be paying INR 8. And for next financial year, depending upon whether we are going to acquire the asset or not, depending upon that, we will be probably giving the guidance post Q1 results. By that time, we will be finalizing the acquisition also.

The next question is from Vaibhav Shah from JM Financial.

Sir, firstly, on the traffic growth numbers, you mentioned that Tumkur had a growth 6%, right?

Yes.

And Talegaon and Jaipur had 4% and 9%?

Tumkur was 7%, Jaipur was 9% and Talegaon Amravati was 5%.

Okay, okay. And sir, secondly, on the Amritsar Pathankot, so there was a disturbance in October and November of roughly 2 weeks each in both the months. So has there been any disturbance in the month of January? And do we envisage any disturbance for Q4?

No. I think January, there is no disturbance as of now. And we -- as of now, we don't envisage any kind of disturbance.

Okay. And sir, secondly, if you look at the like-to-like toll collection growth for the month of -- for the third quarter, it was around 2% mainly impacted due to disturbance in Amritsar and weak collection in MVR. So how do you foresee the growth in Q4?

I think growth will depend upon the economic activity. As we have seen a robust growth in 3 of the projects and I believe there would not have any impact on Amritsar Pathankot, that project would have also delivered a robust growth. And MVR, it's just 2 years concessional life is left. And typically, as of now, we are not seeing much traction between that -- those 2 cities. And I think that there, we don't expect very robust growth. I think maybe lower growth as compared to the other project. But on an overall portfolio basis, if GDP does 6%, 6.5% kind of -- India's GDP does 6%, 6.5%, I believe we should be able to reach around 5.5% to 6.5% kind of traffic growth.

So ex of Amritsar and MVR, the other 3 projects, we can expect the growth to remain similar in Q4 as it was in Q3?

Yes. And just -- Vaibhav, just to add one point on Amritsar Pathankot, I think whatever the number of days were disturbed due to the agitation, I think there is adequate provision and Rushabh has covered in his opening remarks that there is adequate compensation available in terms of the Concession Agreement, which includes 50% of interest and O&M and equivalent number of days extension in the concession period. So that basically mitigates the losses. And on IRR perspective also, it's IRR neutral.

The next question is from Mohit Kumar from ICICI Securities.

Sir, 2 questions from my side. One is what is the expected tariff hike from April '25 on the roads?

I think it is expected in the range of 2.5% to 3%.

Okay. Understood. My second question is on the -- you said that you're looking to acquire these 5 assets. Do you see any potential chance of acquiring only few assets only with the debt?

Mohit, as of now, the offer is for 5 assets, but as you know that the proceeds, it still takes 6 to 8 months' time, and there are a lot of approvals and regulatory approvals are required. So probably, it will make a more commercial sense to acquire the bundle because it's -- presently, the assets are offered in the bundle assets.

The next question is from Dhiraj Dave from Samvad.

My question is basically -- am I clear? Can you hear me?

Yes.

What is the kind of payment -- do we have made any payment to NHAI for the deferment premium in the Tumkur Chitradurga during FY '25?

No, we have made the premium payment as per the original concession. That INR 265 crores, we are making the payment as per debt.

Okay. So how much was the cash outflow because of that during FY '25 or 9 months FY '25?

It would be close to INR 200 crores.

It would be INR 200 crores. And do we expect a significant jump in FY '26 on that item?

It will depend upon the cash surplus available at the SPV for next financial year, yes.

Fair enough. So based on that cash surplus, we will adjust and kind of it. Second request would be then -- basically in the presentation when we get 3 months NDCF and 9-month NDCF, actually speaking, we can't compare. So basically, it would make sense to add last year also so that we can compare it. Otherwise, I need to open previous presentation. So just one suggestion is, also please include the days of last year so that we'll compare them. Otherwise, just isolated Q3 and 9 months FY '25, like you can't infer much from those 2 numbers. So one request would be there. Even on the results which you submit, you submit Q for this year. Like, for example, March, you will submit the 6-month results. Now I don't know why only India Grid does -- sorry, why IRB InvIT does it. All InVIT gives you like as it happened in listed company quarter-on-quarter as well as 9 month to 9 month or 6 month to 6 month and then full year. I don't know why we will -- basically means you are such a good company and you are doing fabulous job of distributing INR 8 and kind of it. I think somewhere we need to build on all these small points. And the last observation which I had is MD has said that the delay in Pathankot is going to be IRR neutral. I just want to say we are distributing INR 8 on price of INR 62 or INR 63. The cost of us is INR 13 opportunity cost. It's not whatever is your cost of funding. So any kind of delay, actually speaking, unless we become kind of -- our NAV and trading price comes neutral, that -- from a market perspective, while you are right on accounting perspective that your cost is, say, 9%, and you will be getting 9%. But the real cost of borrowing in market terms is 13%, 14% because unit is trading at discount to NAV. So your IRR, anything delay is actually going to be positive if you are trading at more than NAV from a market perspective. But if it is trading at NAV to -- discount to NAV, then it is negative for us. So we should be -- means either we try to improve our NAV above that and then we are very happy because then what MD is saying, I'm completely in agreement. At NAV of -- premium to NAV, what we are gaining is -- any delay is good for us. But when situation where we are, when we are trading discount to NAV, it is very critical for us to get cash flow because we would discount at 13%, 14%, or at least market will discount at 13%, 14% for us and not at 9%. So there's just one observation. Please take that in mind. So basically, we are not happy to delay because that's going to kill our NAV. In fact, it will add further discount to our NAV in my view.

Dhirajji, just to inform you that IRR on the -- typically, when I say that IRR neutral, typically, these projects are bidded at 16% to 18% kind of IRR. So then when it comes to the NHAI for them, that 16% to 18% IRR is the threshold at what the first financial model is submitted to them. So when we are talking about the IRR, it ranges from 16% to 18%, not at 8% or 9%, what is the cost of...

Okay. And just last thing, like this HAM asset, which we acquired, actually speaking, has it performed as per expectation of management because I don't find any addition. While I understand there has been some disturbance in Pathankot and it would have taken cash outflow, but the point is that HAM asset, how much -- did it perform as per expectation of management, the Vadodara Kim HAM asset?

Basically, the HAM asset has been providing the annuity income as per the scheduled plan and they have the -- basically the Trust. However, because of the disruption in the Amritsar Pathankot project, that has been netted out. That's the issue.

Just to basically provide some more information on the HAM asset, when we have evaluated that HAM asset, that time the bank rate was on a lower side. And thereafter, there was an increase of 50 basis points in the bank rate. And the interest which we received from the NHAI, that has moved by 50 basis points. In fact, the project has performed better than what we have expected at the time of acquisition.

This is Rushabh. Just to add on your first project Amritsar, regarding the NDCF, so SEBI has changed the format of NDCF in current financial year. That's why we could not provide that comparison. But maybe from next year onwards, definitely, we'll have numbers.

Yes. But sir, if you look at all REIT InVIT all across, SEBI would have changed for everybody. At least, you can put a note. See, that's fine that last year, there was a different disclosure or something, whatever kind of it. If you -- because this becomes -- otherwise, what happens is that information I get, now I need to look at Q2. And then you are saying that the definition has changed and again, we are in soup, right? We cannot even compare that. That base is also different. So in fact, you are the best people. Whatever is best disclosure, you would be the best person to take a call, but do give comparative. Whether there is a growth, degrowth, how do we know?

Sure, sir. We'll take your suggestion.

And do we have reserve, last question before I -- do we have any reserve kind of it -- any reserve on the -- means we distribute almost 100% of NCDF (sic) [ NDCF ] or we kept some buffer?

So the reserve would be close to INR 25 crores, INR 30 crores.

The next question is from [ Vivek Purushottam Lal Sureka ], who is an individual investor.

Just following from the last question. So our current cash surplus is 23 crore overall or that is just for this quarter?

So can you just repeat your question?

Yes. So my question is on the cash surplus, which we are holding. It's overall INR 23 crore or that is only for this quarter?

So INR 25 crores to INR 30 crores will be cumulative. Apart from the DSRA, MMR major which we have, it's apart from the [ Q2 ].

Okay. Another question is like our current net debt-to-equity is 0.3, which is quite good. Assuming we are not raising any new equity portion of this, so what is the additional buffer which we have for acquiring new assets?

It will be close to INR 3.5 crores.

Sorry, can you repeat that? It was not very audible.

Hello. Can you repeat your question?

Yes. So our current debt-to-equity is 0.3. My question was what is the additional buffer we have to acquire new assets without raising equity?

So I think as of now, the debt is close to 25%, 27%. We can go up to 49%, but still we have INR 2,500 crores to INR 3,000 crores kind of buffer.

Next question is from [ Saurabh Chatri ], who is an individual investor.

Hello, am I audible now?

Yes, yes. Please go ahead.

Sorry about previous. So I've got a couple of questions. One is, what is the rate of interest that we are paying for the debt?

Close to 8.7%.

8.7%. And considering that we are AAA rated and everything seems to be -- like balance sheet and everything is of highest quality, can't -- was there -- because the -- I'm just comparing with the other InvITs, they are paying close to 8.15%. So is there -- I mean -- and we also did a refinancing, right? So was there any opportunity that we have not -- maybe have missed or something on those lines? Or it's like this is the rate -- that this is the best rate that we got?

So our interest rate is linked to MCLR. So as and when the MCLR reduces way forward, we'll get that benefit. So at one point of time, our interest rate was close to 7.25%.

Okay. Okay. So it's not -- okay, it's not fixed rate. Okay. So in that, how much is fixed and how much is variable? Or everything is variable? Everything is linked to MCLR?

Everything is linked to MCLR, yes.

Okay. Got it. And okay -- my other question was, if I look at Slide #16 in presentation, right, in that, I can see that the cash earnings per unit is INR 7.8 for 9 months for FY '25, right? So for my understanding, as per the model, the InVIT model, 90% of the profit should be distributed out. So which components are getting added here? Obviously, we are all -- like we are distributing 6, which does not come to 90%. So which other things that needs to be excluded or I shouldn't be looking at that at all?

It will be the profit & loss account. Basically, premium payment is not coming out here. So what we are seeing of INR 200 crores of premium payment for 9 months, that will need to be excluded.

Okay. Got it. Got it. So premium payment does not come here. All right.

Next question is from Ashok Shah from Eklavya Invesco Family Office.

Sir, as per 5 asset has been offered by the parent, so can you just throw some -- any figure or ballpoint figure of what will be the investment and how it will be profitable? Or if you can give some idea about it?

I think, sir, based on the publicly available information, the total asset value is around INR 15,000 crores. And out of that, roughly INR 7,000 crores is debt. Then the equity value, which are supposed to be paid to them is close to INR 8,000 crores. This is based on the last valuation report. We are doing our own evaluation. We have appointed independent traffic consultant. And based on our review and analysis, we will be finalizing the price to be paid to the private InvIT. And once, sir, we decide the broad positive overs, then definitely we'll be able to provide more detail on the same. As of now, sir, we will be only able to share the broad details on the assets.

From this private InVIT is itself from the IRB private community itself or it's from the parent side?

It's from the private InvIT where IRB owns 51%. Government of Singapore owns 25% and Ferrovial owns 24%. These are the 3 investors in the private InvIT. They are offering these assets to the public InvIT. And once we will evaluate that and put up to the Board. And once Board agrees for the same, then the same will come for the unitholder's approval.

This asset, which was actually -- ours is the first InvIT. So parent had not offered debt to us, and it was converted into private InvIT by some offer to the other investors. And again, that InvIT is selling to us. So why such a route is taken and not directly it is given to us?

Very good question, sir. It's a -- private InvIT is a development platform. While these assets were first -- was won by the IRB, those were under construction. Those were not revenue generating. And as per regulation, those would not have been formed part of the public InvIT. And accordingly, those projects were part of the private InvIT where IRB and GIC had invested initially and thereafter Ferrovial Group has joined the private InvIT. Once the asset has become matured and can be now offered to the public InvIT, private InvIT has offered those assets to the public InvIT.

Sir, this is the latest offer. Earlier, I think we had acquired something -- some asset, I think 3, 4 years back by taking some loans. So does that asset is also net level profit-making or it's still in loss?

Sir, that -- I think I have covered that in a previous question also. That asset is performing better than what guidance we have provided and that asset is contributing to payout to the unitholders.

Okay. So earlier interest rate 7% approximately has increased to 8% plus interest rate, but still it's making profits.

Yes, sir.

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

Sir, my question was regarding the distribution. So now the distribution character is undergoing a change in the sense that it is becoming more tax efficient because of the dividend component and the capital reduction. So what's the indicative breakup of the distribution for FY '26? Like what percentage ballpark should be dividend and what percentage could be reduction in capital, please, indicative for FY '26?

Sir, for FY '26, as of now, we will not be able to guide because the assets are getting added. Then definitely, those will change the dynamics of the payout. But however, for Q4, we expect similar kind of distribution and similar kind of breakup.

Because MVR is on the side end of the concession. And that project aside is generating book profit, so that will continue to give the dividend -- distribute the dividend. And that dividend, considering the assets within old tax regime will be exempt in the hands of unitholders.

Okay. Okay. Fine. So that's clarified, okay. And the debt, the non-stim debt, I assume it will be linked to -- it will be a floating rate, okay? So what's the reset? So in case like February 7, the anticipated repo rate cuts happens, when will the benefit of this start flowing to us on the cost side, please?

Our interest rate is linked to 3 months of MCLR. So as and when we get that benefit, that benefit will be passed on us. It's 3 months MCLR rate.

So sir, to answer more specifically with respect to when they will pass on, as and when the bank will cut the MCLR, so we will get the benefit at the regular interval.

Okay. So our next reset would be 1st of April, I assume. Is that a correct understanding?

Yes, yes.

Yes.

Okay. And your -- our Jaipur, Deoli and Tumkur Chitradurga are showing handsome traffic traction. So do we expect that to continue going forward or any challenges we see there, okay, because we've seen a good growth in the last few months now?

We expect a similar growth to continue. And basically, there is no challenge, I think, continuing that growth.

Okay. And on Talegaon Amravati, sir, have it come back so there was a supply over or whatever, which was getting built up because Talegaon Amravati still has seen slightly on the weaker side. So is all the interruption over? Or is some part still left?

Most of that part is completed and that can be seen from the toll collection also. So the average for the month of December was better as compared to earlier periods.

Yes. Okay. Okay. Finally, sir, on the like Pathankot Amritsar like, so there's a compensation metric. So could you just amplify -- you did mention it earlier. Could you just amplify so what is the compensation mechanism because extension by equal number of days plus 50% off?

O&M cost and the interest cost?

That will be to the extent of 50% and extension 100%.

So extension is 100% and 50% of what sir? I couldn't get that. 50% off is?

Operation and maintenance cost along with the extension cost.

O&M cost.

Yes, finance cost.

Okay. Okay. 50% of O&M, 100% of finance cost and equal extension -- equal fee for that extension. Is that a correct understanding?

No, sir. 50% of operation and maintenance cost, 50% of finance cost and 100% of extension in concession period.

We'll take that as the last question. I would now like to hand the conference over to Ms. Swapna Vengurlekar for closing comments.

Thank you all for joining on this call. We appreciate your participation. If you have any further questions, please don't hesitate to reach out to us. Thank you.

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