Powergrid Infrastructure Investment Trust (PGINVIT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Powergrid Infrastructure Investment Trust Q4 and FY '24 Earnings Conference Call, hosted by ICICI Securities. [Operator Instructions] Please note that conference has been recorded. I now hand the conference over to Mr. Mohit Kumar from ICICI Securities. Thank you, and over to you, sir.

Yes. Thank you, Neha. Good afternoon. On behalf of ICICI securities, we welcome you all for Q4 FY '24 Earnings call of PGInvIT. We are privileged to join today with the management team, Shri Abhay Choudhary, Chairman; Shri Purushottam Agarwal, Director; Mr. A. Sensarma, Chief Executive Officer; Shri Amit Garg, Chief Financial Officer; and Anjana Luthra ma'am, Company Secretary and Compliance Officer. We will start with brief opening remarks followed by Q&A. Over to visit sir.

Hello, good afternoon, everyone. On behalf of Powergrid Unchahar Transmission Limited, the Investment Manager to PGInvIT, I welcome all participants joining this call amidst the busy results season. I have with me Mr. Purshottam Agarwal, Director, PUTL; Mr. Arindam Sensarma, CEO of PUTL; Mr. Amit Garg, CFO, PUTL; and other senior officials. Today, PGInvIT announced its Financial Results for the quarter and year ended March 31, 2024, and distribution for the quarter ended March 31, 2024, which have been disclosed on the NSE. Our Presentation on Q4 and FY2024 results of PGInvIT has been uploaded on the website of PGInvIT. In the interest of time, I would be providing a summary of the results instead of going through th presentation. PGInvIT currently owns 5 SPVs with 100% equity shareholding in one SPV that is VTL and 74% in each of the other four SPVs namely PKATL, PWTL, PPTL and PJTL. The SPVs are operational projects comprising 11 transmission lines with a network of approximately 3699 circuit kilometers and 3 substations with 6630 MVA transformation capacity. The average remaining life of the transmission service agreements of SPVs is more than 28 years. PGInvIT with a valid proposition of AAA that is Assets, Assurance and Advantage, aims to provide consistent, stable and visible returns to its unitholders. Now coming to the distribution part. I would like to start from the distribution for the quarter ended March 31, 2024. We have announced a distribution of INR 3 per unit, which would be paid to the unitholders on or before 6th June 2024. With this, we have met the distribution guidance of INR 12 per unit for FY '24, which was announced at the beginning of the year. This is the fourth distribution by the trust for fiscal '24 and the 11th consecutive distribution since our listing in May '21. Including the recently announced distribution, the aggregate distribution of PGInvIT since its listing is more than INR 31.39 billion. For fiscal 2022, an aggregate distribution of INR 10.5 per unit was made to the unitholders for the working period of the trust that is May 13, 2021, to March 31, 2022. This was followed by an aggregate distribution of INR 12 per unit for financial year '23, which was made to the unitholders. For fiscal 2024, an aggregate distribution of INR 12 per unit has been declared, taking our total distribution since IPO to INR 34.50 per unit for an IPO unit price of INR 100. Our distributions, including the latest INR 3 per unit are in line with our distribution policy and SEBI regulations, which stipulate not less than 90% of NDCF to be distributed to unitholdes. I would like to reiterate that as per our distribution policy, the distributions shall be declared made not less than once every quarter. Now coming to the highlights for the quarter and year ended March 31, 2024. On the operations part, our project manager ensured that the operation and maintenance of the assets were carried out efficiently and the monthly availability of each of the SPVs during the period from April '23 to March '24 was in excess of the target availability. For financial year '24, the average availability across SPVs has consistently exceeded 99.75%. However, the data for quarter 4 FY 2024 is currently provisional because we are awaiting the monthly availability certificate from the respective regional power committees for most of the SPVs for the period January 24 to March '24. In line with our commitment to sustainable operations, we organized various activities such as regular safety pep talks and training programs for our teams. Our consistent and prioritized approach to safe operations has been marked by a quarter of zero accidents. I would now provide an update on the implementation of Bus reactor at Kala Amb substation by PKATL under Regulated Tariff Mechanism. The project has been commissioned on 5th of February 2024. Being an RTM project, its tariff will be decided by the regulator, Central Electricity Regulatory Commission in accordance with the applicable tariff regulations. I would like to bring to your knowledge that one of the SPVs, PPTL has been allotted a project implementation of number of 400 kV line day at Parli under regulated Tariff Mechanism. Works are currently under progress, and we are committed to commission the same within the specified time line ended by December 31, 2025. Upon commissioning, this project would be entitled for tariff as decided by the Regulator CERC in accordance with applicable tariff regulation. Now coming to financial highlights. During the current financial year, the total income on a consolidated basis for the year ended March 31, 2024, was about INR 13,027.22 million, which included INR 12,653.38 million of revenue from operations and INR 373.84 million of other income. The other income is mainly on account of interest earned on the deposits and surcharge income. Total expenses, excluding the reversal of repairment losses -- impairment losses for the year at the consolidated level stood at about INR 4,616.07 million. The total income and expenses, excluding the reversal of impairment losses for the quarter ended March 31, 2024, stood at INR 3,266.81 million and INR 1,203.9 million, respectively. The NDCF calculated at SPV level have been provided along with the consolidated financial results disclosed on the stock exchange. The cash flows from SPVs are in the nature of interest income, dividend income, prepayment of SPV debt. More than 90% of NDCF of the SPVs has been upstreamed to PGInvIT by March 31, 2024, in line with InvIT regulations and the trust distribution policy. The NDCF of PGInvIT for the quarter ended March 31, 2024, works out to INR 2,937.03 million. For financial year 2024, the plus NDCF was INR 10,977.63 million. We have announced a distribution of INR 3 per unit, which is -- which comprises of interest component of INR 1.78, taxable dividend component of INR 0.30, exempt dividend component of INR 0.15, repayment of SPV debt of INR 0.75 and treasury income of INR 0.02. For this fiscal, this takes our aggregate distribution to INR 12 per unit. With this distribution, we have in aggregate paid or announced an aggregate of INR 34.5 per unit to our unitholders since our listing in May '21. As on March 31, 2024, PGInvIT had an external borrowing of INR 5,698 million, which was raised from HDFC Bank to part finance the acquisition. The loan, as informed earlier, with a floating rate loan linked to 3 months Treasury bill, net debt as a percentage of AUM as on March 31, 2024, works out to about 0.26%, which provides significant headroom for future funding future acquisitions entirely through debt. The Trust continues to enjoy highest credit ratings, AAA with stable outlook from all the 3 rating agencies, namely ICRA Limited, CRISIL Ratings and CARE Ratings. The billed trade receivables as of March 31, 2024, stood at INR 1,371.31 million, that is equivalent to 40 days of billing. Coming to the acquisition of balance 26% equity shareholding in 4 SPVs, the transaction could not be undertaken during financial year '23-'24. We shall be approaching the sponsor again during financial year '24-'25 for the same. Now coming to the outlook part. While we are keen on evaluating acquisition opportunities from private developers, the availability of operational ISTS transmission assets at this stage is minimal, and we expect the same to pick up pace in 12 to 18 months as and when the assets under development gets commissioned and complete the mandatory operational history for acquisition by InvIT. We are currently in discussions with some states regarding the monetization of the transmission line infrastructure, adhering to the guidelines set forth by the Ministry of Power, Government of India. Given the novelty of this process and the sensitivity of the subject, we anticipate that it will take some time before these discussions materialize into tangible outcomes. However, we firmly believe that the monetization of power transmission assets by states, holds immense potential. With operational assets readily available and states in need of funds for developing new transmission infrastructure, this initiative can significantly benefit both the parties involved. We remain steadfast in our belief that PGInvIT is well positioned to leverage in the Government of India's asset monetization program with ample headroom for acquiring new assets through debt, coupled with our competitive strength and established reputation as an investment vehicle, PGInvIT stands to gain significantly. A large pool of institutional and noninstitutional investors further strengthens our capacity to capitalize on opportunities arising from the asset monetization initiative. Further, we are also looking at sponsors' monetization plan as and when it undertakes monetization through InvIT. We would like to reiterate that all assets proposed for acquisition will be evaluated for their suitability to PGInvIT on the basis of operational history in accordance with InvIT regulations, compliances with InvIT regulations and statutory requirements, PGInvIT's corporate governance framework and keeping in mind the overall interest of unitholders. Now coming to the distribution guidance. We expect to make the distribution of INR 12 per unit for the financial year '24-'25 again. I extend my heartfelt gratitude to each one of you for your trust and support in PGInvIT. Thank you. And now I would like to hand over to the moderator for further proceedings. Thank you.

[Operator Instructions] The first question is from the line of Nidhi Shah from ICICI Securities.

My first question is what is the distribution guidance for the next year? And what are the new opportunities that you can see in terms of acquiring new assets?

Yes. I have already addressed that the opportunity that the distribution guidance again is -- we are making INR 12 per unit for the financial year '24-'25 and as far as acquisitions of new assets are concerned, the 26% of the 4 SPVs, which are still in the hands of the sponsor. EBITDA financial year '24-' 25 because the last current year, they have already completed their monetization target, but we are in touched with the sponsor. And hopefully, this financial year, we still believe that the chances are there that we will be taking up these 26% remaining in the 4 SPVs from our sponsor.

All right. Okay. And I wanted -- so you mentioned that we are receiving about INR 12 a year on distribution? How long can you hold on to that figure?

This 12 per unit, how long we can hold to this figure?

Yes sir. So do you see any dips in this number, any changes in that?

See, without acquisition or further acquisitions, not more than 2 years, 2 to 3 years, that is what but it will only -- future will tell, not very sure, but not within 3 years without acquisition.

Just to supplement what the Chairman sir was saying that presently, we have given the guidance for the fiscal '24-'25. However, I mean, you must have gone through the valuation report, which has been published on the stock exchanges as well as our website that the revenue profile of the assets are such that it is going to dip. So as sir mentioned that without new acquisitions, this kind of distribution will not be holding up in future. However, for '24, '25, we are confident that we will be able to make up for INR 12 per unit.

[Operator Instructions] The next question is from the line of Vipulkumar Shah from Sumangal Investment.

So my question is, without any further acquisition of assets, what type of distribution we can expect 2 years down the line, 2 or 3 years down the line?

Yes, I think our CFO would supplement, please.

Sir, as a policy, we are not giving the guidance beyond one year. So probably, we can talk about it, each year beginning, we are giving a guidance for the fiscal as we did the last year also and this year also. But it is very evident on the revenue profile that since the revenue will be dipping and expenses will be increasing due to the inflationary pressure, maintaining INR 12 will be really difficult. So we will not put finger on any figures right now. Maybe when we assemble again for the call beginning Q4 FY '25 that point in time, we can talk again product distal '25-'26.

Thsi year's Q4 or call at Q4 of 2025-2026?

No. We are into '24-'25, and this is the Q4 call for fiscal '24. In the same manner in the month of, say, I mean, May or June '25, we again will be assembling with the financial results. for '24-'25. At that point in time, we will be better equipped to give you a guidance for '25-'26 fiscal.

So a question regarding balance 26% stake of sponsor. So why they are not coming up with any clarity because this question is asked over and over again. So things should be made clear whether they want to divest or not?. See this question has been put many times and still sponsor is not giving any reply, this is not fair.

So sponsor is evaluating this on a yearly basis because they have a monetization program. This year, in '23, '24, their monetization target could be completed without the divestment of this 26%. But we are in touch with them and they have more or less given an indication that in this year -- in the new financial year, they have a target for monetization and they the -- most probably we are having positive signals that this year, they may be in a position to divest this 26% also.

So hypothetically, if Powegrid divest 26%, what type of debt will have to raise to acquire balance 26% stake in the remaining SPVs?

CFO, please.

So if I understand correctly, the kind of debt that you mentioned, meaning the quantum or the mode of raising the debt the quantum depends upon the valuation and the other stuff, which probably we cannot disclose at this point in time. However, for funding, whatever quantum has been decided upon, we will be taking a mix of floating and fixed. I mean, we might be hitting the market with some NCD issuances as well and partly maybe through bank loan funding.

The next question is from the line of Praveen from ASNL.

Sir, my first question is, is there any valuation report on March '24 available because it is not available on the website?

Sir it is available on National Stock Exchange.

Okay. So since I didn't have a chance to go over it, I will just ask you have taken -- you have gain reversal -- impairment reversal of INR 25.41 crores. So this -- in the March quarter -- sorry, in the September quarter, the discounting rate was 8.85%. So right now, how much it is?

8.79%.

8.79%. And what the NAV sir, right now?

It must be 85.28.

Okay, okay. And based on my understanding, this 26% is not going to get any significant improvement as far as cash flow accrual is concerned because the rest of the interest payment versus cash accrual will be negligible. So real story will pan out only once we go for additional acquisition of assets and since Powergrid has decided a cash flow accrual -- cash flow monetization, they are not getting into the InVIT model. As of now, it seems they are more into direct cash flow hedging of monetization of the assets to cash flow hypothecation. So do you think in the near future, we will be able to get any assets from Powergrid into InvIT? Or if not, then what are our plans to acquire additional assets because it's quite some time, there are other InvIT, which are there in the publicly floated exchanges and you would have seen them that they are getting more and more assets and we are not getting -- we are not able to lock in it into any significant assets apart from Power one. Powergrid has taken a decision. So can you throw some light on that?

Basically, Powergrid is a government company. And as per the NMP guideline, the Ministry has already indicated that we cannot monetize it on the ownership basis, the government assets won't be monetized on an ownership basis. So that was the main reason why Powergrid may not be going into the sale of the assets. And apart from that, -- so first of all, since already 74%, we have taken up these assets and balance 26% we will take, but soon, we are also in such with the Government of India for success of InvIT, which we have already formed. And -- but still, there is a visible growth in the transmission sector. because of the target given by the Government of India of sort of adding capacity by 2030. And transmission line and transformers will be added and with that as well as the states -- some of the states are also in touch with us for the expansion of the intrastate system and they have shortage of funds, so they are also evaluating this monetization program, which we had with the sponsor. And so I think in the coming year, we are hopeful for a 26% acquisition from Powergrid. And maybe after that, we are going with the asset of the states, but we can share that post issuance of government guidelines on asset monetization to states and some states have really evinced preliminary interest and we have sent our team to them, and it is under discussion.

But the 26% will not yield any much gain. This is what is my understanding.

Significant gains definitely.

But as far these guidelines of the government after the InvIT was floated that we should not go for the transfer of assets. Is it applicable only for the power sector or it is applicable for highway sector also because NHAI InvIT is actually getting more and more assets into InvITs?

No, I don't think they are also doing transfer of assets basis.

In case of NHAI assets, they are not transferring the ownership. Their model is TOT model, already they are revenue sharing mechanism. So our model PGInvIT model and their model, there is a difference in the asset monetization.

So, can’t this model be fine-tuned based on whatever the guidelines because either government changes the guideline, or we need to change our model, correct?

Yes, you are correct. But in case of states, they are free to take decision on their own, whether they sell through ownership or sharing with the revenue sharing model. So they are free to take the decision as they wish.

Just to supplement what Abhayji and Purushottamji was pointing towards to is that the NHAI is an authority and their fund goes to the Consolidated Fund of India, and they are exempted by the income tax and GST for many of the issues. While Powergrid is a company, governed by the Companies Act and does not enjoy any search assumptions. Now you see that the electricity is a zero rated supply. So it is not a taxable under the GST and as soon as you try to adopt the NHAI model, wherein you transfer the rights instead of the assets, it loses the color of transmission charges, which is exempt and takes the shape of say lease receivables. And that is taxable at the rate of 18%. So the whole gain goes haywire. I mean, why will anyone take a hit of 18-odd percent? And then obviously, we as a buyer will not give the value for that 18%, which is going outside. And why the seller will take a hit. So that kind of model has many challenges, which require solution before it can be put on the ground for implementation.

And sir, like -- so basically, NHAI model, I understand the model is different. I can understand that. But then the government has come with these guidelines after the floatation of InvIT, it seems that we will have to go with some other model, which private -- like India Grid and all are doing acquiring solar assets and things like that. One has to think in those lines because we as an investor come from background wherein we want a sustained income. It's a quasi-hybrid equity model wherein we want certain and we are afraid that 2, 3 years, unless and until there is a growth in the asset, the payout will significantly reduce because NAV is INR 86. We are paying much more than that, so it will come down significantly.

You are 100% right, sir, there is no denying the fact that this will be the situation if no further acquisitions are made. However, having said that, kindly also acknowledge the fact that entering into a new sector. You mentioned solar. So we are not a solar expert. So entering into a new sector brings its own set of risks. So let us wait for some time. We are hopeful that something material happens as far as the transmission in the state sector goes. So with folded hands, we can only keep faith in PGInvIT in and let us be together for some more time to see how the things are unfolding in the say, a year or 2 to come.

No, no, definitely, sir. It's -- we have full trust on you and full faith on the management and we believe that something will happen. It is only -- you can understand the anxiety of investors.

Definitely.

Right now, you are getting INR 12 a year and subsequently after 2 years it significantly fall and your weighted average comes significantly down, it becomes a bit of disaster. So I'm sure that you guys would be eased of situation and would be taking necessary corrective action sooner the better. So we eagerly hope and this 26% is okay. It happens or it doesn't happen, doesn't matter, but the additional asset -- acquiring additional asset is a significant thing which we look forward.

The next question is from the line of Arun Kharbanda from ABDS Capital.

Okay. So if we get this 26% done with Powergrid, what is the likely increment to the NDCF that will happen?

CFO, please.

Sir, there will not be any significant bump up. As you can see from our distribution that this quarter, we declared INR 3 per unit distribution. And out of that INR 3, the tax dividend component was INR 0.30 paisa, so almost 10%. Now you realize the fact that to this dividend, the INR 0.30 dividend, which is currently flowing to PGInvIT is for 74% holding in the 4 SPVs. What will happen that the balance 26% will also start accruing to PGInvIT in the form of dividend if we take the balance 26% stake. However, having said that, we have to take each of the additional loans to fund this acquisition and that loan will have to be serviced. There will be interest cost attached to it and there will be capital repayments, loan repayments to be done to the financer. So all in all, financially, there will not be growing -- there will not be any gains. I mean it is only from the control perspective that you will be the 100% owner of those 4 SPVs. But in financial terms, I mean there won't be any significant gains sir.

Okay. So logically, would it not make sense to actually abandon this particular plan and try and get a new asset where at least you can get some advantage from a generation of income perspective?

No sir. Actually, we are bound by the share purchase agreement, which was entered way back in 2021. So as for which we are bound to acquire those balance 26% stake. And it is always good to have the 100% pie with you then share it with anyone. So even if there is no significant uptake, it will make logic for us to acquire balance 26%. However, having said that, you are very correct that the uptick in a significant manner can happen only when the fresh assets are acquired, not before that.

Further I would supplement to this that if we acquire 100%, there are -- in these 4 SPVs, some future additions in the form of RTM projects may be coming in the near future. So in that, like what happened in PPTL and Kala Amb. So -- and there will be some revenues coming from that. But I think we are trying both first is 26% and then the addition of new assets.

[Operator Instructions] The question is from the line of Vipulkumar Shah from Sumangal Investment.

So my question is regarding contigency plans for increasing the net distribution and acquiring new assets. Unfortunately, these questions are asked by many participants in every call and management doesn't seem to have any plans. So what is my request is when next quarter results are announced and conference call is held, there should be some concrete plan put before investors, but how we want to acquire new assets or are we going to some new areas of business, some clarity will be really very helpful.

Yes, fine. In the next quarter, we have already intimated that first will be going Powergrid for acquisition of balance 26%. And then we are in talk with the state acquisition from the state transmission is not going to be a very short -- not going to take place in a very short time. But definitely, -- it will -- we are hoping that in a few states -- in 2 states, we are already in talk. They will have to take a cabinet approval. But I hope that by the end of this financial year, we will have some plans for future.

No, my request is, at least you put some concrete plan when the next quarter conference call is held because investors are very nervous. You must appreciate that the unit price has reached 140 at one point, and now it is hovering around -- between 95 and 100. And it will likely drop further if there is no further acquisition of assets, it is very clear.

Okay. Okay.

I hope you will take our suggestion seriously.

Okay.

The next question is from the line of Pradeep Sridhar, Individual Investor.

Congrats on the results. I have just one question. So regarding -- thanks for explaining 26% and then also how we are looking into the state. My suggestion is that it will also be good if we can show a growth on like, how we are going to build more assets and then increase in quality, something like a plan because today it looks more like very stagnating instead of actually growing, right? It feels like putting money in FD that has high risk of going down than going up. So as an investor, it gives so much anxiety into, what is the plan? Because personally, I'm very much believing in PGInvIT and not looking at other InvIT, but any other InvITs are diversifying and then looking into many other streams to go ahead and acquire new assets in solar energy and solar power, right? So some kind of growth strategy will be helpful to understand from the investor perspective what is going to be the medium to long-term outlook of how we are going to grow?

Yes. Instead of entering into new areas such as generation, we are concentrating on the intra-state transmission sectors and we are in talks with the states. So, as already we have told you and the other investors that first we will be taking up. This 26% from Powergrid and then we will go for the intrastate transmission sector from the States. Before entering a new sector such as generation, because we do not have much experience on these sectors, we find those sectors a bit risky. But still, we have to come up with some plans which we have already told you in this financial year.

Thank you. Definitely, the just an idea that we get from other InvITs but whatever you can go to a growth plan that you are going to focus on that will be very helpful for us to understand what our strategy and then how we are going to grow basically.

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

Sir, this is regarding the 26% stake that you talked about. You mentioned that there is share purchase agreement, which you have signed, and you are bound to acquire those stakes. Now the question is that since I am assuming that the acquisition should broadly happen at around 11% to 13% IRR and the interest rates are around 8.5%. So I am trying to understand why will it not accrue any value to us. I mean at least in the NAV terms, it should be significantly NAV accretive?

Sir, those are your assumptions. You yourself mentioned that you are assuming certain things. So whether the assumptions hold go at the final deal time or not is what even you do not know, even we do not know. So I mean, your assumptions might be too ambitious. Maybe the market does not work that way. So better to talk at that time when we are closer to the deal, but yes. We will not be able to diverge more and this I mean assumption -- assumptions are assumptions after all.

Right. Sir, if you can also highlight as to whenever you are looking at other assets apart from Powergrid, either the private assets or the state assets. What is the kind of threshold IRR, which we're looking at, below which you will not require any asset?

Ultimately, the objective of acquiring any asset is to give some bump up to the returns of the unitholder holder or elongate the life of the consistent return over some years. So such hold it is part of the strategy probably, this is not the right forum to talk about it. However, the baseline remains that it needs to result into some kind of value accretion for our unitholders. So obviously, it has to be somewhere above my cost of debt plus some risk premium. So yes.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you very much, ICICI Securities team, Mr. Mohit and his team. And thanks again to all the participants for attending this call. Participating actively in PGInvIT's earnings calls serves as a valuable source of motivation for us, and we look forward to engaging with the investor community during our analyst call. We have outlined PGInvIT's trajectory towards a streamlined business model, emphasizing operational efficiency to improve returns, value-added growth through strategic acquisitions and a robust capital structure, all aimed at delivering consistent, stable and visible returns to our unitholders. Once more, I extend our appreciation for your trust and support, and we eagerly anticipate your ongoing confidence in PGInvIT. Thank you very much.

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