Good day, and welcome to the Q4 FY2022 earnings conference call of IndiGrid, hosted by JM Financial. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please press star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Subhadip Mitra from JM Financial. Thank you, and over to you, sir.
Thanks, Jacob. Good afternoon, friends. On behalf of JM Financial, welcoming you all to the fourth quarter FY 2022 results conference call of IndiGrid Infrastructure Trust. We have with us today the senior management, represented by Mr. Harsh Shah, CEO, Mr. Jyoti Kumar Agarwal, CFO, Mr. Satish Talmale, COO, and Ms. Meghana Pandit, CIO. I would now like to hand over the call, to Harsh for his opening comments, followed by the Q&A session. Over to you, Harsh.
Thank you. Thank you, everyone, and thanks for joining on our it's a first year conference call. I will dig through the deck as we have done earlier, and we'll take some of the key highlights and subsequently Jyoti, Meghna, and others will participate, and then we'll go to the question answer. On slide number 3, reiterating our vision. Vision is to become the most admired green RE in Asia, focused on, you know, focused business model, value accretive growth, predictable distribution and optimal capital structure. I think in this, over the last five years, as we've seen through our growth and journey, we have certainly tried and lived up to the core pillars of growth that we had set for ourselves, and we are clearly seeing the results coming out to be in the same line.
On the next slide, just a small snapshot of our evolution in last 5 years presented in three distinct buckets. As you can see, not only our portfolio has grown multi-fold over, you know, almost like 50% CAGR, both in terms of number of lines, substations, diversification to solar and number of states that we are operating in to a number of repeat revenue generating elements. We have also substantially diversified in terms of our unitholder base over a period of time. Starting since inception till FY 2018, the original sponsors like Power Finance Corporation, who own about 16%. There were almost no insurance companies, very limited mutual funds and no pension funds owning a chunk of IndiGrid. Now, as the evolution has evolved in FY 2022, we have institutions like KKR being a sponsor and substantial rather single largest shareholder.
We have nine insurance companies owning about 8% stake in the company, on the trust. Retail holding has increased multi-fold from 450 or 445 crores to 27 crores stemming in this quarter. FPI, including KKR and GIC, is holding around 54%, which is also a healthy jump from earlier 39.9%. We have done, you know, additional capitalization via rights issue, preference issue and added more investors. Incrementally, PFRDA and insurance lending is enabled as well as pension funds have started acquiring IndiGrid once the PFRDA has enabled them. As you already very well know, the liquidity has improved with bidding lot size being the single unit.
Along with the size and maturity, I think most of the financial parameters, as you can see below, has grown in a substantial fashion, whether it's our revenue, EBITDA, NDCF or EBM. With that in mind, we have also consistently focused the strategy of a stable growth. On slide six is just a snapshot of what IndiGrid is today. IndiGrid is India's first power transmission RE platform. With assets under management of INR 21,000 crore spread across 15 states in 1 UT, we have almost covered majority of India and with our residual contracts being 30 years of life, we are very confident of providing a predictable distribution. On the next slide, which is slide number eight, is the sectoral trends. As we have discussed before, I'll reiterate that.
We see the power sector into a decadal growth fueled by technological disruptions that are taking place in, metering, in solar, in hybrid systems. We are expecting demand pattern shifting and electrification of more and more energy needs, whether it is EV or other sectors, whether it's hydrogen. We are going to see more and more, demand of electricity on that regard. Fortunately, the government has been showing dynamic steps with respect to whether it's GNA or other decisions that are needed to revive the sector. So as a core center of all three, we are really looking forward to a decadal growth in the sector. Coming to the slide number nine is our quarterly quarter four highlights and also some of the annual highlights.
To start with, I think there has been a lot of organizational updates, and coming from my side, I have decided to move on from IndiGrid. It's been a phenomenal journey with all of you over the last five years, rather I would say six years since inception, to the extent of naming IndiGrid, to listing and to bring it to this scale. It's been a very, very rewarding experience, and I'm grateful to our shareholders, stakeholders, regulators, team members at IndiGrid to really contribute to this journey and make it worthwhile. For me, it has been a very emotional decision considering such a long association with the company. However, I'm looking forward to a little bit of wider canvas and more development experience, and therefore, I've decided to move on earlier this month.
True to what we have been communicating as a professionally managed platform, we have substantial leadership pipeline within the company. Quickly the board has identified the successor for my role, which is Jyoti Kumar Agarwal, whom you have met and heard over the last year and a half as Chief Financial Officer. He is being elevated to CEO and Whole Time Director on the board of IndiGrid Investment Managers Limited, with effect from first July 2022. Divya Bedi Varma, who has been associated with this business for five years, and she was Deputy CFO, will be taking over as new CFO from first July 2022. As you can see, the platform is very well equipped for the seamless transition and strong management team in place.
We are pretty confident that this change is not gonna result into any opportunity loss at IndiGrid. Jyoti and Divya have been the mainstays in the system, and they are tremendous professionals. Coming to the quarter four highlights on a performance side, as you can see on revenue and EBITDA, we've grown about 10% and 29% year-over-year. The DPU is increased by 3% year-over-year to 3.19 versus 3.1. And that's what we have delivered, which was promised for this quarter. The collection has been substantially healthy with 110%. We are pretty happy with the overall collection trend that we are seeing as well. In terms of capital, we are well capitalized.
We are just about 56% of net debt to EBITDA, with significant headroom to grow as per the regulations. In terms of asset management, I think our average availability has been maintained at 99.75% for most assets except for one, and we'll cover that in the detailed slide, where there is a force majeure event that took place. However, our revenues are gonna be covered under that, and we are fighting for that. In terms of DigiGrid that we have spoken about, which is a digital asset management platform of ours, LSTVs across all states and asset types, has been implemented, and we are looking forward to reap the reward from FY 2023 onwards. That's all with Satish leading the charge from the front as CFO.
We will have a substantial benefit at scale in the operating cost as well. As we discussed last time, we purchased two sets of ERS towers, which allows us to put 400 kV and 765 kV power transmission systems in case of emergency use. We've also been training our teams, and we have a set of people who can really operate that, and they are seamless. In line with our ESMS framework, several ESG initiatives were taken across environmental, climate, healthcare, and rural development across the country. We'll see, as we speak in our detailed reports, what are the details around the same projects.
In general, with the all these updates, I think our focus remains for interim right hand side is superior total returns, sustainable increase in DPU and steady operations. With that, I would invite Jyoti or Satish, who will take on the operating performance side.
Yeah. Hi. Thanks, Harsh. This is Satish here, and happy to share the Q4's performance. So typically, Q4 is a month wherein we planned a lot of annual maintenance activities, and that's, like, slightly reflecting in the availability numbers for each of the asset. On annual basis, as Harsh said, majority of the assets have achieved target availability of 99.75%. So one asset, which is NRSS, is showing 90.22% availability. That is sheer due to a force majeure event. Rather, we proactively taken steps to avoid tower collapse situation, which was created due to the reasons beyond our control. We are working with all the regulatory bodies to consider it as a force majeure event and get that in the availability certificate. Once we get that, we will be back to our target availability target.
On EHS, we had again a zero harm quarter. No major incident or injuries happened, and the reporting culture on unsafe acts and conditions continues. On reliability, this quarter was the lowest by far as per record is concerned, at 0.07, which is a trips per line indicator. Defect correction activity is helping us to achieve this record trip per line indicator. More than 99.5% of substation equipment are defect free. On DigiGrid, which integrates digital asset management platform. Happy to share that all the assets, including solar, are live and the teams are fully using all our operational activities in a digital manner.
On emergency preparedness, Emergency Restoration System is well in place, along with a very unique weather forecast platform, which will help us to, you know, provide swift response and restoration during any unplanned events. On third wave COVID, there was a limited impact and all our critical O&M activities continued in quarter four. On the couple of important metrics, I spoke about trips per line, which is 0.07. Training effort continued on EHS aspect. LTI equals zero, which is lost time incident. Unsafe reporting condition was close to 1,900 numbers. So those are indicators looking good. On utility solar, we achieved 58.11 million units of generation, which represents 19.50 CUF and availability of 99.79%. Thank you. Handing over back to Harsh or Divya probably.
Yeah, I'll take it forward from here, Satish. Thanks a lot. We've moved to slide number 11, where we'll go through the financial performance of Q4 as well as for the year. On the back of our acquisitions, we've seen a you know quarterly growth of revenues of about 10%. EBITDA growth is higher at 29%. There are two reasons here. One is there is an operating leverage in the model. Expenses you know are sort of semi-fixed or semi-variable in nature, and so that is benefiting the EBITDA growth. There were some one-off expenses which were booked in the quarter four of FY 2021 because of some earnout payout, which are not there in this quarter. On a like-for-like basis, the growth in EBITDA adjusted for that would be about 13 or 14%.
The NDCF generated grew by about 5% as our growth was largely funded through debt. Adjusted for the interest cost, the NDCF generated was higher by about 5%, and DPU in line with our guidance was higher by about 3%. For the full year, again on the back of a few acquisitions, we saw part of the benefit last year but have seen full benefit this year. Our revenue grew at about 33% and EBITDA because of the operating leverage grew at about 40% and NDCF generated grew at about 3%. Collections were a little bit short of expectation in January, February, but more than made up in March. Ended this quarter at about 110% collections and with days of about 49 days.
If you look at the distribution breakup this quarter in line with our guidance, we're paying you 3.1875. Two point five five out of that is in the form of interest and 0.64 paisa is in the form of capital repayment. The record date for this distribution is gonna be May 26th and the tentative date of distribution June 4th. We ended the year at an NAV of just short of INR 132 at INR 131.71. With this distribution, we would have paid, you know, close to INR 3,000 crores to the investors since listing. We have been maintaining a sort of a steady state of DPU increase over the last few years in the range of between 3%-4%.
In line with that trend, the board has, you know, sort of decided to keep the DPU outlook for the next year higher by about 3.5%. From the current INR 3.1875, we're guiding DPU per quarter of about INR 3.3, adding up to about INR 13.2 for the full year. This is sort of in line with what Harsh mentioned earlier, you know, superior returns and sustainable increase in DPU, backed by stable operations and a prudent capital model. I think this is in line with all of that, and we do expect to be able to meet this guidance relatively easily. If you move to the next one, this is nothing but an EBITDA to NDCF bridge.
Essentially, for the quarter, we had a net accretion on the back of good collections of about INR 70 crores to the gross NDCF reserve. For the full year, we've added about INR 52 crores to the NDCF reserve. We started at about INR 171 crores, and we're ending this year at about INR 221 crores. Just a little bit short of the quarterly DPU, more or less in line. We have almost one quarter DPU as a reserve. Should there be any headwinds in terms of collections or mismatch, then there's this healthy DPU reserve to sort of dip into and continue to you know, maintain a predictable and sustainable distribution profile. Our balance sheet, which is the next slide, continues to remain robust.
We've raised money in this quarter, in quarter four at about 6.91%, which is way lower than our average cost of debt of about 7.76%. Even despite the headwinds of a higher interest rate environment, we have been able to tie up a substantial part of the refinancing needed in FY 2023. We've sort of almost done INR 2,200 crores of the INR 2,100 crore, which is coming for repayment. All of it is tied up at a WACC of about 7%. This is coming to replace a debt which is benchmarked at about 9%.
There's a sufficient sort of room available for us to sort of continue to reduce the average cost of debt, which will add to further cash flow generation in the coming years. We carry a healthy cash balance, about INR 1,700 crores. This was part of it, almost INR 700 crores was for repayments which were due to be made immediately after March. Rest of it is a combination of DSRA and MBC as well as DPU. Our EBITDA by interest in full year is more than 2 x, and we do have enough headroom to grow because our net debt to AUM is about 56%. You know, given the regulatory cap of 70%, there's room enough for us to sort of continue to pursue growth opportunities. A large majority of our borrowing is fixed rate.
More than three-fourth is fixed. We should be able to withstand the near-term headwinds that we are seeing on the rate environment. If you look at the refinancing profile, other than the FY 2023, which is sort of a tall bar, rest of them are in a comfortable zone of less than, you know, INR 1,500 crore, which is about 12%-13% of our book. Even for this INR 2,400 crore, which is coming for repayment in FY 2023, we sort of tied up, like I mentioned, almost 80% of it at pretty attractive rates. We don't see any challenge in terms of our ability to refinance the debt coming for maturity.
Our book continues to remain well diversified across both entities and bank loans and across a wide variety of investors, including mutual funds, public and private banks, insurance companies, et c. I'll let Meghana take you through the slide number 15. Meghana.
Yeah. Thanks, Jyoti. I'm on slide number 15. In the 20th quarter since listing, we continue to provide superior risk-adjusted total returns. The graph essentially talks about total return, which is a combination of distribution plus price change. We compare ourselves with, on one side, pure debt, 10-year GSEC as well as 30-year GSEC, and on the other side, pure equity, like instruments with like Nifty 500, Nifty 50, BSE Utilities indexes, plus pure-play transmission entities also. As you can see on total returns, plus the annualized return for that matter, we have outperformed all of them. More importantly, on the risk side, which is depicted by the beta, our beta continues to be amongst the lowest compared to all the other indices as well as companies.
Moving on to slide number 17. In terms of FY20 23 business outlook, it continues to remain very strong. I think the topmost priority is portfolio growth that we are focusing on. We are seeing you know significant pipeline being created on the transmission side with a lot of tenders being floated for the greenfield projects as well as the natural monetization pipeline coming up essentially monetizing the existing assets, which of course remain pipeline for us. More importantly, we are looking at acquiring the framework asset Khargone Transmission Limited, which is the framework asset which became operational in December 2021. In addition to the other operational solar and transmission assets, there was one greenfield project that we bid for in January.
We are evaluating other bidding opportunities in the power transmission sector with partners. As well as we are exploring couple of opportunities on adjacent spaces like utility scale battery storage, which are again backed by very strong counterparties like SECI and NTPC. As Jyoti mentioned, we've increased the DPU guidance for FY 2023 to 13.2. We remain focused on delivering on that. In addition to portfolio growth, our other areas of focus continue to be on improving and maintaining the balance sheet strength by whatever refinancing opportunities in addition to what have already been refinanced. Look at that in terms of a longer tenure and reducing the interest cost. At the same time maintain a healthy mix of liquidity to mitigate any headwinds that we come across.
As Satish rightly mentioned on the asset management side, we continue to focus on ensuring that availability remains robust, increasing more than 99.5%. We have started the O&M practices in-house. So we're looking at that along with stabilizing the DigiGrid that has been adopted across all the assets now. On the other hand, industry stewardship is something which we have been working on right since we listed. Working with various regulators and industry participants on various policy initiatives, which is essentially some of them being, you know, streamlining the tax anomalies between equity and InvITs. Looking at enabling index inclusion for InvITs and REITs. At the same time continue to increase awareness about DigiGrid as well as about InvITs in general.
With that, I think we will stop here and Subhadip, over to you. We can start with Q&A now.
Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Swarnim Maheshwari with Edelweiss. Please go ahead.
Yeah, hi, and thanks for the opportunity. First of all, congratulations for yet another stable and strong quarter and raising the guidance again. I have two, three sets of questions. First, if you look at over the last 12 months, our AUM has hardly moved from INR 200 billion to about INR 210 billion. It's like just about a 2% kind of a growth. Even though KTL is a confirmed acquisition, just wanted to understand more on the growth perspective and what kind of AUM are we targeting by FY 2023-FY2024 ends.
Yeah, thanks, Swarnim, for the question. I mean, you're right, I mean, AUM has been stable. It was partly by design. If you look at the growth in the immediately preceding quarter, there was a very steep 70% AUM growth, and a large part of it came because of NER acquisition, which happened towards the fag end of the last year. Essentially, if you look at it, that AUM, you can very well count in FY 2022. It was important to sort of stabilize the portfolio, you know, on the back of that kind of a growth, and that is what we were focused in this particular year. As we speak, I mean, there are a few opportunities in the transmission side. One is of course, a framework asset, which is KTL.
There are one or two assets that we are looking in the inorganic space and shortly, we'll announce in due course. There's also an under-construction asset, as you may be aware, we've taken that up. It's important to get that up and going. We are also discussing with a few players for, let's say, replicating the framework agreement that we had with Sterlite. Hopefully, we should be able to get similar frameworks done. We are also looking at some adjacent spaces. We have talked about it in the last quarter around utility scale battery storage. It's a bit evolving situation on technology, on the commercial and regulatory framework.
We feel given, you know, our substation presence, and our connectivity to the grid, we should be in a very good position to be able to play a role here. Net-net, Swarnim, the point I'm trying to highlight is that the growth agenda is very much, you know, on, and it's just that it was important to stabilize the portfolio. Now we sort of on a very good even keel as far as the portfolio is concerned. We should be able to see reasonably good growth in the coming few quarters.
In terms of any target, well, there is sort of a headline number of about INR 30,000 crore or $4 billion by the end of this calendar year that we have been highlighting at some point of time, but that's not sort of a hard target. Idea would be to grow to that figure, even if it happens a little bit later down the road, then that's fine. The important thing for us is to ensure that whatever we do for growth reasons is in line with our, you know, objectives of ensuring that it's sustainable, it's value accretive, and you know, it's sort of is in line with our focus on predictable distribution model. Even if it takes a little bit longer, then that's fine. Yeah.
Right. Thank you. Just as a follow-up on that, and this is. I really wanted to understand this, that, you know, when you are acquiring the new assets, and I'm talking more on the acquisition side, we have seen some sort of heightened competition due to entry of new players. What's really the hurdle rate over here? Just wanted to better understand that whether we give a preference for the DPU growth really, in the near-term side or really it's the IRR that we look at.
No. You know, while on the competition bit, I would split the market into two categories. The renewable side of the business is seeing intense competition, you're right. On the transmission side, I would say that, you know, there are not that many assets, Swarnim, as you may be familiar with. Where there are assets, I don't think, you know, the competition is that intense compared to renewable. When we look at an acquisition, we look at, you know, the overall, the life of the asset. The asset has to sort of fit into our strategy of predictability of revenues, accretive to our NDCF, to DPU for a reasonably, you know, long period of time. Hurdle rates are not hard-coded.
It's a function of, you know, how does the new asset fit into, you know, our funnel of ensuring that, you know, it's value accretive at the end of the day and accretive on the DPU for some time, right? We are a little bit flexible, a little bit here, a little bit there on the IRRs of the asset. But it's important that the predictability of the cash flow is not in question. At the same time, it's accreting to the unit holders for the reasonable period of time. I don't know whether that answers your question.
Yeah, no, it partly answers that. Thank you. Thanks for that. Just, one last question, just a bookkeeping. Was there any penalty amount for NRSS in FY 2022, given 90% availability?
There was no penalty, Swarnim, but obviously there was a loss of, you know, incentive. That's where there was an opportunity lost, but no penalty that we had to pay.
Got it. Thank you so much. Before I just sign off, I mean, I would just like to thank Harsh, who have been really instrumental and played a pivotal role in IndiGrid's growth journey. I would just like to congratulate you for that and wish you all the best for your new venture. Jyoti, I mean, all the very best for you also as for your new role in IndiGrid. Thank you.
Thank you.
Thank you.
Thank you. The next question is from the line of Mohit Kumar with DAM Capital. Please go ahead.
Hi. Congratulations on fifth year anniversary, sir, and congratulations to Harsh and the entire team for bringing the IndiGrid to this scale. It has indeed been a wonderful journey for you all. First question is, does the DPU guidance of 13.20 include the acquisition of any new assets? And can we expect the DPU to grow further because I understand the leverage is still around 57% or 60% odd, 10% additional space, in my opinion, should provide roughly INR 2,000 crore further worth of asset. Am I right?
Yes, Mohit, let me address your question. The first one is whether the DPU guidance of 13.2 is getting any tax assumptions. That answer is not correct. In the sense that, you know, we have a sort of a model, a business model, and that is sort of bakes into any new acquisition that we take, irrespective of any asset growth, the organic NDCF generation must be able to sustain the DPU for a foreseeable future, including a potential increase along the way. There is no M&A dependency on this 13.2 guidance that we are giving. In terms of whether this DPU will increase further, well, we cannot obviously guide you for beyond FY 2023.
If you look at our positioning and if you look at you know how we have performed over the last five six years, we have been steadily increasing the DPU in the zone of 3%-4% every year. Our endeavor is to ensure that we not only have a sustainable DPU, but also a sort of predictable stable increase in DPU every at every point of time. When we do an acquisition or when we look at our business plan over the medium term, there is a little bit of an increase in DPU that is built into the modeling. Obviously, what will be that increase if at all for FY 2024? We'll have to wait one year, we come and guide the market that point of time.
For now, we can tell you that the 13.2, we feel very confident and comfortable to be able to meet this guidance for FY 2023.
My second part was the how much, the space we have for the acquiring of new assets. If you can, give us a number. Is it INR 20 billion?
Yeah.
Is that a fair assumption?
A little bit more than that. I think we have, you know, debt of about INR 13,000, and against that we have an asset of about INR 21,000. I think we can do easily about, you know, INR 5,000 crores-INR 6,000 crores of asset acquisition. Like we have been maintaining, we don't want to sort of go right up to the 70%. That is too close for comfort, especially in the light of, you know, current volatility with interest rates. Once we are sort of reaching the 65% ± mark, at that point of time, we would look at sort of, you know, bringing this level down a little bit through equity raise. Right now there is no such plan as there's sufficient headroom.
We feel that we should be able to grow, you know, comfortably at least in FY 2023 without any further equity raise required from the market.
KTL acquisition, the size is roughly around INR 13 billion-INR 15 billion. Is that number right?
We would not be in a position to guide you know, the exact.
No. Probably it's close to INR 20 billion, right? Close to INR 20 billion.
It will be around that mark. Even if you take KTL and one or two others, I mean, I think we'll be still well within the, you know, the 70% mark. I would say more, well within the 65% mark itself, yeah.
For clarification, sir, the total headroom is around INR 65 billion-INR 20 billion, right? Headroom available for us.
At INR 5,000 crore we'll be hitting the 65% mark, right? That's where, you know, we sort of benchmark our, you know, internal guidance, because we don't want to go too close to the 70%. Yeah.
Lastly, sir, how do you think about under construction asset? Are you willing to do more of the only transmission and battery storage? Or are you also looking at some construction asset in the renewables where you want to participate and improve the yield for us?
Yeah, it's a good question. Look, we want to do the first project, you know, and based on the learnings of that project, we want to take a call in terms of how aggressive we want to be. So far, you know, we won one asset, which is Kalam, and it's looking to be pretty good. It was a deliberate choice to sort of pick an asset which was not very complicated in terms of a long transmission line or any sort of forest or any complicated approvals. There's a lot of learning more that we would know in project mode, and we are already seeing that. We feel that once we sort of implemented this project, it's not fully maybe we are sort of 70% down the road.
At that point of time, we will use the feedback loop to take a call as to whether we want to sort of go ahead and do more bidding on the construction group. There is anyways a regulatory cap. As you would know, we cannot do more than 10% through this route. There is anyways a sort of a auto check as far as this is concerned. We obviously would like to explore more under construction assets with a framework route where we can also sort of play a role in terms of how the project is being put up by a framework partner. That, you know, we are more keen to look at. At this point of time, we don't want to spread ourselves too thin on this front.
Any sort of under construction asset will primarily be in transmission other than BESS which, depending upon how it develops, we are exploring. I think on the pure renewable of solar and wind, there is no such plan to sort of enter into any kind of bidding ourselves.
One more question, I'm asking, sir. What is the proportion of our debt which is variable, linked to variable rates?
Our fixed rate is about 77%. 23% of our debt is variable on floating rate basis.
Understood. Thank you and all the best. Thank you.
Thank you. The next question is from the line of Vivek Ramakrishnan with DSP Mutual Fund. Please go ahead, sir.
Hi. Good evening. My question, there are two questions I have. One is on the collection efficiency. What dictates the ebb and flow of collection efficiency for your sector? You know, we've seen it dip down and go up, so I just wanted to understand that. The second question is on the under construction projects. With capital costs going up because of higher raw material costs, what is your key learning there, and how do you see it affecting your ROE? Thanks.
Thanks, Vivek, for the question. On the collection, there is a pattern that we have seen over the years as far as collections are concerned. Generally, the first quarter of the year is the lowest, and the last quarter of the year is the highest. You know, it's a usual general pattern across a variety of discoms that are there who are mainly the LTTCs. It varies a little bit month-on-month. There's no real science to this, but generally you will see March collections to sort of make up for any sort of shortfall that is there during the year. It tends to be the weakest in the first quarter and the highest in the fourth quarter.
Thankfully, the collection pattern for the industry as a whole, as well as for us, has been reasonably stable in the high 90s, 97%-99%. That's largely because of the CTU pooling mechanism which exists in transmission. We've seen that work very well even during the depths of COVID. You know, that is one of the reasons why, you know, we feel transmission as a business should be able to do very well in terms of predictability of cash flows and consistent predictability on the DPU side. In terms of the project cost, you know, we did tie up an LSTK contract with a detailed EPC company, KEC actually. Most of our costs are sort of hedged.
There is obviously going to be some bit of impact, because of the inflation on both the project cost as well as on the, you know, marginal cost of borrowing. We don't think it will be material enough to affect the project in terms of being value accretive to DPU, as far as unitholders are concerned.
Thank you, and wish you all the best.
Thank you. The next question is from the line of Rahul Marathe with ICICI Prudential Pension Funds Management. Please go ahead, sir.
Yeah. Congratulations on a very good set of numbers, and thank you for the opportunity. I would like to ask more on the strategic side. As we see that competition is quite heating up in the transmission space, would we be looking into newer asset classes like, say, data centers to grow our AUM?
Good question, Rahul. We have been debating internally and also with, you know, our key stakeholders, the board and investors around, you know, adjacent spaces or even non-related diversification. If you look at our strategic intent, which is enshrined in our vision, we want to be, you know, true to our positioning that we have built over the last five, six years with the market and our stakeholders of having a very focused business model based on predictable distribution, right? As part of this, you know, soul-searching, for lack of a better word, we have pivoted over the last few years. For example, the foray into renewable came in as part of that, you know, deliberation. We've also sort of veered a little bit into under construction. Now we're exploring the BESS space.
We do look at all kinds of opportunities. We've explored data center as well. We've explored a few other areas. It has to filter through, you know, our funnel of ensuring that, you know, it's a focused approach with very stable and robust cash flows, very low operating risk, ensuring that, you know, we have a good line of sight on cash flows to be able to guide the market on DPU, right? As of now, I don't have anything to talk about. In case there is a development, you know, where we feel that, you know, based on our analysis, a foray into any particular, you know, business may be adjacent, may be, you know, not so adjacent, then obviously we'll come and inform the market.
Also depending upon what that is, you know, unitholders will take the approval. As of now, we want to be pretty much focused in terms of what we have outlined, which is transmission, renewable, transmission including under construction there. Maybe depending upon how the whole BESS space evolves, given the synergies with our substation assets, maybe foray into that. Other than this, at this point of time, I don't think there's anything that I can talk to you about.
Sure. Thank you.
Thank you. The next question is from the line of Sarvesh Gupta with Maximal Capital. Please go ahead, sir. Mr. Gupta, your line is unmuted. Please go ahead with your question.
Hi, good afternoon, everyone. Harsh, thanks a lot for being in this very good journey for creation of wealth, as well as creating this platform, which is unique. Congratulations on, you know, creation of this and all the best for your future journey. I had two questions. One is, you know, if I look at this, the refinancing of the debt, that itself should save you around INR 45 crore a year, which is like maybe INR 0.65 sort of accretion in your DPU. Compared to that, the DPU guidance looks a tad bit lower than, you know, what I would have imagined, because from 12.75 to 13.2, that is like INR 0.45.
Against that 65 paisa you will gain just from this refinancing of the debt of INR 2,300 crore. We are also talking about, you know, some of the other yield accretive or DPU accretive acquisitions. Could not get a hang of, you know, how we have arrived at 13.2. That is one. Second, you know, while I agree that there are adjacent opportunities, but let's say over the next three years, you know, what is the kind of pipeline of assets that are available to us in terms of operational transmission assets that we feel that we may be able to add to our AUM? You know, if you can give some color on how we are thinking around that. Just these two questions.
Yeah, Sarvesh. Very good question. First one, on the DPU guidance. When we look at you know, the DPU for a particular year, there are a variety of factors which go into it, and one of the most important factors is, you know, sustainability and the trend, longer-term trend of that DPU growth. As I had said earlier, you know, longer-term rate of growth has been between 3%-4%. We would love to increase this to beyond this zone, so long as we are confident that over the medium term we will be able to sustain that kind of an increase. The board took a judicious call in management as well.
Given the at least perceived headwinds that we're seeing in across the broader market, you know, interest rate, overall inflation, overall economic sluggishness, it's better to sort of have a higher cushion of a higher NDCF reserve, which has been a historic high, almost one quarter of DPU, to tide over any challenges that we might see, and ensure that the DPU increase is more in line with whatever we have sort of guided in the past. A higher than normal increase would have meant that based on our current outlook, the sort of runway of maintaining that higher degree would have been shorter. Frankly, we felt that better to sort of have a longer runway of a more predictable DPU, strong DPU increase, than to sort of move to a higher gear and reduce the runway.
It's a trade-off at the end of the day. One of our core pillars which we've been highlighting is sustainability of our cash flows and whatever we do. We took a call more in favor towards having a longer sustainability than sort of, you know, moving up the notch as far as DPU is concerned. As far as the opportunity space is concerned, I think we did touch a little bit in the presentation. Beyond the immediate opportunities which we are already looking at, there's a fair bit of tenders which have been announced. Almost INR 40,000 crore plus of tenders for which bidding is going to happen. Some of it has already happened.
We believe that once these, some of these projects are ready, not all of them, but let's say the projects which are not going to core asset keepers, will be available to us, you know, in the secondary market once they are ready. Typically these projects take anywhere between 18-36 months. We do see some bit of it coming into the market, and we will be a very active player, very competitive when it comes to some of these projects. There's also almost INR 45,000 crore of monetization pipeline which has been announced under the NMP, which is based on just the transmission sector, right?
We want to play a very active role here and we've been, you know, in touch with the various authorities, regulators within the industry that it has to be an open process, you know, including PGCIL's asset monetization. We believe that what has been seen in NHAI should also happen for PGCIL. That set of assets will also be available for us to sort of play a role into. This combined, these two add up to almost INR 80,000-INR 90,000 crores of assets, which all of it will happen over the next, let's say, three to fivve years. This is a fair bit of pipeline on the transmission side. What we're also doing, as I've mentioned is, in some of these biddings, there are some ATC players who are foraying into transmission.
We are actively in discussions with them to help them gain their understanding of the transmission space, given the expertise that we have, and to sort of look at framework agreements as they participate in the bidding. It's a win-win. You know, we get a sort of a captive look into an asset, and they, based on a takeout, can be a little bit more certain and aggressive in the bidding, as well as benefit from better financing and, you know, better overall project execution. We will be using this as a good mechanism to tie up, you know, some of the assets which are coming up for bidding over the next three or five years. This is on the core transmission side.
Of course, on the renewable side it's a different ballgame, given we have a very different filter, you know, in terms of, you know, what kind of assets pass muster. They have to be complete, they must have a good track record of cash flow generation. Has to be with PPAs. PPAs have to be with counterparties like SECI and NTPC, or maybe Gujarat. That is a very narrow space, and the market is quite heated right now. There, in all honesty, I do not see a lot of opportunities sort of filtering through to come our way.
On the transmission side, you know, we are very, very positive that we will be seeing, you know, either through framework or through the organic route, opportunities coming our way, you know, over the next two or three years. On the battery, it's an early stage in terms of the evolution, both globally as well as locally. The government is very intent, and we've seen a couple of large tenders, NTPC and SECI sort of being floated. There are lots of positives as far as this space is concerned for IndiGrid. Counterparty risk is minimal. These are all triple A quasi-government or government counterparties. You know, there are a lot of synergies with our business, especially the substation land that we have.
You know, there are a lot of areas where, you know, we can benefit and have a competitive advantage. We are connected to the grid, being part of the grid. One of the bigger challenges with these is we need to ensure that we have an MTOA/LTA access, right? That is not so much of a challenge for us. Obviously, there are some other types of issues around, you know, the technology as well as the regulatory and commercial framework is an evolving framework. So far we've sort of done a lot of diligence. We're getting comfortable around some of the aspects and more work to do on some of the other aspects.
Whatever we do, it will have to ensure that it fits into our strategic intent of having a stable, you know, DPU profile over the foreseeable future. We feel that, you know, this is an area where we can play some role.
Sure. Broadly, I mean, we are on our way to maybe achieve INR 30,000 crore AUM in the next two, three years. Is that something which is possible, with most of it being the current operational transmission assets?
Look, we feel very confident that, you know, that is a number that we should be able to get over the next two or three years.
Okay. One more question is on DigiGrid. Is there a plan to, or can it be sold as a service and get us ancillary revenues? Because, you know, maybe if you have done some proprietary stuff there, and there are a lot of independent assets, who may not have that sort of a service available or the resources available to do it properly.
Sarves, we haven't really thought it like that, but maybe I'll let Satish Talmale answer first, and then I'll come in. Satish, you wanna take a stab at this?
Sure, sure. Yeah. Basically, you know, the DigiGrid is a operational platform which we made for IndiGrid purpose only right now. It's more like a enterprise risk management platform. So as Jyoti has rightly said, we haven't thought like that, it could be as a service to other clients or other utility customers. As of now, there are no plans like that. It's purely meant for internal purpose.
Sarvesh Gupta, you know, number one, you know, this is not the only solution, and different sort of operators use different type of solutions. Some use captive. So I'm not too sure how replicable, how widely replicable this is. Plus, going from a size of the opportunity, I don't think it'll add up, you know, sort of around the era. So I don't think this is an area that we've thought about or will think about. But one interesting, you know, sort of adjacent space that we are looking at and, you know, we're seeing good traction is that given our transmission network, there are lots of change of the transmission line that needs to happen because of infrastructure development. Maybe a road project is coming, so we have to divert the line for a few kilometers, et c.
Given our in-house capability now, both on the project as well as maintaining side, we are, you know, looking at doing these projects ourselves and seeing reasonably good margins available on this project. It helps us beyond the, you know, the returns. It also helps us in being better in control of these projects which are right in the middle of our transmission network, so affecting our core lines in any way. This is an area where we've seen a lot of traction, and we expect given the amount of infrastructure development that we are seeing in this country or likely to see, this is an area which can contribute a little bit more meaningfully to our top line and bottom line. Besides, there are strategic advantages of, you know, being more in control of your assets. DigiGrid, I'm not very sure.
Thanks. Thanks, Jyoti, and congratulations, and all the best for the new role. Thank you.
Thank you. The next question is from the line of Abhilasha Satale with Monarch Networth. Please go ahead, sir.
Yeah. Hello, sir. Thank you for giving me opportunity. Just, I had a couple of questions. Seeing the, you know, the interest rates scenario varying, we are likely to see the increasing interest rates. How are we seeing the IRRs for the new projects? Are we seeing, you know, there is an incremental pressure on IRR for whatever the new projects we are bidding for? Secondly, like, we have refinanced debt for the current year. However, as we move forward, do we see, you know, this refinancing cost also increasing over a period of time?
Yeah. Thanks, Abhilasha, for your questions. In the first question, it's been too recent in terms of the uptick in the rate environment in India and globally. We've not seen, you know, that much impact directly. But definitely there is gonna be an extra consideration both in terms of the cost of doing the project as well as the cost of financing in the way people are going to bid, probably from a, you know, the hardening point of view. In terms of equity return expectations, I'm not so sure that will change that much. Maybe a little bit here, a little bit there.
Yes, in terms of baking in the cost of debt as well as baking in the higher cost of the project given the inflationary environment, we hope that will translate into the way people will bid. On the interest rate cost, there is a lot of tailwind that we still have in terms of our refinancing, which are coming for maturities over the near future. Our marginal cost of borrowing in first quarter of this financial year has been around 7%, so not very different from what we did in the last quarter. Our average cost is at about 7.76, and the maturities which are coming up are even higher than our average cost.
Even with the interest rates going up, there's still net benefit or net, you know, accretion which will happen to the bottom line into the cash flows out of this refinancing. Compared to prior to the rate increase cycle, I mean, that number will be lesser. I reckon that we do have about 18-24 months, you know, to go before the average sort of, you know, converges to our marginal cost of borrowing, after which, you know, the benefits will probably stop. At this point of time, our marginal costs have gone up, and not so much as the broader market, but definitely has gone up in line with what is happening in the broader financial world.
We should not have a negative impact at the end of the day on the bottom line because whatever incremental debt is coming is still much lower, even at a higher cost, is much lower than the debt that is being refinanced with that money.
Okay. Sure. Can you just tell me the number out of this $30,000, how much debt is at 7%?
We don't give that kind of a detail, Abhilash. You know, all the debt that we've sort of refinanced over the last, let's say two years, would be in the zone of, let's say between 7% and 7.30%-7.40%. Prior to that it used to be a higher watermark. Some of the debt which has come for refinancing in the first quarter is as high as 9%, let's say between 5%-7%. Substantial saving which will flow through in FY 2023.
I mean, we can comfortably take the cost of debt remaining in the range of 7.5%-7.7% average cost of debt over, say, next two to three years.
I would like to say that, you know, in the immediate near term you will see the average cost trending down over the next two or three quarters. Then probably stabilize there before sort of inching up. That will be a function of how the interest rate environment is over the 18- 24-month period.
Okay. Thank you.
Thank you. The next question is from the line of Ravish Chandra, an individual investor. Please go ahead, sir.
Yeah. Good evening. Thanks for the opportunity and evening. Jyoti, congratulations and best wishes for this one. Harsh, we actually, I think it's a long five years we are hearing from Harsh on this one. Congratulations on building excellent team and sustained growth, and best wishes for Harsh for your endeavors. Coming to the question, I have two questions. One is, it definitely looks like future Power Grid may come with the InvITs leasing instead of directly selling. So right now, all INR 21,000 crore we are having our own asset. So we might go for lease. Any thought about it? If so, what are the problems or the issues from the lease variants?
The second question is, do you have any asset where we have inflation adjustment, rent increase? Thanks.
Yeah. Thanks, Mr. Chandra, for those issues. As far as the first question is concerned, there are some discussions, more in line with NMP, you know, model to sort of explore a transfer of the rights of the asset without transferring the asset. I guess you're talking about that.
Yes.
It is a bit complicated, Mr. Chandra, given power is a very regulated business, and there is the Electricity Act which sort of overrides how the business will be conducted in this particular sector. There is also, you know, a GST constraint on leasing, where leasing is a GST leviable activity whereas power, as you know, is out of GST. It is a bit complicated and, you know, we're not sure. I'm not too sure that that complication can be solved so easily and so quickly. Be that as it may, if an asset is available, whether it is through an asset transfer basis or through a leasing model, a model that works for the industry, we will be an active player because we are in the transmission business.
At the end of the day, any transfer will have a risk reward sort of going through the transfer. It need not be an asset transfer. We will be very keen to sort of look at the new model. We are already in discussion with some of the interested parties. It's a little bit more complicated than it seems, first time, but if there is a model available, then we will also be an interested party as far as that particular model is concerned. Yeah.
That's it.
If you can just repeat your second question.
The second question is, this inflation adjustment, do you have any asset out of this INR 21,000 crore? Any asset? Are we having any inflation adjustment rent increase or something like that to take care of operating cost so that it will not hurt the WACC.
Yeah. We don't have an inflation-adjusted sort of, you know, asset in our portfolio. There is only one asset, which is the PKTCL asset, which is a Section 62 asset, where it's, because of Section 62, there is an interest cost pass through. To that extent, you know, inflation is linked to interest rate. You know, that flow through will be passed through in the tariff. Again, it's a very marginal, you know, asset as a share of overall portfolio. Other than that, all our assets are Section 62, including our solar asset, where there is no inflation impact in terms of the revenue trajectory.
Maybe one final, if you have time, that regarding operations. I think the project management is totally with us now, not with any partners. There's a DigiGrid controlled software. I think all projects are in-house controlled at our level, not subcontracted to somebody else. Isn't it?
Yes. Yes, sir.
Yeah. Okay. Thank you. Best wishes. Good.
Thank you. The next question is from the line of Pratik Kothari with Unique PMS . Please go ahead, sir.
Hi. Thank and congratulations to you, Jyoti and Harsh. My first question is in terms of, we spoke about that instead of maybe constructing a transmission asset ourselves, we might take the framework route with a third-party developer. From a risk perspective, I mean, is there a benefit if we go with a third-party developer?
You know, given that we cannot do more than 10% under the act or under construction, plus our main strength is around operating and maintaining transmission assets, not really developing. Whereas for EPC developers, their main business is actually, you know, developing assets. We feel that you know, better synergistic combination could be that we enter into a framework where we benefit from their core capability of developing an EPC, you know, of the asset. Once the asset is ready, we can then buy it from them, provided, you know, all the parameters that we agree in the framework have been taken care of. That would be a better model.
It will not limit us in any way from a regulatory point of view, as well as, you know, we commit capital only when the project is sort of ready and some of the key project risks are already addressed. Whereas if you do it yourself, then, you know, you're also facing direct project risks within the infrastructure, as you know, could be tricky at some point of time. That's why we would prefer if we have a framework model. In any case, as far as under construction is concerned, we want to sort of, like I mentioned a bit earlier, stabilize the first asset, learn from that feedback loop before we sort of commit more resources or capital into that.
Basically we don't take any construction risks when we go ahead and sign a framework with someone.
The model can be of many types. I mean, there can also be a model where we take a small capital risk of, let's say, a 25%-26% of equity, to have skin in the game depending upon the asset or the counterparty. Yes, predominantly the construction risk is not taken by us, but by the EPC contractor. Obviously we work very closely with them in terms of our inputs, in terms of how the bidding, etc. , is happening. Once the project is up and running and, you know, passed through the construction or project cycle, then the asset comes to us on a pre-agreed basis.
Fair enough. Internally, would we set a benchmark or a cap in terms of getting into these assets be solar, battery management, data centers or under construction? Something which I would call as non-core or non-operating transmission assets.
First of all, you know, there is no plan to enter into data center. I want to make that point very clear. When we pivoted into solar, we did guide about not having more than 25% of our asset in this particular space. Of course, we are way short of that right now. We are only about 3% or 4%. I would say that unless we gain critical mass in some of these, what you call as non-core, and based on, you know, how these evolve under construction or BESS, I would say combined together, they will be, you know, within that 20%-25% of our portfolio mark. We would not like to exceed that unless and until, along the way we get better visibility and confidence to exceed that threshold. Yeah.
Fair enough. Fair enough. My final question, Jyoti is, I think into one of the responses to earlier participant, you had mentioned that one of the criteria that you look at when acquiring any asset in terms of you define accretive as where you would want stability and growth in a medium-term DPU, and you're not very focused. Focus is not the right word, but what your IRR might not be the first consideration. Can you just explain this rationale?
No. See, ultimately, the IRR translates into the DPU, Pratik. The point I was trying to make is that it is not just an IRR-based approach that we take when we look at either inorganic or organic, you know, assets. We also sort of factor in predictability of that IRR or cash flow, the sustainability of it and value accretion nature of it. It should be able to extend the runway of our DPU, including the accretion to the DPU, you know, over a reasonable period of time. That's an important metric, and we just don't look at an asset purely on an IRR basis. That's the point I was trying to say. IRR is important. Eventually, IRR flows through all of this.
It's a slightly more comprehensive, you know, way to look at an asset acquisition and not just a single metric-based. That's the point I was trying to make.
Fair enough. Just for clarity, if an asset that we acquire might not be IRR accretive to what your portfolio of assets that you're holding, it might give us a short-term boost in DPUs, but ultimately it won't. Would we be shying away from such assets?
Depends, Pratik, what is short term. If it is only one or two years or three years of accretion, then probably, you know, we may look at it very differently. Because at the end of the day, we have to look at a medium-term approach. Where that medium term is, it is five, seven, 10. That depends from asset to asset. Yeah, idea is to have a slightly more medium-term outlook on our business and not have a very short-term view.
No, fair enough. Great. All the best, and thank you.
Thank you. The next question is from the line of Mohit Kumar with DAM Capital. Please go ahead, sir.
Hello. Thanks for the opportunity once again, sir. One question I have, what are the key reforms you are looking forward to or which SEBI is discussing right now, which you are aware of, which can help our industry?
Meghana, you wanna take that?
Sure. A couple of things, Mohit, that we are working with. One is, as I mentioned, getting InvITs and REITs included in various indices, which essentially promotes liquidity, ultimately for investors. That is one thing that we're actively working on. A couple of other things include, you know, removing the tax anomaly, like the long-term capital gains tax for InvITs is after 36 months, whereas for equity it is 12 months. We want, considering this is also an equity-like instrument, we're trying to see that it should be provided the same status.
These and then a couple others on the regulatory aspects of, you know, from a rights issuance regulations or fundraising regulations, as long, you know, to remove the anomalies between pure play equity raising as well as on the InvIT. These are a few more that we are working on.
Okay. Thank you. All the best. Thank you.
Thank you. Our last question is from the line of Sunil Shah with Turtle Star Portfolio Managers . Please go ahead, sir.
Thank you everyone for this opportunity. First of all, I would like to congratulate Harsh on being the pioneer to get InvITs into India and, you know, for all of us as shareholders, it's been a great journey. Thank you very much, Harsh and Jyoti and Meghana, for all the things that you people are doing there for all of us. Happy that the DPU has gone up as well. Jyoti, I heard all your comments, you know, in terms of how you want to see the company forward in terms of accretive DPU cash flow, focus on the quality of earnings, renewable assets, all of that.
Very happy to, you know, then go on as an investor in the journey going forward. Look forward to a long time invested in the company as well. Most of the questions have been answered. Just one point which I would like Harsh to take up.
Harsh, as we all know, you know, you are moving on. Any unfinished agenda in your diary, if you could, you know, let us know, and just share that with us as well, in terms of IndiGrid.
Sure. Thank you first of all, Sunil. Thanks for the wishes. Sunil, if I can, I won't call it an unfinished agenda because I think it's moving on online, and we'll see light at the end soon. There's a principle that the country has chosen as a policy. We have government assets, which are taxpayer-owned assets, to be monetized on a bilateral basis. Right? I think this question comes up on many a forum, and equally important for us, if at the end of the day, Power Grid or state transmission assets gets monetized, we strongly believe that it needs to be via a transparent auction, and any other process chosen by the government would be against the principles of the government or the competitive pricing that we have set for ourselves in the country. I think people understand that.
We have seen NHAI also coming out clearly after the InvIT that they will call for an auction for the further NHAI assets. We are expecting that same kind of message coming from Power Grid or Ministry of Power. However, we have not yet received. I would say it's that people are moving in the direction. Yeah, I would say that as long as government follows and calls for an auction, that's something which I would really like to see and hoping that it comes up soon.
Fine. Okay. Thank you very much, Harsh, and welcome to Jyoti on the new role. You've always been part of IndiGrid, but we look forward to welcoming you on the new journey as well. Thank you, everyone. Thanks for this opportunity for me to ask questions. Bye.
Thank you. As there are no further questions from the participants, I now hand the conference over to Mr. Subhadip Mitra from JM Financial for closing comments.
Thank you. On behalf of JM Financial, I would like to thank the management for giving us this opportunity to host the call. My congratulations to Harsh and Jyoti and best wishes for their new roles. Any closing comments from your side, Harsh, Jyoti?
Thanks, Subhadip. Look, we are well on our track to our stated vision and guidance of running the platform in a stable and predictable manner. Harsh has done a tremendous job in setting this platform the way it is and, you know, having all the systems, processes as well as people in place, ensuring that the balance sheet is well capitalized. While it will be a big loss personally to me and to most of us here at IndiGrid, but it is what it is. We wish Harsh all the best in his new role. As far as IndiGrid is concerned, I can assure you that it's well equipped for a very, very smooth and seamless transition in the coming next few years.
Thank you.
Thank you.
Thank you. On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.