Ladies and gentlemen, good day, and welcome to the Q3 FY 2022 earnings conference call of IndiGrid Infrastructure Trust 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 signal an operator by pressing 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.
Thank you. Good afternoon, friends. On behalf of JM Financial, welcoming you all to the third quarter of FY 2022 earnings call for IndiGrid. We are joined today by the senior management team led by Mr. Harsh Shah, Chief Executive Officer, Mr. Satish Talmale, Chief Operating Officer, Mr. Jyoti Agarwal, Chief Financial Officer, and Ms. Meghana Pandit, Chief Investment Officer. I would now request Harsh to begin with his opening comments, followed by the Q&A session. Over to you, Harsh.
Thank you. Thank you for having us, and thank you everyone for joining our quarterly call. I'll take you through the presentation, as it is available on the exchanges in the same presentation, and I'll have my colleagues, Jyoti, Meghana, and others, take over to talk about certain parts of the business, and we will go for the question and answer session after that. To start with, I have a slide number three, where our vision is stated. Our vision remains to become the most admired yield vehicle in Asia. We believe we can achieve that if we have focus on the below four pillars. The focused business model with long-term contracts and low operating risk. Value-accretive growth, with key accretive acquisitions and creating a future growth pipeline. Predictable distribution, which we have consistently provided quarterly.
Third, an optimal capital structure, consolidated leverage cap and then keeping the platform well valued. Next is on slide number five, just a snapshot of what we are. We are India's first power transmission yield platform and also one of the largest power yield platform in India. We have about 21,000 km assets under management across most states in India, 7,500 circuit km and 24,500 MVA substation capacity. Our projects are perpetual in nature, and we have a residual contract life of about three years in terms of predictable revenue. Going towards the next update on the Q3 FY 2022 performance. I think the first thing I'll talk about is the sector trend.
As we discussed this earlier, but our power sector is becoming exciting, I would say, by the day with the developments that are happening in India, as well as across the world. One can put energy into three buckets of the technological disruptions that are happening, shifting of demand patterns and regulatory dynamism. To talk about how the demand patterns are shifting, I think we have been listening to and following how the peak demand has been growing on a consistent basis in the country. Much beyond that as well, we see that government narrative has changed. In the past five years ago, we would have heard about providing electricity or making electricity reach rural India.
With the current programs that have been effective over the last five-seven years, the narrative has moved towards the reliable electricity as a focus. Because as such, electricity has reached substantial part of the country, but reliable electricity has become the focus. What that says is that we are going to see more and more consumption growth happening in the sector. Beyond that, I think if one takes a 10-year trend, EV is certainly a game changer, especially for a country like India, which imports its fuel essentially and has a geopolitical implication of being import dependent. If India can make a transition to an EV economy, we believe the consumption is going to be substantially higher than what we are predicting right now and what is being occurred.
Certainly there are challenges to EV, but if one takes a 10-year view, we believe EVs are similar to what it was maybe 10- 15 years ago. Therefore, we are positive about the growth in the sector per se, in terms of just electricity consumption. The second part of it is technological disruption, which is to do with, reduction in cost of renewable energy and storage technology. Why is that important is because, the variable cost remains to be minimal for these energy. When if the CapEx costs are reduced, which it has, we see tremendous amount of, benefit to the country. As we know, we are one of the largest, in the world in terms of incremental installed capacity with respect to solar.
We believe that this ecosystem will grow and further costs will decrease and then sector would, you know, become a self-serving sector in few years to come. The last one is about the regulatory dynamism, and then one can also do it with transmission because eventually what we need is a GNA, which is General Network Access, which is the draft rules that are announced recently. We believe that is something which will enable the country to tap the cheapest power from the cheapest location, which would require a limited amount of investment in transmission. Second is delicensing of distribution.
I think while it's not been a huge success in terms of execution, but it was directionally the plans, the policy has been moving in the right direction to resolve the customer side issues in respect to payment, which is the core of the challenge to the sector today. We believe with these three things moving in tandem, we are looking at a decent level growth in the sector. With the involvement of technology and new age investments, we are really hoping that it is not gonna remain a industrial sector, and we move towards a technology-based sector. Coming to our quarterly results. Our quarterly results have been. The best highlights have been our EBITDA grew at 22% year-over-year. EBT increased by 3% year-over-year.
Last quarter was 3.1, now we have distributed 3.19 on a run rate basis. Quarterly collection very healthy, and we collected 103% in quarter three of FY 2022, which is in line with general seasonal collection trend. One more important update is that KKR and Electron has acquired 26% residual stake in IndiGrid Investment Managers Limited from Sterlite Power, which means that KKR owns 100% of the investment manager and also is the sponsor of IndiGrid. Sterlite Power owns residual shares in IndiGrid available for investment opportunities. Coming to the next highlight of the business is we are maintaining a well-capitalized balance sheet. Our debt to net worth remains at about 56% versus the cap of 70%.
By 70%, we believe we have sufficient headroom to acquire assets as and when they are available. We would continue to maintain, let's say, a capital management procedure in the interest of the volatility that can be in the macroeconomic environment.
Sorry to interrupt you, Mr. Shah. May I request you to please, speak little louder, sir?
Sure. Okay. Thank you.
Thank you so much.
Coming to the third part of the chain, which is resilient asset management, which is really our focus in the beginning. Average availability is at 99.53% for this quarter, which is lower than the maximum availability. However, in this quarter we took a lot more reliability related check counts, and that is why the availability is really down. However, on a year-to-date basis we are doing as per plan and on course of maximizing our return. Usually asset management in such a DigiGrid that we spoke about a few quarters ago, where we are implementing this as a digital tool with IBM.
We have implemented across eight SPVs, and the balance we are expecting by this fiscal end, which means we will move to a completely digital way of asset management by the end of this financial year. We acquired an ERS. It's called Emergency Restoration System, this year. We have deployed it across different parts of the country, as well as trained our team members to be able to restore the lines in case any untoward incident was to happen. With respect to our CSR projects across the portfolio, we are following the themes of promoting education, healthcare, rural development projects, and also in a big way green initiatives.
The last one is a strategic decision that we took in the last quarter, where we won a first TBCB bid to evacuate power from RE projects in Maharashtra on a BOOT basis. It's about INR 16.7 crore of levelized tariff, but the bidding is small. However, it just allows us to exhibit our execution capability and create an organic growth pipeline for the platform. We believe that such organic growth opportunity by channelizing our excess NDCF and reserves, plus using our debt taking capacity, we'd be able to create a compounding of 10% of additional cash flow available by channeling this towards the development side of the business. We intend to keep it limited in size, however, we intend to grow this eventually to ensure that we create an organic growth pipeline.
The next part of the presentation is about the operational highlights of the quarter. I would like to invite Satish Talmale, Chief Operating Officer of IndiGrid, to take us to the next slide.
Sure. Thanks, Harsh. I would like to share the operating performance for the quarter. On availability performance, we achieved 99.53%. Again, this is a consistent performance quarter-over-quarter. We will always have an effort to improve it better. But as Harsh has rightly said, we planned a couple of scheduled outages to take care of a few annual shutdown activities for the in this quarter. On reliability, again, in the last previous quarter, you might have noticed that the indicator was same at 0.10, which means how many number of trips happened across the portfolio. We are consistently maintaining. Looks like we are stabilizing here, and again, efforts will be put to improve it at next level.
This is the best-in-class record reliability index that we are monitoring for the asset. Digital asset management platform, it has gone live for eight assets and seamlessly got implemented for these eight assets. By end of March, I think we are going to complete all the assets in the portfolio to manage all our day-to-day operating activities in a digital manner. Emergency preparedness, ERS has been already inducted, and teams have been trained to take care of any such emergency event. Now there is a huge amount of confidence in case any force majeure kind of events happen, we'll be able to restore the system within the, you know, time limits as advised by regulation. On EH&S, again, as a culture, very proactive reporting and timely closure of unsafe conditions have been continued.
We had very minor two injuries in the portfolio in Q3, and those have been mitigated quickly and a lot of corrective actions and preventive actions have been planned around that. The focus on zero harm is being continued. Just a quick bit of COVID. As we all know, at Q3, we had a lot of stringent restrictions the way the operations has to be carried out with respect to the number of people. A lot of outages were planned, but all the outages were carried out very safely without any major COVID impact. All the business continuity, like substation operations, which happens 24/7, continued, and there was no impact on COVID issues.
In the last, I think, we do have 100 MW solar power plant, so that has also, you know, delivered the generation as not expected because of bit of cloud cover and local events in that area. But, I'm very hopeful that we will catch up in the coming quarter on the solar performance. Yeah. That's it, Harsh. Back to you.
Thank you, Satish. As we go from the financial performance, JP, would you please take the lead on that.
Thanks, Harsh. I'll take you through the financial performance for the quarter. In this quarter, we clocked revenues of about INR 571 crore and EBITDA of about INR 518 crore. These were a healthy 32% higher compared to corresponding quarters of the last year on the back of acquisitions that happened during the intervening period. We also generated an NDCF of about INR 259 crore, which was 17% higher on a year-on-year basis. As already mentioned by Harsh, we are in line with our guided DPU of 3.1875, and the board has declared that for the quarter, which is higher than the corresponding quarter of last year by 3%.
If you take a slightly longer term trend of the last four and five years, then we do, you know, demonstrate a very healthy revenue as well as EBITDA growth of more than 50% over that period. This is largely on account of, you know, very value-accretive acquisitions that we have done over this period, and this trend, hopefully will continue going forward. The collection trend for the quarter has also been in line with expectation. Collections are at 103%. While this is slightly lesser than the corresponding quarter of last year, basis, the collections are very much in line with what happened in FY 2021. Our days to pay are actually better than last year, at 54 days this year compared to 70 days at the corresponding period of the last year.
Now I'll move to the distribution update. As already mentioned, the board has declared a distribution of INR 3.1875, which is in line with our DPU guidance for FY 2022 of 12.75 per unit for the year. The breakup of this distribution is it comprises of INR 2.52 as capital repayment. The record date for this distribution will be February 2nd, and the tentative timeline for distribution will be around February 11th . The NAV for the quarter is a little bit higher than 132 rupees at INR 132.53. Including this quarter's distribution, IndiGrid has distributed in excess of INR 55 per unit, amounting to more than INR 2,700 crore to the investors since listing.
Based on current visibility, we should be in line for a quarterly DPU run rate in line with our 3% or 4% year-on-year growth. I move forward to the bridge between EBITDA and NDCF. We did an EBITDA this quarter of about INR 520 crore. Adjusted for the finance cost at the SPV level, marginal debt repayment, some working capital movement in CapEx and tax, this translated to an NDCF at the SPV level for an amount of about INR 400 crore. Adjusting this for the expenses at IGP finance cost and tax, the gross NDCF generated, which is available for distribution in this quarter at the trust level, is INR 259 crore.
We are distributing INR 223.2 crore as guided for this particular quarter, leaving a reserve of about INR 35.4 crore to be added to the existing NDCF reserve. Post this addition, our NDCF reserve would stand at about INR 152 crore. Given that there's one quarter remaining, we are well in line to meet, if not exceed, the reserve amount that we started the year with. You might remember. We started the year with a reserve about INR 170 crore. We are already at INR 152 crore with one quarter to go, so we should, based on current visibility, exceed the opening reserve at the end of this financial year. We'll move to the next slide, which talks about our balance sheet composition. I mean, we do have a very robust balance sheet. AAA rated.
Well-diversified debt book between the capital markets as well as the loans. Each of these constituents well-diversified between the various payers. 76% of our borrowings are fixed rate. We sort of very much immune to any interest rate risks that might be there out in the market. The marginal cost of debt for us in this quarter was 7%, and this is well below the average cost of debt of 7.81% at the end of the quarter. Given the marginal cost continues to be lower than the average cost, there is sufficient headroom to see a further declining average cost curve for the coming few quarters. If you look at the repayment profile, we've been able to extend the repayment profile quite a lot, as well as even it out.
It's well within INR 1,500 crore for each of the years, other than FY 2023, which is higher for legacy reasons. Here again, out of the INR 2,400 crore, which is coming for repayment, we've been able to tie up already through an advanced loan facility almost INR 650 crore. Almost 45% is already tied up at very attractive rates. For the balance we are at very proactive as well as advanced discussions with a variety of lenders, both in capital markets as well as in the loans. We see no challenge to be able to refinance this particular amount at rates which will be sufficiently lower, significantly lower than the legacy rate at which these loans are being carried. Now I'll hand it over to Meghana to take through the next part of the presentation.
Sure. Thanks, Jyoti. I'm on slide number 14. Culmination of all our efforts in terms of acquisitions and robust asset management. We can see, we've been delivering consistently superior risk-adjusted total returns. Our total returns here comprise of, for distribution that is already 55 INR per unit over the last 19 quarters. The price change of about 58%, which leads to a total return of 114% since the time we listed in June 2017. On an annualized basis, it translates to 18%. This, if we compare with pure debt instruments of G-Sec bond tenure as well as 30-year, you can see IndiGrid has outperformed.
At the same time, if you compare it with pure equity portfolios like NSE Nifty Infrastructure Index, S&P BSE Utilities or even individual stocks within transmission sectors, you can see that IndiGrid has significantly outperformed. An important metric to also look at is the beta, which provides what is the volatility that the stock has vis-a-vis the market. You can see that IndiGrid beta is amongst the lowest, 0.05, which translates into a very significantly superior risk-adjusted return for the investors. Moving ahead, as we look to FY 2022, the last quarter, our pillars of focusing on portfolio growth continues. We are seeing significant pipeline getting added with respect to the bids which are coming up. Already INR 400 billion worth of tenders have been notified by CEA.
In addition, all of us are aware about the National Monetisation Pipeline, which talks of almost around close to INR 450 billion worth of transmission assets likely to be monetized. In addition to that, on the Kallam Transmission Limited, which is the recently greenfield asset that we acquired, we are focusing on timely execution over the next 15 months- 18 months. The last of the framework assets, Khargone Transmission Limited, has also achieved COD in December, so we are looking to acquire that project as well from Sterlite Power, in addition to other operational solar and transmission assets. Jyoti already mentioned we are very much looking to cover the DPU guidance of INR 12.75 for FY 2022, including the fourth quarter.
On the balance sheet part, the refinancing opportunities in FY 2023 and otherwise, we are proactively looking to elongate tenures as well as reduce the interest cost and are comfortably placed there, in addition to maintaining adequate liquidity measures in place. On asset management side, our focus on maintaining more than 99.5% availability continues to be there with focusing on certain self-reliant O&M practices. DigiGrid, we've already spread across eight assets. We are looking to cover that across all our portfolio by end of this fiscal. At the same time ensuring world-class EHS and ESG practices. On the policy advocacy front, we've seen reduction in lot size, we have seen expansion of our debt sources.
In addition to that, we are now also working on certain policy initiatives to remove the tax anomaly between equity and InvITs in terms of holding periods for capital gains or also including InvITs and REITs as part of various indices. We are working with the exchanges and SEBI on that matter. All in all, essentially our focus remains on providing superior total returns and at the same time maintaining the sustainable growth in DPU.
Without losing focus on operations per se. With that, we close the presentation, and I think I would now open for question and answer session please.
Thank you very much. We will now begin the question and answer session.
Mm-hmm.
Anyone who wishes to ask a question may press star and one on the 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 from Edelweiss. Please go ahead.
Yeah. Hello. I thank you for the opportunity and, congratulations for a decent performance. My first question is for Jyoti. Jyoti, if you see, there has been a very sharp spike in the 10-year G-Sec, and then interest rates are likely to go up. I mean, do we still expect our blended cost of debt to come down from current 7.9%, or do we expect some sort of reversal over the next quarter?
Yeah. Good question, Swarnim. You're right, I think the interest rate environment is towards the hardening side. Given that, there is a sufficient headroom available, in terms of our marginal cost of debt being significantly lower than the average cost, we still feel that we will have headroom to lower our average cost of debt over the next two or three quarters. You must also remember that the debt which is coming for refinancing is not at the average cost, but a significantly higher rate, because they were locked in at a time when interest rates-
Yes.
We're in a very different trajectory.
Yes.
If you look at the net delta, the existing rate at which the debt is getting refinanced versus the new rate at which we are borrowing, there's a significant delta. Just to give you an example, there is a INR 1,400 crore NCD facility due in June this year, which was locked in at 9.1%. It's all public news, right? Our marginal cost this quarter is at 7%. Even if you, let's say, see a little bit of headwind, it goes up by, you know, a few basis points, still there is significant room to continue to sort of optimize on the average cost of debt.
To answer your question, we would have been able to do a much lower rate of financing if the interest rate environment was more benign. But nevertheless, even with a slightly more adverse environment, there is sufficient headroom to continue to reduce our average cost of borrowing over the next three or four quarters.
Got it. No, that's clear. Right. Thank you. Secondly, you know, we have already forayed into the greenfield transmission assets now. What is really the benchmark for us that we would be targeting? What should be the percentage of, you know, AUM for this under construction assets as a percentage of the overall AUM? Do we have any kind of benchmark, so, like, you know, can this be about 5% of the overall AUM under construction?
Swarnim, I think I'll share. I think we are looking at it as a I would say a strategic part, and we have something in mind at this point in time. As you already know, SEBI has put in a cap of 10%. That is going to be a maximum percentage that we can reach at this point in time. However, I think our plan is to focus on two principles, right? One is that there are certain projects that we like because of the risk return for that project. Certain risks are lesser, and we feel they are digestible to us. If the returns are interesting, we will go for that.
Now, if it means that there is a very good opportunity which allows us to do a low risk project at a better return, yes, we may reach 5% or even cross 5%. On the other hand, if we see that there are no such opportunities available, we remain at 1% of the opportunity. Even 5% is a sizable number for us today. 5% would be around INR 1000 crore-INR 1200 crore of overall development AUM. At this point in time, we don't have a goal to reach a percentage. We are looking at it incrementally. If we find opportunities which are interesting, we will go for it. If we think it is not worth pursuing, we'll not go for it and we'll remain at, you know, such a low percentage.
We are looking at it in an opportunistic manner, but also strategic, because we want to develop assets and prove the capability that we can do it, right? That's how the first asset is done. Opportunistically we look for only assets which make sense to us in terms of risk.
Right, Harsh. Yeah. Sorry. Am I audible?
Yeah.
One last question. When we had acquired FRV, you know, the valuation framework was very different, and I think over the last 12 months or so, the valuation framework for renewables have changed. Do you see that, you know, any kind of acquisitions at the current valuations that the renewables are that would be value accretive for us, and are we still searching aggressively for renewable assets? That's it from my side. Thank you.
Okay, thanks. I'll just address the last one. We are never searching aggressively for business. We are not an aggressive company. We are not an aggressive entity. I think our focus is to do the right capital allocation and play the capital cycle in an efficient way with the right vision. We were never searching aggressively for assets. Having said so, I think your assessment is right. In renewables space, especially in solar, are you aware that the valuations at which certain transactions are happening are, I would say, expensive, and we keep looking at assets, but if the valuation don't stack up, we are happy to walk away. For example, like we, two years ago, we decided we will do solar. We acquired FRV a year before.
Since then, we have not found valuations to be attractive, and we are okay with it, right? If you don't find the assets at the right value, as I just said, for development, we are okay not acquiring it. Because, I mean, we do not have a rigid policy number on a particular percentage over there, and I don't think it is prudent to have so. You can see on the modeling side, we are very diversified, and that means we want to maintain a healthy mix between capital market instruments, which provide long-term fixed rates, and banks, which has a restriction of, I would say, fixing rates for a longer period of time. On the other hand, they make capital available for really long period of time, like 15 years, 17 years.
We strike a balance between the two. Then today also, I would presume we are about 75%, yeah, 76% fixed rate borrowing, which is sizable, and 25% is floating rate borrowing, which is largely from banks, which is really a long-term capital and substantially cheaper capital as of today. There is always a lag between the interest rate coming down with respect to bank cost of borrowing, and we believe that 25% floating rate is a healthy mix. Because see this, when you say floating, doesn't mean it is short-term. It is a long-term capital at a floating rate. There is a tremendous value in having long-term capital even at a floating rate, because that ensures that you are less prone to shocks in the capital market.
Because capital market, the way the depth is in India, you can save for a quarter or sometimes substantial amount of liquidity crunch and shocks in a difficult time. Whereas on the bank side, there's a far deeper and stable market. It is a healthy balance that we maintain, and our focus is more on maintaining a balance at the balance sheet level for risk management rather than optimizing cost for a particular type of borrowing.
Understood. Thank you. Thank you, and all the best.
Thank you.
Thank you. Ladies and gentlemen, to ask a question, please press star and one. The next question is from the line of Subhadip Mitra from JM Financial. Please go ahead.
Thank you. Harsh, I had a question with regard to the TBCB landscape. So we keep hearing about, you know, a new surge in TBCB related ordering that is going to happen, and we hear of, you know, TBCB pipeline being, you know, as high as INR 24,000 crore in the current year. Just wanted to understand, you know, your perspective of how you see this resurgence in transmission CapEx, and do you see this kind of trajectory continuing for, you know, two- three years?
I think my outlook is that the transmission market, again, it's not a year-on-year market. Every three years, what happens is one year there is a peak ordering of INR 50,000 crore. Other years, there is a gap, and suddenly we're in the mid-year of 20-25 thousand. It doesn't work in a linear fashion, unfortunately. One needs to take a two-four year outlook of this sector. I think current year is great because, I mean, as we rightly put, there is INR 24,000 crore of tender that we clearly see. Which is, I wouldn't say a phenomenal year, but a decent year in terms of pipeline for number of players that are there. I think even for FY 2024 and FY 2025, I think this momentum will continue.
I don't know suddenly if there is a INR 50,000 crore plan or not, but this momentum will surely continue. The directional inputs that we see is that Ministry of Power is incrementally reducing the layers which were delaying some of the bids to come out, right? There were two layers at CTU earlier. Now there is this one layer of committee and all that. That will make the process faster. In addition to that, GNA draft is out and the GNA wants to become a success, right? It is, the ministry wants to make GNA a success, which clearly they want to. GNA can only succeed if there is more investment in transmission, because there is no other way. GNA is like this, to have more transmission so that we can evacuate power more efficiently.
Clearly at the policy level, the direction is to make GNA work, which is the right decision. To make GNA work, there is gonna be investment in transmission which will be required. I think all the power sector planners understand that very well. Therefore, maybe for one year there can be a lag that, you know, bureaucracy and tender pipeline may take time to come in, but it will catch up in the next year. Eventually, it's a three-year horizon and pretty optimistic of the number of bids that will come out today. In addition to that, for player like IndiGrid, we also are looking actively at the state monetization routes.
We are seeing there after NMP, tremendous amount of emphasis from Minister of Power to states to look at monetizing their state transmission assets as well, which to be honest, is a very, very large market. However, we don't know when that will come out specifically. However, the interest, the committees are formed. CEA is looking into it. There has been a lot of debates and discussions with private sector guys as well. The intent is in the right place, and if the intent is in the right place, I don't see why should there not be an Odisha-like auction that happens in distribution, in transmission as well. We are pretty optimistic on that part, which will come in large chunks. For us, we have a wider set of target businesses as well to look at.
Thanks, Harsh. This was really helpful. Lastly also, you know, we hear of PGCIL coming to the market, you know, to also offload their TBCB projects. I think the number that they're touting is every year you look at INR 10,000 crore-INR 15,000 crore. Can that also potentially be, you know, a market for us?
Sorry, can you repeat that?
What I meant is PowerGrid's TBCB assets as they mature, they are also looking at offloading those into an InvIT platform. As I understand that-
Yeah.
The PG InvIT doesn't have a ROFO. Is that a potential market that you can look at?
Oh, certainly. We would be looking at that. I hope that government of India runs a transparent bidding process as it should be run, because at the end of the day, PowerGrid is owned by taxpayers' money. For government-owned assets, it is important that a international transparent bidding process is run. If the transparent international bidding process is run, we would be very active and happy to compete for this asset.
Understood. Thank you. Thank you so much.
Thank you. The next question is from the line of Keyur Asher from PNB MetLife. Please go ahead.
Yeah. Congratulations, Harsh and team, for a good set of numbers. Thank you for the opportunity. I have a couple of questions. Just on the foray into greenfield solar, if you could talk about our internal capabilities in executing this, and what kind of IRR are we looking at in this particular segment?
Internal capabilities question is, we have a substantial amount of capability internally. I think between the leadership team, many of us are the people who built some of the assets that we have acquired from Sterlite as well. Many of us are also people who built the asset and were continuing to do O&M at an operating level. We have teams which have built thousands of kilometers of lines, designed them, built them on their own, et cetera, in their earlier roles. In terms of people capability, we have substantial amount of capability in-house to develop assets. We also have a separate vertical within the company to ensure that our basic O&M practices are not or rather O&M function is not mixed with the construction team.
That's a separate development team that are built in the company. We have sufficient capabilities on the front of development side of the business. On the IRRs, I think we look anywhere. As I said, we avoid giving specific numbers, but we look at least a couple of hundred bps higher than operating projects IRR in a development phase. But again, it depends. If it is a risky project, we would like to do higher return projects, but we don't plan to do risky projects in IndiGrid. About 200 bps-300 bps higher than optimal IRR is something that we look at.
Sure, thank you. This was helpful. Secondly, on the availability performance this quarter, specifically on the outages seen in one of the assets that is NRSS XXIX. Can you help us understand the impact of this on the financials? I understand there are penalties involved if availability goes below 98%. Shed some light on that.
Sure. There is actually no material impact on the financials on account of this, because the incentives and penalties are on a cumulative basis, typically. While we are presenting a quarter three number, at the end of the day, we are in a profit allocation business and capital cycles will turn around, and we are seeing, you know, part of it playing out in the monetary cycle and the cost of capital cycle as well. Eventually we feel everything averages if one is able to take a five-year view. Fortunately our first team, as well as the stable business that we have in transmission, we are not in a hurry, and we can take a five-year view and say, "Let's wait for a cycle, for a year when the cycle turns around.
We will look at assets, which are available at a better price when we know from now. We are happy to wait. To address your question, yes, asset side we have invested substantially in solar, and we haven't seen something interesting that. That's the reason we have not acquired anything yet.
Fair enough, Harsh. Thank you so much, and wish you all the best. Thank you.
Thank you.
Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good afternoon, Harsh. Congratulations for another steady quarter. First question is, you know, for your DPU growth as such, one of the levers is reduction in the cost of fund. But in the absence of that, given the, you know, the commentary on solar assets anywhere where you may not find any interesting assets for a while. You know, somewhat slower execution in terms of the newer, sort of greenfield projects because that is fraught with risk, and we have just started it and the percentage allocation would be lower. Where do you see any other lever for DPU growth going forward apart from these? Because it looks like an environment where we cannot increase the AUM much.
Yeah.
That is question number one. Second is more of a long-term question. Have you done any analysis on, let's say, you know, EV adoption in India rises to a particular level, let's say 30% or 40%. In that case, you know, what kind of electricity demand and hence what kind of additional transmission capacity will be required? Do you see any action on the ground towards that, which may help us being larger? Do you see any additional investments being made to come up to that? I mean, first of all, one needs to understand that the delta itself because of EV adoption is going to be large. That's the first part of that question. Secondly, do you see anything related to that on the ground?
Sure. Good. I'll take your first question first. I think today we are distributing approximately INR 12. Rather, we are distributing INR 12.75 a unit, which comes to around INR 892 crore of INR 900 crore of NDCF per year on DPU. A 3% growth on that is what we are looking for and what we have done in the past is about INR 30-odd crore of NDCF growth, right? If you look at our YTD NDCF, we are substantially higher than the INR 3.2 growth that we are promising. That's one of the reasons that our reserve itself today is about INR 150-odd crore.
If we continue with this run rate of collections of our reserve, it will be substantially higher at the end of the financial year. Or rather, let me reverse it. We can increase DPU this year itself if we wish to do it just based on the current assets. We are not dependent on new assets necessarily to increase the DPU. I mean, this, the assets that we have already is sufficient to provide for DPU growth. We don't need to worry about as a business that what if we don't acquire new assets this year, how will the DPU growth take place? That strategy from IndiGrid side that we do not look at the business in a one-year horizon. We look at the business in a longer horizon, which enables us to take long-term decisions.
For example, as I said, if the assets are not interesting, we don't buy assets for one year. We still have a sizable DPU that we have earned over last few years and provide DPU growth still based on the growth that we have already. The cycles are longer in infrastructure, and one should look at every year acquisitions to result in an yearly DPU. Or we look at that whatever we acquire at the right time to provide DPU growth for a significant period of time. That's one. Secondly, as Jyoti answered, our marginal cost of borrowing is still substantially lower than our average cost of borrowing. Because our FY 2023, there is about INR 2,400 crore of refinancing taking place in FY 2023, which is at least 150 basis points more expensive than our incremental cost of borrowing, right?
Even if we were to execute just a INR 2,400 crore refinancing, that is gonna result into a 3%-4% DPU growth starting now for FY 2023, theoretically. In addition, we are insulated from interest rate increase to some extent because our FY 2024, 2025, 2026 repayment are substantially lower as you can see. Even if the interest cost was to go up from here, we are still talking about a less than 10% of our cost of borrowing going up year-on-year, right? We have a balance sheet which is interest rate resilient today, even if the cost was to go up in, let's say, three years timeframe, any year-on-year. We have a shorter-term opportunity to refinance INR 2,400 crore, which is gonna result into a substantial NDCF accretion.
Your hypothesis that interest rates are going up that will result into lack of NDCF is incorrect because we are in the other side of the curve, that DPU growth itself might happen from interest rate reduction because those interest rates that we are refinancing are higher cost capital structures, and we are getting into a much lower cost in relation to that. The third is we still have substantial headroom for acquisition, right? We are today at 56%, and if we want to go to 70%, we can see that our assets worth INR 5,000 crore-INR 6,000 crore at a substantially cheaper incremental cost of capital, which will give us a visible growth. Now, at what rate we acquire volume of the asset is the decision that we make depending on type of assets and what is available.
As I said, we are not dependent on a particular asset to acquire or something to happen to provide DPU. Like, we have sufficient reserves based on current assets, which we are waiting to pass it before the right time. In addition to that, we clearly see the next INR 2,400 crore yielding NDCF bump because we are refinancing higher cost debt with a substantially cheaper cost of debt. We are kind of conveniently placed on that. On the second question on EV, we have not done any study, but see, it is a vision, to be honest. Directionally, we don't know how much EV adoption will happen. The key driver remains the cost of vehicles coming down, right? That has nothing to do with electricity.
Electricity costs are substantially cheaper to make it viable. The cost of batteries and cost of vehicles coming down is the manufacturing play. While the government push is remaining, I mean, government driving push is there, we need to wait and watch as cost of vehicles come down materially to reach a 30%-40% penetration. Let's say, I mean, 30%-40% is phenomenal. If we were to reach a 30%-40% penetration, imagine a 20%-30% oil and gas sector getting added to electricity sector in terms of value, right? That is the size we are talking. If that much of size is getting transferred to electricity sector, then about 10% of that investment will come from transmission, more or less, right? That is the very high level rule of thumb one can look at.
We haven't done a specific study around that. We feel it would take at least five years, if not 10, to really reach that 30%-40% penetration.
Understood. Just one more follow-up. I think the percentage of our borrowing which is coming through fixed rate debt, has that figure become lower than what it was a couple of years back? Is there any policy or a rule at the board level that we will not come below a certain number because you know our revenues are fixed? How do you manage that risk, and has that number come down?
Yeah. The cumulative number from quarter one to quarter three is decent, so we are not really impacted materially by this group. I mean, there are very limited financial impact in single digit revenue. Very small margin. Real impact was on the material rate. Some of the issue that we have seen as a post outage we are also looking to recover from insurance. We, to be honest, feel that it will be kind of a very small impact on the revenue.
Understood. Yeah. Lastly, any expected timeline on KTL that you would want to guide?
Okay. KTL is commissioned, and that's what we understand. We will be following the framework process over there with Sterlite Power. As per that, we will start the diligence soon. Once we do the diligence, we'll be able to communicate in a better way of where.
Okay. Yeah. Fair point. Yes. Thanks, Harsh.
Thank you .
Thank you. The next question is from the line of Mitesh Shah, an individual investor. Please go ahead.
Hello, am I audible?
Sir, your voice is too low. Can you speak a little louder?
Yeah. Am I audible?
Mr. Mitesh, we cannot hear you, sir.
Am I audible now? Hope I'm audible now.
Yes. This is better.
Yeah.
Please go ahead.
Yeah. Congratulations to the management team on a good set of numbers. There is a 97% availability for NER-II transmission line. I think it is also covered under insurance. Just any color on what can be the cash flow shortfall and by when generally it can be recovered? Second question is on, basically, is there any disruption in this sector which, you know, from a long-term perspective, which, I mean, we could be looking at, for example, wireless electricity transmission or something on, you know, those lines?
Sure.
Something like Google is experimenting with that. The second question is that, you know, IndiGrid InvITs are not allowed to be placed for margin. Other exchange-traded instruments like, you know, F&O Reliance or mutual fund, et cetera, are allowed to be placed as margin. It is not yet done. I think in the last investor conference also this question was brought up. If the management team can write to the exchanges maybe to consider. Thank you.
Sure. Thank you.
Thank you.
Coming to your first question, we just address it, but as I said, it is a very, very little real impact, things like single-digit cover impact. It's a very, very small impact on the P&L for many years. So we don't really see it as a larger impact. The second question on wireless, I think for a decade people have been talking about it. That transmission is driven by physics in terms of transmission of electricity. It hasn't changed over the last 50 years, 60 years. It doesn't mean that it will not change, but I think the technology that can disrupt this is at a primitive stage, is what I believe. I'll give you a parallel. We've heard about 5G rollout, right? 5G rollout is nothing but a microwave in the air.
We all heard about the environmental issue on the birds, issue on the flights in the latest discussions, right? Transmitting electricity in the air is gonna be a million times more powerful waves in the air, right? Even at the proto stage that is being done. The same amount of energy, because energy is not changed. If you want to transfer 100 MWh of energy, then it's that much of energy needs to transfer via waves in wireless. Which will be kind of millions of times more heavier waves than 5G waves that we have been talking about. I think the widespread use of wireless is done at a primitive stage in extremely narrow, shorter distance manner. We are not really worried about that kind of disruption in the sector today.
The real disruption that people are thinking about on the ground is a microgrid, where you don't need transmission altogether, which is a business model disruption rather than technological disruption. Again, electricity is the cheapest form of transmitting power. They will always be cheaper to produce electricity where fuel is best. They'll always be. Rajasthan will be cheapest source to produce electricity and transmit it to the rest of the country. The microgrids will coexist with the main highways or the main grids, but other than these, we don't see a material amount of disruption in the business per se, on that front. There is a third question also. I actually missed the third question.
Hi, Meghana here. I think that was on the margin money that Mitesh asked.
Oh, yeah. Sorry. Yeah.
Yeah.
What we would request is, Mitesh, why don't you write to us? We see as a company or as a InvIT, when writing to exchanges and SEBI, we do not get the same kind of response because as a company can't say that allow our shares to be pledged, right? Investors need to write to us. We are happy to forward those mails if we receive formal request to SEBI and exchanges. InvIT standalone doesn't have a locus standi to go and say allow our shares or units to be pledged. It looks very awkward. We would request investors to write to us. That will enable us to write to exchanges that, "Look, this is what our investors are looking for. Can you work around that?" We would request you to write to us.
Does that answer your question, Mr. Mitesh?
Yes. Thank you.
Thank you.
Okay.
The next question is from the line of Nimish from an individual investor. Please go ahead.
Hello. Hello.
Yeah.
Yeah. Yeah, congratulations, Mr. Shah, for the good number, and thank you for the opportunity for me to ask a question. I'm also from long-term investor point of view, just as a previous investor. Just wanted look for any attractions or pointers for investments or incentive at this market price, given that our right issue was at INR 110. What is the target AUM and target DPU in next, maybe two-three years, FY 2024 or FY 2025? And any other attractions which you can give incentivize the long-term investors? Thank you.
Thank you. I'll give you a very small answer on that. As I said, we as management cannot give incentives or cannot predict prices, right? It's not our role. I can tell you, I think we have been guiding for a stable DPU. If you look at our track record over the last five years, we have grown our DPU from quarterly 2.75- 2.9, 3.19, sorry. Which is around 3% growth on a year-on-year basis. As we have guided in the past also, whatever DPU is being forecasted for the year, we keep it in a way that it is a stable DPU for a long period of time.
On annual basis, we give a forecast of DPU growth at the last quarter. We have provided for DPU growth guidance for FY 2022, and we are on track to achieve that last two quarters also. For FY 2023, we will be giving guidance in quarter four, our full financial year results. However, I think as we have said, our DPU of 3.1875 or 3.19 is stable one for a considerable time, so that will continue. The growth guidance specifically will be given shortly, but we have been providing stable growth over the last five years. I think beyond that, it is inappropriate for me to guide on attractiveness or incentives for long-term investors.
I think one needs to make that decision on their own.
Yeah, what is the target AUM for FY 2024, FY 2025 maybe?
We don't work on a target AUM basis. We work on if we get a good business, we'll acquire. If we don't get, we still have a stable DPU to look for, right? We are not running anywhere, but we don't have target AUM even in our evaluation metrics, right? We believe AUM as a target is not a right target when the key role is to do capital allocation. We are just waiting for the good opportunity to acquire assets to build, but we don't have a specific target AUM for us.
Okay. Thank you, sir, for giving the opportunity.
Thank you. The next question is from the line of Arpit from HSBC. Please go ahead.
Thank you for the opportunity. Congratulations to the management team for a steady DPU this quarter again. My question was with respect to the foreign greenfield. Given that in other projects we have seen delays for many TBCB projects to achieve COD. Finance cost is one of our levers to maintaining the DPU. How do we mitigate this risk of project delays affecting the DPU going forward? I understand that this piece is very small currently, but I'm sure going forward it may increase.
Yeah. No, I think it's a very, very valid question. I think we keep evaluating this risk in a big way, and a tremendous amount of focus is provided to this. I think like any other businesses, our strategy is measured and conservative. We choose projects which has relatively lesser inherent risk. For example, the project that we acquired right now, the Khargone Transmission Limited, does not have forest clearance, does not have wildlife clearance, does not have railway clearance, does not have defense clearance, doesn't have environmental clearance. It has majority of substation-heavy project. It has a small land acquisition and a very small line. We mitigate this risk by first choosing the projects which we feel are less risky. It starts from our choice. Second point is that we have freedom to choose, right?
Many of the businesses are completely dependent on new bids to come in, and they have to bid every year. They have no option but to bid for all projects, right? They cannot be as selective as we can be. Therefore, we have an advantage in terms of selecting the projects we want to bid and getting out of them. We can bid for only two projects that we like and not bid for the other eight which we feel are risky. That is an inherent advantage that we have. We are firstly choosing projects which are less risky and which do not have material amount of, or risk of those delays.
Second is, as you rightly said, these are small projects, and even if we do no projects, it will remain small in the balance sheet. The impact of those projects, if at all that was to get delayed by a quarter, is going to be limited on the overall balance sheet of the business, right. I think these two big principles we are keeping with us, which allows us to mitigate it besides all the project-related, you know, risk mitigation that we take. These two are the strategic filters which allows us to remain conservative.
I just had a follow-up. Once this COD is achieved for the Kallam project, what would be the AUM that would add to our portfolio? Would you be able to share that?
I can give estimate. I think it's gonna be around INR 170 crore-INR 180 crore, something like that. It's a small size, yeah.
Thank you.
Thank you. The next question is from the line of Ravish Chandra, an individual investor. Please go ahead.
Yeah. Thank you. Congratulations, Harsha and team, for the consistency in results, everything. I have two questions. One is I'd like to know what is the total percentage of our AUM today when you consider as a whole India. Are we at something like 25% of total asset, transmission assets, transmission lines we are having in India?
Okay. It's a very difficult question to answer, Ravish Chandra. I'll try to give it.
Approximate.
Yeah, approximate. See, there are two types of transmission assets. Interstate transmission assets and intrastate transmission assets.
Yeah.
The intrastate network is not well mapped, so I don't have a good estimate of that. Interstate assets, which is the TBCB portfolio and ISTS portfolio, which is the larger lines.
Mm-hmm.
We would be approximately 6%-7% of the country today, approximately. This will grow because of our revenue weight in the overall pool. That's what we are looking at, approximately 6%.
Yeah, I think we just want to know the exposure. See, I know Power Grid is growing in a big way and getting into a lot of transmission lines. Now, maybe a very vague question, but
Sorry to interrupt there. PowerGrid is around 80%-85% of the portfolio, not because they are doing more of incremental work. They have the legacy portfolio with them because they've been 20 years exclusively, right? That's why their share is always gonna be very high in the overall share.
Okay. Harsh, this is an academic question only. Recently I read one article. Power Grid has taken some project internationally to build transmission line. Like that, in the future, down the line, maybe a decade later, whether IndiGrid also can do the similar activity internationally because we get foreign revenue.
We haven't thought about it, but as on date, from SEBI regulations, we are prevented to do it. We cannot do business outside India.
Okay. PowerGrid is doing EPC participation in Africa.
Yeah.
Something on building transmission.
We don't plan to do it. We have not even thought about it and importantly we are not allowed legally.
Okay. Yeah, fine. Fine. The last point, what I observed in page, my presentation, slide number 19, I was under the impression KKR and GIC put together is having around 54%.
Mm.
In the slide it shows 44%, maybe, you know, print, typing, typo, whatever.
Oh, where did they own 54%? They own 44%. Where did it? Okay. Okay. It mentions including KKR and GIC. The other way to look-
Right. Right.
at other FII.
Yes.
Other FIIs, like Schroders that you see below in the branch.
Okay.
Like Schroders and others. 11% are other FIIs.
Okay, fine. Yeah. Thank you. It's a good growth, and congratulations for everybody to maintain the same, and best wishes. Thanks.
Thank you.
Thank you. The next question is from the line of Mitesh Shah, individual investor. Please go ahead. I'm sorry to interrupt you, Mr. Mitesh, but we cannot hear you, sir.
Yeah. Hello. I hope I am audible now.
Yes.
I am just curious that, you know, now that Sterlite, KKR is the sole promoter for the sponsor and now that Sterlite is not there, would there be any impact on, you know, bidding for Sterlite project? Especially, you know, when IndiGrid they used to get first rights or when first right of refusal on many of the projects. Any color on that?
Yeah. I think the first right of refusal or vendor classes with Sterlite were not contingent upon sponsor or being manager. At the end of the day, we are all doing business, right? Why would somebody sell us cheap price if there is a better price available? And why would we pay somebody higher price if there is a cheaper asset available, right? All transactions are typically arm's length pricing transactions. And if Sterlite decides to monetize, we would continue to participate, and I'm sure they will invite us because we have executed things in a good way. And if Sterlite calls for a bid, we will certainly bid for it. Nothing changes on account of KKR being manager or sponsor. That has never.
We have put together over INR 15,000 crore-INR 16,000 crore of transactions with Sterlite, so we understand how the business works. If their view is to monetize assets, I'm sure we would be invited, and we would love to participate in the bid.
Okay. That answers my question. Thank you.
Thank you.
Thank you.
Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Subhadip Mitra for closing comments.
Thank you. On behalf of JM Financial, I'd like to thank the management for giving us this opportunity to host the call. Harsh, any closing comments from your side?
Thanks a lot, Subhadip. I'm very encouraged with the kind of questions investors have asked for. I'm very happy because in the last 20 quarters of results, I think we started by explaining what InvIT is, and now we are talking about the real business questions. I'm very encouraged with continued support of our investors and participation on the call. We look forward for all of you to continue to remain invested, and we would keep our focus on superior risk-adjusted return. Thank you for joining the call today, and wishing you a great and healthy and safe time ahead. Thank you.
Thank you. On behalf of JM Financial, that concludes this conference. Thank you for joining us.