Ladies and gentlemen, good day, and welcome to the India Grid Trust Q3 FY 2021 earnings conference call hosted by Axis Capital Limited. 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Sumit Kishore from Axis Capital. Thank you, and over to you, sir.
Thank you, Lizann. Good afternoon, ladies and gentlemen. On behalf of Axis Capital, I am pleased to welcome you all for the India Grid Trust Q3 FY 2021 earnings conference call. We have with us today Mr. Harsh Shah, CEO and whole-time Director of IndiGrid Investment Managers Limited, representing India Grid Trust on the call. He is accompanied by Mr. Jyoti Kumar Agarwal, CFO, and Miss Meghana Pandit, Head M&A and IR at IndiGrid. We will begin with the opening remarks from Harsh on the operational financial highlights, as well as the key updates for the sector. This will be followed by the Q&A session. With this, I hand over the floor to Harsh. Over to you, sir.
Thank you, Sumit, and welcome everyone to the quarterly result call. I just wish everybody a safe and healthy new year as we enter into the 2021 calendar year. I will go through the slides, apart from the vision and the business updates, and then I'll have my colleague, Jyoti and Meghana, to run through the operations and the strategy ahead, and subsequently, we'll keep time for question and answers. To start with, on slide number five, our vision is meant to become the most admired vehicle in Asia. We are focused on a focused business model, which is in long-term contracts, low operating risk, and stable cash flows. Second focus area is to ensure value accretive growth, which is DPU accretive acquisitions on a year-on-year basis, and create a growth pipeline for future.
The third focus is predictable distribution, which we have been doing till now, which is a quarterly distribution and minimum 90% of net distributable cash flow gets distributed, and focus on sustainability of these distributions. The last one is following an optimal capital structure, which is there is going to be a consolidated leverage cap of 70%. We are a AAA rating, and we will ensure that prudent liability management is implemented, and we remain capitalized at any point in time. On slide number six is just a snapshot of what we are today. Today, we are at INR 15,000 crores of size in terms of assets under management. We are present in 15 states and one UT. We have 30 lines, approximately 6,700 circuit kilometers, and nine substations with approximately 12,000 MVA transformation capacity.
We are a AAA-rated InvIT from all three rating agencies, which is CRISIL, India Ratings, and ICRA. Most of our assets have perpetual ownership, which means that we don't have a transfer in the end. Our residual contract life of contracts of our assets is approximately 32 years on a weighted average basis. We have 10,540 towers in our portfolio, which along with the conductor includes approximately 399,000 tons of steel and aluminum. This includes the latest acquisitions that we did in quarter three, which is PKTCL, which we acquired from Reliance Infra, as well as JKTPL, which we acquired from Techno Electric and Kalpataru Power Transmission Limited. Coming to quarter three, on slide number eight are the key highlights.
To start with the financials, in quarter three, EBITDA has grown by 25% year-on-year basis on the back of robust operations, as well as acquisitions that we have done in the year of 2020. Our net debt-to-AUM remains at 52% as on 31st of December 2020, which is substantially lower than the 70% cap under the regulations. Our rating is maintained AAA by three rating agencies that rate us. In addition to that, I would like to add that this is one of the quarters where there is highest net distributable cash flow generation that has been achieved, and Jyoti will cover that in detail in his presentation. The next section is on accretive acquisitions. Quarter three has been very active and interesting for us.
We have signed for the first cost-plus transmission asset called PKTCL from Reliance Infrastructure, this also happens to be a joint venture with Power Grid, where Power Grid continues to own 36% of the shareholding. The unique aspect about this acquisition is that this is a dividend story. This project will be on a cost-plus basis, and therefore it upstreams the dividends to IndiGrid, and then IndiGrid will pass the dividends in the form of dividends to its investors. We also signed the first SPA for a solar asset with a company called FRV, which is a Spanish entity, and which we are looking to acquire 100 MW of solar assets from FRV, which has the contract with SECI and has a good operational track record, which meets the criteria. With PKTCL and FRV both put together, we will be crossing the AUM of INR 15.5 million.
The third section is on steady operations. Our collections have improved. In quarter three, we have collected 112%, which reduced our DSO back to 70 days. We are seeing on a month-on-month basis, a stable collection track record, therefore this is a healthy reversal that we are seeing in comparison to quarter one. Our availability is maintained at over 99.5% for quarter three, which is the important measure on which we are accruing revenue, and we get paid. We also signed a multi-year collaboration with IBM to develop an AI-based digital asset management platform, which we believe over a period of time would result in increasing our reliability and reducing the life cycle cost of managing these assets. The fourth, which is a new segment, which we have discussed several times over the last three or four quarterly calls, which is with respect to our capital raising plans.
The IndiGrid board has approved up to INR 1,500 crore of capital via rights issue. However, this is subject to regulatory approvals from SEBI and RBI. As and when we receive such approval, we will look to raise capital via rights issue. The last and the most important one is the DPU strategy. We have been maintaining the INR 3 DPU for over eight quarters. Looking at the number of acquisitions that we have done over the last four quarters, as well as the NDCF that we have generated in this quarter, the board of the managers has decided to increase the DPU by 3.3% to INR 3.1 a quarter. This would mean that on an annualized basis, this would be INR 12.4 a year.
We have done it after substantial consideration and acquisitions that we have undertaken. Therefore, we are confident that this increase is sustainable with the existing portfolio and pipeline of assets that we have right now. Cumulatively, for YTD FY 2021, this would result in distribution of INR 9.1 per unit, despite the COVID challenges that we have seen over the first couple of quarters in the year. I will take a pause here and have my colleague, Jyoti, who is CFO of IndiGrid, to run through the presentation from slide number nine and take you through the operational details of the results for quarter three.
Thanks, Harsh. I'm on slide number nine now. If you look at it, we are trying to show the COVID impact on the power sector in general, also on our collections. I'll start with the right-hand side of the slide first. Like everything else in the broader economy, power sector is also reflecting the normalization post COVID, where we have seen a robust demand pickup both on the generation as well as on the demand side, where the peak power demand in the Q3 was at an all-time record high of about 186 GW. While transmission tariffs are not really linked to the actual flow of power, but nevertheless, it's important that the overall health of the underlying sector in which transmission belongs is also robust. To that extent, this is a very good sign for the broader sector and for transmission as such.
Coming to the collections, we have seen, as we expected, the normalization of collections on a quarter-on-quarter basis as well as on a year-on-year basis. This particular quarter, we have seen a collection efficiency of about 112%. This has been a marked increase compared to the first quarter where we saw the collection below 60%. In terms of the average collection efficiency from a nine-month perspective, we are now in line with what we saw last year at about 93%. Our DSO days has also consequently been improving. For this quarter, we have an outstanding receivable about 70 days, which has been significantly improving over the sequential quarters from 100 days in Q1, 80 days in Q2 to 70 days. We expect this to sort of trend to the yearly normal of around 65 days by the end of the year.
I'll go to the operational highlights for the quarter. Harsh has also already pointed out that our average portfolio availability continues to remain robust at 99.5% and above. Most of the operating parameters, in terms of whether it's trips per line, whether in terms of training man hours, whether it's near-miss reporting, we've seen a marked improvement on a year-on-year basis. We are also happy to report that there have been zero COVID incidents among all our operating locations. We have a 600 people team, including the partners, and there have been no incidents of COVID-19 in any one of them, thankfully. We've been obviously compliant with all the statutory guidelines, social distancing, need to know attendance at work, proper quarantining facilities, and also implemented awareness sessions across all our AMC partners on a proactive basis.
All of these efforts are helping us in ensuring that we have zero COVID impacted operations. We obviously continue to align our practices with international standards. We've been improving our operating processes as well as practices, including focus on EHS guidelines, having a higher focus on digital initiatives, including the digital asset management that Harsh alluded to. We are well on our way in terms of achieving the vision of being one of the best run investment trusts globally. Now I'll go to the financial highlights for the quarter. We've seen a robust increase in both the revenues as well as EBITDA. Revenues grew by almost 27% from INR 340 odd crores to INR 432 crores on a year-on-year basis. EBITDA also improved by 25% to just a little shy of INR 394 crores.
Given the robustness of the operations and the stability of the cash flows that we see in the business model, we've decided to increase the DPU, as Harsh mentioned, from INR 3 a quarter to INR 3.1 a quarter. This translates into an annual payout of about INR 12.4. We see good visibility of being able to sustain this kind of payout over the foreseeable future. We have paid almost INR 43, a little less than INR 43, amounting to INR 1,842 crore over the time since we got listed. This particular quarter, because of the INR 0.10 increase, our actual payout will be INR 181 crore, compared to INR 175 crore that we were tracking over the last few quarters. As I already mentioned, the DSO days are improving and now down to 70 days, compared to 80 days last quarter and 100 days in the Q1.
Collection efficiency has been much better than 100%, and is trending towards the long time average. I'll move to the next slide, which is the EBITDA to NDCF bridge. We have an EBITDA at the SPV level of about INR 400 crores, a little higher than INR 400 crores. After accounting for the interest expense, working capital, and the CapEx, and a reserve of about INR 33 crores, the available NDCF at the SPV level is about INR 294 crores. Taking into account the interest at IGT level of about INR 101 crores, other expenses at IGT and the reserve of about INR 8 crores, we do have a distributable NDCF of about INR 181 crores, which is what we are paying, translating into INR 3.10 payout per unit. Move to the next slide 13.
We continue to ensure that we maintain a good balance sheet, robust balance sheet, while we embark upon our growth initiatives. We are very mindful of the AAA rating. That's becoming very important. It's actually very important for us given that our leverage ratio is right now 52% net debt to AUM. We continue to term out our repayment profile. We've ensured that all incremental financing that we're doing is beyond the 2025 financial year, because we see a little bit of lumpiness in terms of repayment till then. During the quarter, we did raise about INR 1,000 crore of debt, a combination of 50% through loans and 50% through NCDs. Each one of these did take care of the need to term these maturities out. They were also done at an incremental borrowing cost of about 7.5%.
Almost about 1% inside of what our average cost of debt is right now. As the book continues to churn and more and more new debt becomes a part of the book and the old debt gets paid out, we do expect the average cost of borrowings to trend down to below 8% in the next financial year and improving sequentially thereafter. We do carry a robust amount of cash in our books, about just a little short of INR 1,000 crores. We also have access to short-term capital lines, just in case there's a need to tap into them for any particular reason. Our book is well-balanced now, better than it used to be between, let's say, capital markets, which is now less than 50%, and long-term bank finance.
We are in active discussions with a few public sector banks to get incremental lines from them so that we will improve or increase the share of the bank loans in our borrowing mix even further. I'll now request Meghana to take over and take you through the rest of the presentation.
Thanks, Jyoti. Moving on to slide number 14. This depicts our total returns that IndiGrid has provided since the time we got listed in June 2017. The graph, if you can look at, on a total return basis, IndiGrid has provided 60% of absolute returns, breaking that into 40% of the dividends and 20% change in the price. Comparing this to, on the right-hand side, with all the other equity indices, as well as with a pure play transmission player of PGCIL on equity play, we have provided significant superior returns on a risk-adjusted basis.
On an annualized basis also, this translates into 14%, compared to all the other equity indices on one side, and on the other side, the G-sec bond, which has provided 27% on absolute basis and 6.9% on annualized return basis. On the risk level, as I mentioned again, which is governed by beta, IndiGrid has the lowest beta compared to all the other indices in the market, and G-sec Bond on the other. We have been providing superior risk-adjusted returns since the time we listed. Moving on to slide number 15. This broadly provides the global yield co overview, wherein we have looked at how the other listed yield platforms are performing across geographies. The x-axis talks about the spread that these yield platforms are providing over the 10-year government yields in those particular markets. The y-axis provides the current dividend yield that these yield platforms are trading at.
The size of the bubble basically talks about the size of the market cap of that particular yield platform. We have seen that there is some narrowing of yields which has happened in India, specifically with respect to IndiGrid also. Indicatively, I think this reflects the current interest rate cycle in the country, along with the financial performance and the robust operational performance of IndiGrid per se. Slide number 16 depicts similar metrics, but in a tabular format. As I said, IndiGrid, essentially, we have seen narrowing of the spreads to close to about 350 basis points compared to the other yield platforms across geographies. Moving on to the next section on the fund raise and the DPU strategy. I'm on slide number 18. As Harsh briefly mentioned in his opening remarks, our board has approved an equity issuance of up to INR 1,500 crores through a rights issue.
SEBI had come out with the rights circular sometime in January 2020. They have enabled both fast-track as well as slow-track methodologies for the rights issuance. As Harsh also mentioned, this is subject to regulatory approvals both from SEBI and RBI. This is an enabling resolution that the board has approved. The way we are looking at the fund raise is, we had done the last fund raise of about INR 2,500 crore in May 2019 through a preferential allotment. SEBI had not enabled the rights issue guidelines at that point in time. Along with that fund raise, we had locked in close to about INR 12,000 crore of assets, this Sterlite Power, across six assets per se. Out of those, we have already acquired four assets worth INR 7,100 through the framework agreement and the RoFO agreement respectively. Across, this is NRSS, OGPTL, ENICL, and NGPTL.
Overall, above the framework assets, we have also acquired INR 1,200 crore of assets, both Jhajjar as well as Parbati Koldam, as well as announced the solar acquisition of FRV. Close to about INR 1,800 crore of assets we have acquired and slated to acquire over and above the framework assets that we've talked about. The idea is to look at a fund raise in line with these additional assets that we have acquired. We are also looking at after all these acquisitions, including the balance two framework assets, the net debt to AUM will reach to about 65%-67%, leaving sufficient headroom in play. At the same time, raising preemptive capital in order to create significantly higher headroom and look at building the other pipeline. We remain on track to acquire the balance framework assets, as I mentioned.
On the DPU strategy on the back of the acquisitions that we have already done and slated to do, I think a distribution of INR 12.4 per annum continues to be sustainable over a considerable period of time. This DPU, we will be able to sustain even on the expanded capital base as and when we complete the rights issue. Moving on to slide number 19 on the business outlook. I think we remain focused on completing the FRV acquisition, for which the definitive agreements have already been entered into. In addition to that, we are focusing on monitoring the other two framework assets, which is NTL as well as KTL. Both these assets will be close to about INR 55 billion. At the same time, we are creating a pipeline on the transmission as well as the solar assets. We see tremendous opportunity in both these sectors.
As Jyoti mentioned that maintaining balance sheet strength remains a core area of our focus. In addition to raising the equity funds through the rights issuance, I think idea is also to maintain adequate liquidity to ensure that any uncertainties or any unpredictable scenario can be faced with adequate liquidity. On the debt side also, we aim to diversify the sources so that any lumpiness is not looked at. At the same time, we focus on elongating the tenure and reducing the cost of debt. Robust asset management is another area of focus by maintaining the availability above 99.5%. At the same time, investment into technology, whether it is through the digital asset management that we have tied up with, predictive analytics, and other emergency preparedness that we are looking at.
At the same time, implementing the ESG and the ESMS frameworks that we have already initiated on. As one of the first InvITs in the power sector, I think we have been spearheading a lot of policy initiatives, whether it is reducing the lot size from INR 5 lakh to current INR 1 lakh, or whether it is increasing the leverage from 49%- 70%. This continues to be another focus area, wherein we are working with the regulators on reducing the trading lot size for good to bring it in line with the equity and at the same time diversifying the debt sources for InvIT, whether it is working with IRDA and PFRDA to ensure that insurance companies as well as domestic pension funds can subscribe to the debt securities issued by InvIT. Moving on, the next few slides.
I'm on slide number 21, which basically talks about our journey since 2017 when we got listed with a two asset portfolio. Over the last 15 quarters, steadily we have increased our portfolio from two to 12 and at the same time did a capital raise of INR 700 crores. Another major milestone was KKR becoming the sponsor for the InvIT. Now we are fully geared to become the most admired InvIT vehicle in Asia and by targeting the AUM of about INR 30,000 crores and at the same time maintaining quarterly rated cash flows. Slide 22 talks about the portfolio on an asset basis with a detailed specification of number of lines, circuit kilometers, the COD availability since COD till date, the breakup of the assets under management and the metal quantity breakup asset-wise.
Slide number 23 provides the corporate structure wherein now we have KKR has been inducted as the sponsor with a 23% stake. GIC owns 12% and the rest of the unitholders diversified across 57%. On the investment manager side also we have KKR, which owns majority and the other 12 assets in the SPV with three sub-holdcos. Axis Trustee is the trustee for the InvIT. Slide number 24, I think, talks about our shareholder base and we have seen a very diversified shareholder base. Today, we boast of nine insurance companies, and mutual funds and two employee pension funds. The total number of investors, we are seeing a significant increase in those also on the back of the lot size reduction and significant improvement on the liquidity part. Moving on, slide number 25 gives an overview of our experienced board in detail.
I think that brings me to the end of the presentation. I would be happy to host any questions specifically on the Q3 financial highlights or any other questions that any investor may have. Thank you.
Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please 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 Mohit Kumar from DAM Capital. Please go ahead.
Good evening, sir. Congratulations on good set of numbers and raising the DPU by 3%. My first question is on raising of capital. In what time horizon we expect to deploy this money? Related to that, when we expect the KTL and NER to be acquired? Second question is, given that we have a huge repayment which is due in FY 2023, have you started working on refinancing that particular payment? Where are we in terms of, and what is the expectation of interest rate for us now?
Okay. Thanks, Mohit. I think your first question was on DPU increase and rights issue. I think the rights issue, as you mentioned, is linked to certain approvals. We are awaiting that. It's very difficult to put a timeline on when we'll get the approval because at the end of the day, it's in the hands of the regulators. When done, this will be the first public rights issue done by any InvIT. We're just seeking certain clarification approval. As and when that gets done, we would be able to guide better because at the moment, the time is something which is not in our control. However, we are well prepared as and when the regulatory approval comes in. The next question was for NER and KTL. Both the projects are at an advanced stage of commissioning. NER project is already part commissioned, so is KTL.
As and when they are getting commissioned, we look to acquire. We're already working very closely with Sterlite Power and evaluating these assets in depth so that as and when they are ready to be acquired, we can close the acquisitions. The third question, if you can repeat. Sorry, I missed that one.
The funding of the, since we have a repayment scheduled in FY 2023 of large amounts. Trying to figure out whether you started working on it or not?
Mohit, I don't think anyone can prepare two years in advance of a refinancing in future. That's not practical as well as that is not, you know, possible. What we have done, as Jyoti mentioned, we are looking to increase our maturity. What we are doing is we are not adding any more maturities in FY 2023, 2024, right? Which enables us to keep that cap at that amount. On top of it, I would say we are opening up different sources of financing, which would enable us better to refinance as and when we have to refinance those facilities. The third one is that, yes, the question was with respect to cost of debt.
I think Jyoti alluded to that, our kind of marginal cost rather, let's say, the incremental cost that we have raised certain bonds and loans have come at an average of approximately 7.4%, 7.5%. Some of these bonds which are locked in, which you see amortizing in FY 2023 are at 8.75% or 8.5%, 9%. There is a substantial in the money option. There is cost attached to it if we look to refinance those facilities today, which we don't think is practical today. As we get closer to the repayment, we would look to refinance them before the maturity date.
Understood, sir. Thank you, sir. I'll get back in the queue. Thank you.
Thank you.
Thank you. The next question is on the line of Swarnim Maheshwari from Edelweiss. Please go ahead.
Hi, everyone. Thanks for the opportunity and congratulations for an excellent quarter, really. Okay, couple of questions over here. The first one really is more of a macro question. If you look at the current interest rate and the inflation scenario, where do you see the 10-year G-sec kind of moving now? Do you see it stabilizing at about 5.9%? I'm sure you would have discussed it internally. What's your color? If you can give your inputs here.
Sure. Thanks, Swarnim. I think that's a very difficult question to address for our management teams today. I think, see, more than guiding on what we feel interest rates are going to be, I would take your question in two parts. One is what is our view, and second is what we are doing about it. Our view is that we come from a simple, humble realization that we cannot predict interest rates, and therefore, we don't hold our business strategy on prediction of interest rates because that's something where things can go wrong, and we are a yield platform, so stability is at the core. I think where the overall global liquidity is, where country's priority on growth is, we don't see a spike in interest rate in India itself.
The rationale being, one, India has restrained a lot of firepower of liquidity or, let's say, printing money when the rest of the world has printed money. I think I would say India has a little bit of fiscal room to print money when required to push growth. I think India has retained that firepower, and therefore, we believe that we don't see a substantial increase in rates in near future. However, this is just based on our understanding, and then we don't try to implement this in our business strategy. When it comes to business, as you said, our internal discussions are focused on the fact that we are not in the business of predicting interest rates, and therefore, as and when possible, we try to do longer term lock-in of rates, right.
Therefore, we have locked in rates at 9% also, and we have locked in rates at 7.25% also. We have a mixed bunch of portfolio. What that results in is that over a period of time, our portfolio is more insulated to interest rate movements up or down. When you see interest rates coming down to 7%, yes, we don't get the gain of 2% or 1% immediately because we have locked in interest rates. On the other hand, if the interest rates were to go up by a couple of 100 basis points, we will still be insulated. Our focus is to walk a narrow path of conservative interest rate management and lock in the interest rate when possible. This is owing to the fact that our business is stable, right?
Our revenue is not interest rate linked. It is largely stable, predictable revenue. As a strategy, we like to hedge or like to lock in interest rate as long as practically possible in different interest rate regimes.
Now, got it. That's another tough one, I know. The reason actually I thought about that was that Jyoti in his opening remarks, he did mention that from about 8.4% of our blended cost of debt right now, we are likely to go to less than 8%. I think that has to do with two things. First, I think the depth of our debt market itself, that's actually increasing for us because I believe we are now going from NCDs really to term loan also. I think it's just matter of time where the IRDAI also approves the insurance company really. That will really give us some depth of the market. That is where I was coming from that this less than 8% kind of a blended debt for us.
Is that really a function of the lower interest rate scenario, or this is more of a sustainable thing in nature because of the debt in the market?
Okay. That is a very easy question to answer. I think Jyoti will raise that. First is it reduced because we did a INR 1,000 crore raising at a lower rate, right? I think, as we guided before, there are several refinancing opportunities that exist with us. Some of them at SPV level, some of them at an individual level. We are looking to acquire new assets as well. We think all of that put together, our incremental cost of debt is substantially, let's say, below eight, which averages out the total debt, puts the average down below 8%. That's what we feel that if we keep raising capital at the current cost of debt, currently our weighted average cost of debt would come down below 8%.
I think I would say that is a sustainable cost of debt because when that interest rate started reducing, our costs didn't come down as fast, right? We had locked in our cost of debt. On the other hand, as we do refinancing and the incremental debt is lower, we'll see that impact kicking in. That's what is at play right now.
Got it. Thank you. The second question really is on the collaboration that we have done with IBM. On this digital asset management platform, how will this really operationally improve the performance and what kind of cost savings can it potentially bring to us?
In terms of, you mean the cost of debt?
No. I think in the presentation we have mentioned that we have done some collaboration with IBM to develop some artificial intelligence, digital asset management platform. What exactly is this?
Let me see, at the end of the day, O&M for transmission is a function of a few factors. One, because there are no moving parts, there are way less operating parts, and therefore, it is slightly different than a normal generation power plant. Point number one is focused on the assets that we have. Are we monitoring it on a regular basis? Whatever fractional changes are happening in the asset, are we addressing that in time, right? What digital asset management or our collaboration with IBM allows us to do is that out of our 10,000 towers today, there are going to be another few thousand towers in future, how do we ensure that what are the risky towers, what are not risky towers, what requires more maintenance, what requires less maintenance, etc.
Strategies are done in time, which enables us to optimize on our workforce, which eventually reduces the cost. That is one and increases reliability. That is one aspect. By implementing digital, we are able to deal with these physical assets in a way that we are optimizing our resources and increasing reliability by being at the right time at the right place. That's one. Second is it may enable us to beat inflation to some extent because the more assets you have in the region, you are better off dealing with the same amount of manpower in that region, because you are reducing the frequency of monitoring of those technologies, whether it is via drone or something else. If you have a digital footprint of each tower, it enables you to reduce the frequency of monitoring and eventually give you a better result.
There are some critical towers which you know are weak on account of risky locations. You increase the frequency there. Essentially it allows us to channelize our resources in the right direction at the right time. That's the high level input. It allows us to beat inflation over a longer time and allows us to leverage scale and use that to reduce our overall cost of ownership. That's the real benefit. The second one, which Meghana spoke about investment is with respect to our ability to restore power back fast. There are several initiatives we are taking. For example, this year we are investing in ERS, which is called Emergency Restoration System, which allows us to restore the tower back in toughest terrains within a few days instead of waiting to create new foundations and towers. That adds to overall our reliability factor.
Okay. Any potential cost savings for that you would have assessed?
I think as we do the FY 2022, we will be able to comfortably communicate that. Right now we are still assessing the overall savings. We are at an implementation stage. I would say even beating inflation is a large cost saving for this, right?
Yeah.
For a five-year basis. Yeah.
Fair enough. Just the third one, if you can really break up those INR 17 crores of incremental working capital in Q3 between the existing projects and in this quarter also there were some new projects that came in. If you can just break that up between the two, between existing and new projects, that will be helpful.
Okay. Jyoti, would you have that ready? If you can take that one.
Yeah. Basically, look, the working capital this particular quarter is largely on account of acquisitions because we acquired two assets, JKTPL and GPTL. To that extent almost entirely 90% of the difference in working capital is because of acquired working capital from these two assets. Otherwise, on a steady state like-to-like same store basis, the working capital is more or less comparable.
Right. Maybe cash flow is looking much better then, clearly.
Yes.
Sure. Right. Thank you so much. I have more questions. I will come back to you. Thank you.
Thank you.
Thank you. We will move on to the next question. That is from the line of Vishal Biraia from Aviva. Please go ahead.
Hi. Just one question on the receivables side. Among the amounts that are pending, is there any one large amount that is stuck with any particular state discoms, anything of that sort? Could you elaborate a bit on the composition of those receivables?
Okay. I think our data will be slightly dated because we receive this data in a little bit of a delay from the CTU. We have heard that there are not just one state, there are a few bunch of states which receivables may be pending. I think few of the names are like UP and J&K, which have slightly delayed the payments. I would say these are the two ones which we believe are the delayed ones. Again, accuracy is difficult to gauge till the time we get that data from Power Grid. This is what we believe right now.
Okay. When you compare your transmission assets to solar PE assets, is there any key difference that you feel this is a key important difference in terms of the risk or anything of that sort?
No. These are different types of assets altogether. There is a lot of difference between transmission and solar assets put together. In some cases, transmission is better, in some cases solar is better. To give you a very high level view, I think transmission has a counterparty as well as a payment security mechanism, which is, I would say, not just to solar, superior than most other sectors in the Indian infrastructure. On the other hand, transmission are a chunky asset. For the revenue of INR 600 crore, we have 30 elements of revenue generation that is happening in the country. Let's say 35 elements. On an average per element is INR 50 crore, INR 200 crore revenue. When that element is down for any reason, you have a material impact on revenue.
Considering the exposure there across country, your physical exposure is far more geographically than solar. Whereas on the other hand, in solar, your operating exposure is far less because you are within a plant boundary, and each panel of your overall power plant generates 500 W as against overall size of 100 MW. That's a much more diversified portfolio in terms of assets, and therefore the operating risk is slightly lower. On the other hand, solar has a counterparty which is sticky, and the payment security mechanism is questionable if it is as good as Power Grid, right? These are the two differences at a high level we see. As long as we are factoring in, we believe solar is overall slightly more risky, and therefore we expect slightly better returns in solar than transmission. Directionally, if that addresses your question.
Thank you very much, Harsh. With that, thank you.
Thanks.
Thank you. We will move on to the next question. That is from the line of Dhruvam from HDFC Fund. Please go ahead.
Hello. Thank you so much. Sir, one question was on the debt repayment for the next two, three years. Now, I see for the last few years, the net debt repayment is not much. Any guide that you can give for the absolute amount of debt repay that you will do for the next two, three years? I'm just wondering. Why I'm asking this is because I'm building in some debt repayment. If that does not happen, probably if it can be higher, so that way.
Sure. I think, Dhruvam , we plan to do debt repayment post or as and when we achieve, let's say a 65%-68% of net debt to AUM. Why do I give that number is because that we believe on a sustainable basis at 65%, also there are tremendous security and safety of debt coverages over there. As and when we reach that, I think we would start amortizing our debt, so we don't come very close to 70%. When we reach 65%-70% debt is a function of new assets that we acquire and capital that we raise, right? It is difficult to give an exact guidance of two years because let's say with the framework assets, we are going to reach 66%, 67%, and we would have started amortizing debt. We are raising equity capital and acquiring more assets.
It's not possible to give exact correlation of the year in which we'll amortize. We can guide on the, I would say, long-term strategy is that we're not comfortable beyond 65%, 68% of debt, and as and when we reach that, we would start amortizing debt on a year-on-year basis.
Got it. Sir, when you acquire a new asset, say for example, even if you have raised equity, you acquire a new asset, that acquisition can be funded 70% through debt, right? I mean, then you are not constrained with that 50% original limit.
Sorry, I lost your question. Can you repeat, please?
I'm saying, so for example you have reached, all the acquisitions are done, and you have reached the 65%, 70%, as you mentioned in the DPT.
Yeah.
You have reached the 65%, 70% AUM to debt ratio. You acquire a new asset with the rights issue happening after your rights issue has happened. Then, t he debt portion on the new asset can be 70%. It is not restricted to that 50%.
Yeah, it is not restricted to 50%.
Okay.
I'm just giving a guidance.
Yeah. Got it.
When do we start looking at repayment. Otherwise, if we are trading at 52% debt rate to AUM.
Exactly.
It is commercially not wise to do net repayment.
True. Got it. Basically, okay, I get the point. Secondly was a very, probably it's a small point, but a conceptual question is, I understand the AUM to debt ratio that you have is based on the valuation report. The AUM number is based on the valuation report that you get, is it?
Correct.
For example, say two years back, you might have done the valuation and you at that time, the G-sec, which you use as a base, that time was, say, 7.5%. Now the G-sec has probably moved to 6% and your right changes. The valuation AUM increases. Does that also allows you to borrow more because the base number for that 70% has changed?
Yes. Theoretically, you are right, but you need to also factor into a meeting window that two year before you had a 35 year cash flow, now you have a 33 year cash flow. The interplay between both counts, but if you keep everything else on the same day and change back, your valuation will increase and your ratios are linked to the valuation. However, for most debt investor, our covenants are not necessarily linked to debt paid to AUM. They're also linked to DSCRs, how much net service coverage we have, how much interest service coverage we have, et cetera, which is purer, I would say, from debt credit perspective.
True. Got it. There are two benefits as such if you see. If the interest rates keeps declining, is that the AUM increases, that allows you to borrow more and probably give a higher returns, a small portion of that, and the interest cost also declines.
You are right, Dhruvam. I think, see, our strategy is not to keep borrowing more. Our strategy is to keep platform well capitalized, right? We are still at 52%, and we are talking about raising incremental capital to ensure that we are capitalizing ourselves well for future. Theoretically, what you're saying is right, but our strategy is not to keep leveraging more and more and run the platform at 70%.
Yes. I get that.
We keep a balanced structure and monitor the other ratios as well.
Got it. Actually, I'm coming more from a modeling perspective because I model. I get your point. Thanks so much.
Thanks.
Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good evening, Harsh, and congratulations on a good set of numbers. First question is, I'm referring to slide number 18 where you have referred to the DPU strategy and said that the increase in DPU to be sustainable even on the expanded capital base post rights issue. Now given that rights issue is typically at a discount. Basically, essentially you are saying that you are building in an increase in the yield from the current levels?
Okay. Let me answer and then based on what I understood. See, most if not all business trusts, InvITs or MLP as they are called across the world, are based on yield plus growth, right? There is typically internationally a formula they use is D + G. That how much is the dividend and how much is the growth. Typically, that's how they value a business trust which has a track record. Now, in our case, the way to look at it is that we've been doing INR 3 per unit, quarter on. Let's say on annual basis, we are doing, let's say INR 12 per unit. We were doing INR 12 per unit. Considering the acquisitions that we have done, has resulted into increase of NDCF, which will result in or can result in increase of DPU.
Therefore, we are going ahead with increase this year, which will, let's say on an annualized basis is INR 12.4 per unit. Which would mean going back to the original messaging that we have communicated during IPO, that we plan to deliver INR 12 of DPU and 3%-4% growth year-on-year. If you look at since IPO, when we did IPO at INR 11 a unit, and now at an INR 12.4 run rate, we are approximately 3.5%-4% growth on the CAGR on the distribution itself, right? On the DPU basis, not on the share price, but on DPU basis. Which is exactly what has been our strategy, to focus on INR 12 rock solid prediction plus grow it 3%-5% as and when we get attractive acquisitions and we are able to raise capital.
Over last three years, we have done one capital raise and several acquisitions, which has enabled us to deliver this INR 12.4 DPU journey, which is about 3%-4% year-on-year. Now going forward as well, when we said sustainable basis, our idea is to communicate that this is not interim. This is not one time. We acquired four assets over last 12 months and in this one we signed. We would have acquired five assets in this financial year, which has added a substantial amount of NDCF to our portfolio. The increase that we are doing is not one time because it's quarter three or it's not one time and next quarter it'll be different.
Our plan is to maintain this INR 12 or maintain this 3.1 DPU for a considerable future, and we believe we have got enough assets which we have acquired, as well as they're in the pipeline, which would enable us to project INR 12.4 DPU over a longer period of time, even after raising capital. See, raising capital, the cost of carry is not so dilutive. Let's say, if instead of raising capital, we would have borrowed, let's say at 7%-8%, and we would have raised capital. The cost of carry difference between them is hardly few percentage points, let's say 3%-4%. It is not as dilutive because the alternate was to raise debt, which on a balance sheet level may not be healthy. We are creating capacity for future growth.
Even after creating that capacity for future growth, we are able to project that with the existing assets as well as pipeline assets, we'll be able to maintain 12.4 DPU for a considerable period of time.
Essentially, if I'm holding 10 units, for example, today, and hypothetically, I am given an opportunity in the rights issue to subscribe to three rights shares at INR 100, you are saying that on the 13 shares that I'll have post rights issue, I will get 12.4 DPU on each of them, and that increment you will be able to sustain.
Yeah. Correct.
That's how the yield increases in a way.
Exactly. Yeah.
Okay. Understood. Second is, this waterfall that you have mentioned for Q3. If I see that waterfall for Q1, Q2, Q3 combined, essentially around INR 100 crore, sort of a reserve has been created at SPV plus IGT level. Is that the right understanding?
I think Jyoti can come in. Directionally, I can say that is the right understanding. Is that the right one, Jyoti?
Yeah, that's right. About INR 108 crores of reserves have been created over the nine months. Yeah.
Understood. Would you have the cumulative figure for the same as on FY 2021?
Cumulative is also the same.
Okay. There were no reserve essentially prior to that.
That's correct.
Okay.
See, we did capital raise in 2019, which means that there was an expanded capital base. The assets of that expanded capital base are coming in FY 2020. Most, many of them. Therefore, the impact is coming in FY 2021 now, that's when you see this excess cash accumulating there.
Okay. This FY 2023 repayment refinancing schedule on slide number 13, which is around INR 2,500 crore. Now that this is maybe somewhere around 18 months from now, is there any possibility of sort of preponing the refinancing? Because the rates are lower. I mean, today, as you can see, our rates have come down, and given that you mentioned that you don't want to have a view on G-sec assets. If you don't have a view, then any absolute low number, as long as it's making sense with respect to your project IRRs, should be very sensible way.
Yeah.
Doing it early, right?
No, you're right. Only point is that this is a traded instrument, right? While the cost of debt on this instrument may look 8.59%, but it is trading at 110%, right? If you buy back or if you prepay, you end up giving that much of penalty. Let's say that much of money that gets out of pocket. You borrowed INR 100, but you prepay INR 110. That's the impact.
Net net, basically you will have to follow the original refinancing schedule, is what you are saying? Net of all the costs which will incur for prepay.
Not necessarily. It depends on the residual tenure of a particular bond, right? If it is only three months left, then you can refinance. The impact is negligible of the bond differential, and you can prepay. If the impact is two years, it's going to be magnified. The impact can be higher.
Understood.
If I may just come in on this one. I think Harsh did mention about all the various tools in the kit to tackle this 2023 sort of tower that you see on the repayment bar. One of them is this as well. Almost entire amount is NCD. It is not the loan amount. Because 96% of this amount is NCD, and because there is a mark-to-market impact on an average 18-20 month of maturity, when we explore a refinancing, it is not stacking up at this point of time. As the remaining maturity is lesser, this will be another thing that we will be proactively looking at to take out some of the loans prior to the maturity. Apart from, of course, the other thing that we talked about in terms of having proactive discussions and expanding our sources of borrowing.
Yeah. Jyoti, if you just can help me with one more thing, since you mentioned that you are looking to increase your bank loan portfolio as a percentage of your liabilities. What kind of tenures and what kind of fixed rates, because our focus has always been on getting fixed rates, to maintain the sanity on the DPU side also. What kind of tenures and what kind of fixed rate are we getting these days?
Yeah. On the tenure side, these are long-dated typical project finance type of loans, upwards of 10 years, 15 years, let's say average, door-to-door tenure of these loans. In terms of the pricing, they are available at
The sub 7.5% or the 7.5% pricing on a floating basis. There are many types of discussions we are having with the banks. Some of them are for, let's say, a three-year fixed and a floating thereafter. Some of the other discussions we are exploring would be to take floating rate loans and do an IRS on top of it for at least the foreseeable future. Given that, a bulk of these will be with the public sector banks. A more likely scenario will be that they will come in on a one-year floater as typically what the public sector banks do, and we can explore on a proactive basis, a hedge on top of it from an interest risk mitigation point of view.
Understood. Thanks a lot for patiently answering all the questions and all the best for the coming quarters.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, we request you to limit your questions to two per participant only. The next question is from the line of Abhilasha Satale from Dalal & Broacha Stock Broking. Please go ahead.
Yeah. Thank you for giving me opportunity and congratulations for the good set of numbers. I have a question on collection. Our collections have improved at 112% during the quarter. This is on the base of 56%. I just wanted to know that, how much was it at the end of Q3 FY 2020? Usually in Q4, our collections are better. Are we seeing that trend pertaining even in this year also? Do we expect our collections to be better in Q4? This is my first question, and I'll just say the second question also. You made one comment in terms of the payment discipline of PGCIL against SECI. Could you just specify, you meant in terms of the number of days or is it the entity's overall rating or in that perspective? Could you just specify that point? Yeah. Thanks. Hello?
Hello, can you hear me?
Yeah. Please.
Last quarter, we ended the quarter with 80 days of DSO days as on slide 11. This quarter, we have ended it with 70 days. That's the change that has taken place in balance sheet basis. I think on percentage collection last quarter two was like 120%, because the quarter one was very low. Therefore the quarter two and quarter three are the over collection that is kicking in between the two quarters.
No, sir. Sorry to interrupt. I'm just asking on year-on-year basis, like how was it in Q3 FY 2020?
Oh, okay. I'm so sorry.
In Q3 FY 2020 was 89% versus 112% this year.
Yeah. Q4 FY 2020 was again, we ended up at around 110% or so. On this 112%, how are we seeing Q4?
Coming to that question, I think it is prediction, right? I think we all, for last five years, quarter four has been typically good or rather highest. This year is unique, where quarter one was 60 and then quarter two and three has been a catch up. We don't know how it will pan out, in terms of quarter four. Typically, quarter four has been great, but we'll have to see on how it goes, right? In terms of collection. In addition to that, in quarter four, there is a new scheduling regulation that is implemented where CTU is separated from Power Grid and the new billing and collection mechanism is put in place. There have been procedural discussions happening that who will bill whom, et cetera. Again, this is the first time billing in new guidelines that is taking place.
It is very difficult to predict quarter four, right? I would urge you to have patience and we'll communicate the results of quarter four after it's done. Typically it's been better. To your second question, my commentary was not based on the track record. Even SECI track record is extremely good, and rather some of the outstanding are lesser in SECI as well. My commentary was more from perspective of the SECI being rated as a AA entity versus a Power Grid being a AAA entity. More a general perception is what we were alluding to, not necessarily their track records. SECI track record has been equally good like a PoC track record in terms of payment.
Okay. Yeah. Thank you.
Thank you.
Thank you. The next question is from the line of Mahek Shah from Edelweiss. Please go ahead.
Hi. Just a couple of questions. The first one was in terms of raising equity right now. Considering the interest rates are low, wouldn't you have preferred to first raise that and maybe look at equity a couple of years later? Even though your leverage could be probably stretched to 50%, 65% before you do that. The second question was on the solar assets. Solar assets are also perpetually owned similar to power transmission assets?
Okay. To answer your second question first. Solar assets are not perpetually owned, and it depends. Solar asset life is not so long because there are panels, there are glass, there are silicon cells. Even the life is not more than 25, 30 years. In many of the cases, the company owns the land, which is a perpetual asset, but in many of the cases, if the project is in solar park, we don't even own the land. The terminal value in such cases should be considered zero, because we don't own the land as well. Typically, there are 25, 30 years assets we own, but the asset life itself may not be beyond that. In some cases, we do own land, which will result into appreciation of the value over there. It is case by case in solar.
The first question that I think. Yeah, go on.
I have just one thing. The asset that we have bought currently, how is background, the SPA that you're saying?
Okay. The SPA that we have signed is in the solar park. The land is owned by the solar park. At the end of the concession period, we will have to return the land to the solar park.
Okay, understood.
Okay. The first question that you asked was on capital.
Yeah.
See, as you put it rightly, I mean, in Excel, it is correct that you should raise equity when the interest, you have peaked out your debt capacity. Unfortunately, I think from an experience perspective as well as business strategy perspective, we believe that we should not wait till that level because what is important is that we do not link our growth, which is asset acquisitions, to capital raising ability because those two markets do not move in tandem, let me tell you that. For example, when the interest rates are low and the liquidity is abundant, even the asset prices may get inflated. Right? Therefore you are buying assets at an inflated price.
If the cycle is to reverse, which is your interest rates are higher, the capital flows are lower, that is the time when platforms like us can purchase assets at good price. Right. At that price, if we are not ready with an acquisition capital at our hands, then we can get stuck in a cycle. That your capital comes expensive, asset comes expensive, or rather when the asset is ready, capital is not ready and vice versa. I think from our experience at IndiGrid as well as a study of most successful entities across the world in the yield platform business, is that you should raise the capital when you are not necessarily capital starved. From our perspective, we are raising the capital to create future growth capacity.
Even if it is going to be, let's say, a quarter delayed, we are at 52%, so we'll still survive. We do not want to link the two because if you are raising your debt at 65%, 68%, and let's say there is a macro event, capital event in the world, you don't have the ability to raise equity capital at that time, and you might be rather saving the credit crisis at that time. We believe in managing balance sheet upfront to ensure that we always have capital available to grow.
Okay. Understood. Thanks, Harsh. Best of luck for the next quarter.
Thank you.
Thank you. The next question is from the line of Swarnim Maheshwari from Edelweiss. Please go ahead.
Yeah. Thanks for the opportunity again. Two bookkeeping questions. If you look at the operational availability for this quarter, ENICL was at 98%. Was there some plant shutdown or what was it exactly?
Yeah. I think ENICL had certain plant shutdowns because we acquired this asset in April last year. However, the shutdowns are not paid by us because there were certain punch list items which were supposed to be completed by Sterlite Power. These are indemnified items. These plant shutdowns were taken to correct certain parts of the asset which may continue for another quarter or two. When they take these shutdowns, even the revenue loss is paid by Sterlite Power. For ENICL specifically.
All right. The second one really was, what was the incentive income during the quarter?
Okay. Just a minute. I mean, Jyoti, can you come in on that exact incentive income?
It was about INR 12 crores, Swarnim?
It is INR 12 crores.
INR 12 crores . Okay. It was also INR 12 crores just confirmed. [crosstalk]
Okay. INR 12 crores. Okay, cool. Thank you.
Harsh, do you see that the last one really is that if you look at our cash reserves, we are at closer to about INR 800 crore. Out of that INR 150 crore needs to be distributed for Q3 and then another INR 200 crore for the debt that we will be maintaining. If you were to exclude very briefly at about INR 400 crore, I believe the next two assets, they are probably going to be 100% leverage. We have this INR 1,500 crore of rights that will also actually give strength to our balance sheet. This INR 400 crore more cash reserve, do you think that it's a bit really on the higher side and we might really not need so much of cash really for some sort of contingency or some other things also. How are we looking to utilize this really?
Yeah. Swarnim, I think you're right. I think this includes a couple of things. One. This also includes part of the capital which we repaid on the first week of January. We had borrowed part of the amount for refinancing, which got done after the quarter end. There is a part of the cash of this which got prepaid to certain loans in January. Some of the cash reserves also include interest payable. I think that gets included because the INR 200 crore DSRA number is slightly higher. It's lower than INR 200 crores of our DSRA. I think the key reason of a large cash balance is on account of our loan refinancing that we had done, which we borrowed at the end of the quarter and paid at the beginning of the next quarter.
No, that's fair. I think still, we actually sitting a bit higher, really. Is there a case for some sort of a prepayment?
Yeah, exactly. That's why I'm saying because we have done substantial amount of prepayment in January.
Okay.
The prepayment happened post quarter. That's why you see the cash in the books. The prepayment took place in January, first week of January. It happened already. We have prepaid.
Got it.
Yeah. Swarnim, to answer your question, INR 300 crores-400 crores of cash that we would carry. Look at the size of the balance sheet. We are today at about INR 8,000 crores of overall debt, right? I think about a 4%-5% of cash is not that high as well, if you look it from that point of view.
Yeah.
We obviously continue to aim to optimize the negative carry, right? Because it does have a 3%-3.5% yield. We've also, as part of our initiative to expand our borrowing lines, we have set up some shorter working capital lines, including CP facilities. Once we get better comfort around our ability to tap into short-term market, we may want to optimize this even further. Against the INR 8,000 crore-INR 9,000 crore of debt today, about a INR 300 crore-INR 400 crore cash is also not that high. I would like to bring that to your perspective as well.
Fair enough. Right. Understood. Right. Thank you so much, and wish you all the best.
Thank you.
Thank you. The next question is from the line of Sunil Shah from Turtle Star Portfolio Managers. Please go ahead.
Yeah. A commendable performance. Entire team of IndiGrid, really great job done. Sir, I have just a few things I need to understand. When we did the preferential with KKR and GIC, we had targeted about INR 17,000 crore of AUM, and we are almost there. Now with our proposed rights issue of about INR 1,500 crore, what is our internal target in terms of the AUM that we foresee that once we get the rights money and the commensurate debt that we can raise on that rights capital, how much would we reach to that AUM? Because long term, our target is INR 30,000 crore.
Yeah.
Will we reach that number or we'll be somewhere in between?
Yeah. Thanks, Sunil. I think our goal. I would just reverse the question. As we have said before, we don't have asset targets, because we have targets on, let's say, accretive growth. Asset itself is not the target for us, any of us. I would reverse the question in saying that with this, let's say, up to INR 1,500 crores of capital, how much more can we do, right?
Okay.
If I take the question in that manner, with the current capital base, we could have gone up to INR 17,000-INR 18,000 crore. With this, we can add another INR 4,000 crore-INR 4,500 crore of capacity, right? This would put us somewhere around INR 23,000-INR 24,000 crore of capacity, right? Doesn't mean that is our target, right? Our target is to acquire when the time is right, the business is right, the project is right. We're not looking to acquire based on size target. To give you a capacity, we can reach up to approximately INR 24,000 crore if we raise this much amount of capital.
Fair enough, sir. Okay. Sir, one more is, when we get into that debt amortization phase, when we reach that stage, we can take it that the CTU at that point in time will also not be affected?
I think based on the business plan overall, right. Right now, we are not seeing after this capital raise that stage to be achieved for a considerable period of time. Again, I think we've done that earlier. Substantially period of time, we don't see any impact coming on this.
Okay. Sir, just one point, if I can chip in.
Sure.
Most of the people, they are just talking about the refinancing. At this point in time, the only risk perhaps in the books of IndiGrid refers to the bunch up of refinancing in FY 2023, 2024, 2025. FY 2021 was a real slowdown worldwide, even in India, everywhere. Now, the world and everything is coming out in FY 2022 in terms of improving. If in FY 2023, 2024, 2025, economic and everything is robust, and if interest rates increase at that point in time. Majority are worried about the refinancing risk which we carry. If our marginal cost is at 7.4% today, can we lock in that phase at 7.75% or something even higher?
That will do away with the risk is what I think most of us are worried about or just want to get a sense of from your side or some kind of.
Yeah.
Clear picture.
Yeah. No, I think that's a very logical way of looking at things. As Jyoti mentioned, we do keep doing this calculation. Let me put it the other way around, right? There are a bunch of prepaid loans or bonds in our portfolio, which we can do today, right? Instead of worrying about the 2023 first. At this point in time, our focus has been on that whatever is the nearer term. For example, let's say we had a facility in an OGPTL SPV with a cost of debt of 9%.
We focused on that first, and we replaced that with a cost of debt of 7.6%, right? With the same bank. Our focus is to ensure that we reduce the, let's say, cost of debt as well as the refinancing of what is near-term. What is in hand right now, and we can do it.
We are still keeping an eye on this FY 2023, and it is a matter of cost economics, right? I mean, it is what, INR 2,000-INR 2,500 crore. If you see the differential of 1.5%, on an average, we are talking about providing 3% of margin to investors, right, or debt investors.
Which would mean INR 75 crores in cash. Which is a very sizable amount to take that refinancing. However, as we come closer to the date, we will see those numbers coming down and making it more palatable. We are working on that, but I think it needs to make some commercial sense, right? Otherwise it will make a big gaping hole on a future call.
Fair enough, sir. All the best, and thank you very much for this performance. It has been just ongoing.
Thank you.
Bye, sir. Bye.
Thank you.
Thank you. The next question is on the line of Devam Modi from Ardeko. Please go ahead.
Yes. Congratulations on a recent performance. I would just want to start by asking on what is the cost of the IBM collaboration that you have highlighted? How does it help our optimization in terms of both cost and operational efficiencies?
I think the first is cost-wise. I mean, these are different costs, starting from hardware, software implementation, as well as a long-term service contract. On a 10-year basis, if I look at it, because this is a long-term agreement, we are spending approximately INR 22 crore. This is on a 10-year basis. Let's say annually, INR 2 crore kind of a cost that we are spending. First year may be INR 3 crore because of your implementation cost, but subsequently on a 10-year basis, about INR 2 crore per year. The synergy or the efficiency that we are seeing because of this, as I said to the earlier question, we will be able to do targeted maintenance in a much more reliable way, and therefore, I would say reduce the overall cost of maintenance that we are implementing on a year-on-year basis.
Let's say, for example, for inspection activity, we deploy a particular number of people for a particular line. For a higher risk line, we deploy more people. Again, that is based on not exact artificial intelligence and right data which is available on a digital platform. It is available based on experience as well as what people have seen on ground. This knowledge transfer can keep changing. A digital asset management like IBM Maximo allows us to one, keep the knowledge of the asset in-house, in the company instead of the people and the maintenance team. Second, it allows us to analyze that data for 15 states, right? In different geographical terrain, what is happening. Then deploy the right maintenance strategy across asset base, which eventually will reduce our operating costs and increase reliability.
I understand that there will be a lot of operational efficiency and synergy, and the downtimes will be reduced significantly, or that would be the expectation. What would be the cost impact in terms of today versus, let's say, three years down the line because of the IBM collaboration?
I think it's a future prediction right now, but I can tell you it will be beating inflation, right? That itself is a saving. Typically, we have factored in 5%-7% increase in AMCs in the past of all the people-related costs.
Okay.
Right now our goal is to beat inflation first. We're focusing on that those costs don't increase. That itself is a big saving, assuming, let's say the cost is today INR 50 crore, in two years down the line, it's going to be INR 60 crore. Instead of that, we'll maintain it at INR 50 crore. That's how one can look at it.
Okay, sure. That would be a very big thing. You're basically saying that you'll be able to maintain costs at straight up zero over the long term, probably be much lower rate of inflation than what the models would have been.
Exactly. That's an easier way to evaluate that. Yes.
Just on this, currently we have around, let's say, INR 50 crore-INR 100 crore of equity, and we are doing a rights of INR 1,500. We have also mentioned in the PPT that we have around INR 15,000 crore current AUM, and another INR 5,500 crore of acquisition lined up. Let's say if we compile all this information, we get that we could be reaching something around INR 21,000 odd crore AUM with broadly close to 50%-69% leverage. Apart from the INR 1,500 crore equity raise, you use debt for the remaining portions of acquisition. Firstly, would that be roughly a correct understanding that you'll be close to your 32%, 68% or something like that on around INR 21,000 crore?
Okay, you're saying Yeah. I think you said about 59%-60%, right? Close to the recent acquisitions.
Yes. For the INR 5,000 crores of capital.
Yeah. That seems an accurate calculation. I think obviously AUM keeps changing, but if we add current AUM plus INR 5,000 crore, INR 21,000 crore, and what we raise in equity, it would be approximately 60% of debt to AUM.
No, in fact, it is 68.4% because you will be at around INR 5,200+ crore INR 1,500 crore. When you will look at the rights issue of INR 1,500 crore, we can necessarily assume that the whole amount will be tapped into in one go, right?
No, it won't be 68%. I doubt it will be 68%. I think there is some error there. We would be approximately 60%-62%. The way to look at it is today we are at, let's say, INR 15,000 crores of AUM, and our debt is approximately INR 9,000 crores, right?
You are talking of net debt?
Net debt, yeah.
Okay.
It is approximately INR 9,000 crore. The incremental asset that we will add is INR 5,500 crore debt. If we were to do INR 5,500 crore, that will bring our debt at INR 14,500 crore. We are raising, let's say we raise about INR 1,500 crore equity. That will reduce the debt to INR 13,000 crore. INR 13,000 crore over the base of, whatever, INR 1,500 crore.
[inaudible]
Yeah. It would be around 62%-63%. Yeah, not 68%.
Sure. What is a good yield to consider in terms of revenue yield on the entire AUM in the long term, considering that currently we will probably only have, let's say, a little bit of solar in this. I understand that the yield will change from year to year because of the various trends that will be there in different transmission assets. Generally, is it good to take something like 12%-13% ballpark to be a good revenue yield on the entire AUM?
I am sorry, we've never done evaluation based on revenue yield. That's a tough one. I think we'll have to think about it on a revenue yield. Because operating costs are different, there are curves in tariffs. It's tough to evaluate this business on a revenue yield basis.
Okay. Sure. Yeah, that's it from my side for now.
Yeah. Thank you.
Thank you. The next question is on the line of Mohit Kumar from DAM Capital. Please go ahead.
Hello. Thanks for the opportunity once again. I have one question. Sir, how much you have paid for the acquisition of Parbati Koldam?
Sorry, can you repeat the question?
How much you have paid for the acquisition of Parbati Koldam?
Okay. Meghana, can you come in and share the exact numbers for the acquisition value?
Sure. The implied EV, including debt, is close to about INR 900 crores, Mohit, on the acquisition.
No, my question was how much you have paid for the equity consideration.
I think equity consideration. Net of cash.
That will be close to about INR 360 crores.
What is the regulated equity for that particular asset?
Just a second. Mohit, let me come back to you on that one.
Sure. I think, what is the timeline for acquisition of the solar asset?
I think we have signed the agreement. We are doing the closing related work. It will take, I would say, a couple of months for us to close it.
Okay. Last one is a rights issue. What kind of approvals are required?
Sure, okay. With respect to rights issue. Okay. With respect to rights issue, we are evaluating between the fast-track and slow track process. In a fast-track process, we do not need SEBI approval, and there are certain criteria has to be complied in a fast-track issue. The slow track approval, if we go, will need SEBI approval. Besides that, there are certain, I would say, clarification and approval needed from RBI, especially from FEMA perspective, because this is the first time rights issue offered publicly. RBI approval is in both cases, and SEBI approval is depending on whether we choose fast track or slow track.
Mohit, there are certain process related aspects also because this is the first rights issue in InvIT. It entails exchanges of processes with the exchanges and as Harsh rightly mentioned, the approvals from the regulators.
Okay, understood. Thank you.
Thank you.
Thank you. The next question is on the line of Danesh Mistry from Investor First Advisors. Please go ahead.
Yes. Hi, good evening. Thank you for taking my question. I've been on the call throughout, and I just had one question. You've mentioned that you're looking at a INR 1,500 crore rights issue, a capital raise through rights. That implies about a 16% post-money dilution. If I heard correctly, you also guided saying that post the dilution also you will continue to maintain the INR 3.10 distribution per quarter. I just wanted to hear whether I heard that correctly or did I misunderstand it?
Yeah. The first point I would correct slightly, we are not saying we are raising INR 1,500 crore. It is an up-to number.
Okay.
Depending on the price and, I would say, rights ratio, this number can marginally change here and there.
The second question is, yes, the guidance is post-capital raise also, but INR 12.4 will continue.
Okay. You're saying that you have enough of visibility to give you that comfort when you're assuming this kind of valuation, essentially.
Yep.
Yeah. All right. Okay. Thank you so much. Thank you.
Thank you. The next question is on the line of Rushabh Sharedalal from Pravin Ratilal Share and Stock Brokers. Please go ahead.
Yeah. Hi. Thanks for the opportunity, congratulations on good set of numbers. Just wanted to understand on the price of the rights issues. If you can put on some color what sort of price will it be? Will it be more than or less than NAV?
I think, tough to give a color on that right now, Rushabh. We've not yet finalized the rights issue detail. As we said, the board has only approved today the capital raise, which is kind of an intermediate step as an in-principle approval. The pricing as well as the final sizing is going to take place, I think, once we have certain approvals in place, so we know the predictability on that front. Unfortunately, we don't have the answer for that right now. I think directionally it's a rights issue, so people would get chance to participate. That's all.
Right. Okay. Just wanted to understand one more thing on your corporate structure, where I'm referring to slide number 23. A couple of quarters back, you were also in consultation with the NCLT to remove IGL 1 and IGL 2 from the structure so that you can give the distribution in the form of dividend, which is better for the investors. Any progress on that front, if you can just highlight that?
No. I think, Rushabh, these two are different points. One, we are evaluating removing intermediate holding companies as well as merger of assets. That is a very large merger of INR 10,000, INR 15,000 crores of assets with regulatory approvals, tax impact, et cetera. We are evaluating that right now. However, that is not with the objective of creating dividend out of the portfolio. That is with an objective of making a simpler operations, simpler compliances, and overall governance structure. Having IGL, IGL1, IGL2 has no impact on the dividend. Right? We are paying interest as majority part of our distribution or all part of our distribution because the majority capital is invested by IndiGrid in the subsidiaries directly as a debt. Even if we were to merge these assets into one together, that capital structure is not changing. That would still remain the same.
These two are different aspects altogether. As you know, we've described in certain earlier calls, we believe, if we start providing dividend, there's going to be a 25% tax at the unit level, right? First of all, it's extremely difficult to reverse this capital structure. Even if it was to be done, there is a 25% tax that will be there at the SPV level, and then the dividend would be provided to investors, and that will be in the hands of investors also taxable. I don't think that dividend arbitrage, which people thought about in the past, exists after dividend started being taxed.
Okay. Yeah. Thanks a lot. I think that's very useful. Thank you, Harsh.
Thank you.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Sumit Kishore for his closing comments.
On behalf of Axis Capital, thanks a lot for giving us the opportunity to host this call. Harsh, do you have any closing comments?
Thanks, Sumit. I would just thank everyone to join the call and just say our focus, as I mentioned earlier, is to focus our strategy on simple business model, which is on stable, predictable operating cash flow increase, increasing over a period of time, and maintain a healthy balance sheet.
I think this quarter marks another turn of event in our history when we have increased the DPU on a quarterly basis as well as decided to announce a capital raise in the coming future. Which is closely linked to our strategy of providing predictable DPU to our investors and grow, which is distribution and growing that distribution, and supporting that with a healthy balance sheet by raising capital at the right time. I think we are on a path to success, what we had envisaged a few years ago. I would like to thank all the investors and stakeholders for participating in that. Thank you.
Thank you. Ladies and gentlemen, on behalf of Axis Capital, we have concluded this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.