Ladies and gentlemen, good day, welcome to the IndiGrid Trust Q4 and FY 2020 Results Update conference call hosted by Edelweiss Securities Limited. As a reminder, all participant lines will be in listen-only mode, 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. I now hand the conference over to Mr. Swarnim Maheshwari from Edelweiss Securities. Thank you, over to you, sir.
Thank you, Stanford. Hi, good evening, everyone. On behalf of Edelweiss, I welcome you all to the IndiGrid Trust Q4 and FY 2020 conference call. From the management, we have with us today Mr. Harsh Shah, CEO; Mr. Satish Talmale, COO, and Ms. Divya Verma, Head Finance and Accounts. I would request Harsh to start with his opening remarks, then we can have a Q&A session later on. Over to you, Harsh.
Hi, Swarnim. Thank you. Thank you everyone for joining me today. These are our 12th quarter results as well as third financial year completion results. As you've seen, we have circulated the investor presentation, which will be available to you. I will be referring to the slide numbers for ease of reference so that we can be on the same slide. As you see in the content, we would start with a retake of our vision and journey since our inception and listing. I will take you through the financial highlights or the key highlights for FY 2020, and take you through the overview of IndiGrid industry outlook that we see and the operational and financial highlights for the year and what we look for ahead. That's just the sequence of events for today. On slide number four is just talking about now our vision and journey.
Since the time we launched IndiGrid, our vision has been to become the most admired grid in the nation. There are certain elements of our strategy and business plan which have been highlighted over here. These are the pillars on which we plan to achieve our vision. A focused business model, which is dependent on long-term contract, low operating risk projects, and stable cash flows. This is something which is the first and the most important parameter of our strategy to achieve the vision. The next pillar of our strategy is to do value accretive growth which results in DPU accretion year on year and creating growth pipelines for future. Third pillar for our strategy is to provide predictable distribution, which is quarterly. SEBI regulations require us to distribute half-yearly, but we've been consistently following quarterly distribution since listing.
90% of the Net Distributable Cash Flow that we earn is what we will keep distributing. The focus will remain on the sustainable distributions, which means that whatever we distribute, we would look forward to continue that for a sustainable period, and that is something which is important part of our strategy. The last one is more about our balance sheet strength and managing the optimal capital structure. This is something which certainly in today's time is even more relevant, and we will talk about this a little more in the subsequent part of the sections. Within that is we have a consolidated cap on the leverage to ensure that the overall platform is levered optimally, neither too low, neither too high. We are rated AAA, and we will continue to look forward to maintain this rating with our prudent liability management and selection of assets.
At the moment, we are well capitalized, being well capitalized is core part of our plan, we look to ensure that as we grow, we will maintain our capitalization in order. That is a vision and a strategy on which different parts of our strategy which will allow us to achieve our vision we believe. The next slide number six, is about our journey till now. Considering that this is the third anniversary of our listing, I believe it is an important milestone and day for us to reflect back and see how we have fared, also what we promised and what we have delivered. We listed in 2017, June, as the first power sector InvIT with INR 3,700 crore of assets. With two assets of kind, with a AAA rating.
Subsequent to that in 2018, we acquired INR 1,700 crore of assets, three from Sterlite Power and one from Techno Electric, which was funded by debt because on listing our debt capacity was open, and we were only levered at 25%. After this acquisition, our debt to AUM reached 49%. Therefore for subsequent acquisition, we needed more capital. In 2019, we raised INR 2,500 crore of capital via preference issue, and in the same transaction, we onboarded KKR and GIC as one of the largest holders of IndiGrid. Along with that, we acquired another INR 5,000 crore of assets from Sterlite Power and signed up a pipeline of INR 6,500 crore of assets to ensure that our group is also locked in. This transaction and this what we did in 2019 allowed us a security of pipeline till about INR 18,000 crore of size and good marquee investors on board.
Of the pipeline that we had signed up in 2019, in 2020 till now, in the last four months, we have announced two acquisitions, of approximately INR 2,000 crores. One acquisition of ENICL, which we completed during the lockdown. The second one, we had approval of which we circulated the post-balloting voting last month. Overall, last 12 months, there has been also a substantial amount of regulatory evolution that has taken place by SEBI and RBI, which we believe is going to provide a lot of impetus to InvITs in general. Till now, the next two to three years, we aim to achieve our vision to become the most admired InvIT nation with an AUM target of INR 30,000 crores on site, and maintain a AAA rating and a strategy of value-accretive acquisitions and provide predictable DPU and growth.
That was about the journey since we listed till now and how our evolution of IndiGrid as a platform has taken place. I'll take you through the FY 2020 highlights on slide 8. It has been truly a transformational and a milestone year for IndiGrid and for InvITs in general. IndiGrid Trust has grown substantially in this year. We have acquired INR 6,200 crore of projects, NRSS, OGPTL, and ENICL, which more than doubled our AUM in FY 2020.
Our EBITDA and NDCF both have also almost doubled in FY 2020, an overall deliver of 60% compounded annual growth rate since listing in last FY. We also secured additional pipeline of INR 6,500 crore of assets, which will allow us to grow up to INR 18,000 crore. Another unique part over here is that IIM Ahmedabad has issued a case study on IndiGrid as we're building India's first power transmission InvIT platform.
This study is taught to the students who are in the institution about the infrastructure transformation that is taking place in India. The next is, an important part of our year has been that we received marquee sponsorship. KKR and GIC contributing over INR 1,000 crores capital each is a substantial endorsement for the credibility of the platform and the potential and the growth possibility in it. Besides that, the deal that we did also got awarded Deal of the Year in the Infrastructure Investor Conference. The unique part about this transaction is also that KKR acquired a majority interest in the manager and the change in control of the entire platform took place, which our investors approved wholeheartedly. Next part is an equally important part of the revolution for IndiGrid and InvIT.
The regulations have been evolving, but the last year was important because most of the landmark regulations which enabled successful journey for InvITs were approved by regulators in last year. SEBI allowed up to 70% leverage for credible InvITs with a rating of AAA, which enabled better accretion and returns to our investors. As well as it made us competitive in the marketplace to acquire projects at a competitive value. Second major regulations that came into existence was reduction in lot size, trading lot size from INR 5 lakh to INR 1 lakh, which has improved the liquidity in the units, and I'm sure you're tracking that in terms of our volumes in the exchange, and we have seen encouraging trend of improved liquidity. SEBI also encouraged new guidelines with respect to capital raising for InvITs.
They have published now the rights issue guidelines, both fast track and slow track, as well as preference issue guidelines for InvITs to raise further capital and grow. Among these three key changes, they have impacted the profitability and competitiveness of InvIT, the liquidity has improved and the ability to raise capital has been easier. I think there is a lot of changes in the regulations which has enabled a lot more InvITs to come up now. The last one is RBI has also now enabled banks to lend to InvITs, which was a blip over last year, which has been corrected now. The last pillar of the year 2020 is that we have continued to maintain our focus on robust asset management practices. Our availability across our portfolio is greater than 99.5%.
We have built a 50+ operations team across functions to focus on sustainability of our operations. There are several ESG initiatives we have kicked off. We'll talk about that in subsequent section. Our focus on long-term reliability of our platform has also been launched, and it is being successfully followed. What all these four parameters have allowed us to do is to deliver about approximately 24% total return, which includes the DPU plus the price change in FY 2020. We have paid INR 12 a unit this year, which is approximately INR 700 crores distributed by IndiGrid. Our growth in NDCF is over 116% on a year-on-year basis. We have a pipeline of INR 6,500 crore, which we look to capitalize as we move ahead. That has been an highlight of FY 2020.
I'll come to the quick overview of IndiGrid as an introduction to the company, subsequently we'll go to the sections. IndiGrid today is India's only power transmission yield platform. When I say yield platform, it is focused on a committed payout and therefore it is one of the only power transmission yield platform in India. We have INR 12,000 crore of assets under management across 13 states in India. We own 20 lines plus 5,800 circuit kilometers. Four substations in 11,700 MVA of transformation capacity. We are rated AAA, the residual life of our contract is 32 years. We do own these assets forever. Just to provide a little more color on our portfolio, in terms of towers, we have 9,177 towers under our management.
The amount of metal, because these towers are fairly heavy in the comparison to a telecom tower, the amount of metal between steel and aluminum that we own is about 350,000 metric tons. On the next slide 11, there is a more granular detail of each asset base, SPVs, lines, substations. Most of them have got more than three years of operating track record now. The revenue rate is also provided for each line, and the AUM is provided for that. Along with that, we've also shared the metal quantity in each asset as is to provide the perspective in terms of what size of assets are there. The unique part about this portfolio is that today we have high voltage interstate transmission assets, 100% with central counterparty of Power Grid in the portfolio. Our tariff is availability based, monthly tariff. It's not linked to power flow.
There is no price reset every five years with respect to any policy or regulatory change. We have a well-diversified revenue portfolio. We have 22 elements, which carry different percentage of revenue, which are spread across 13 states. There's an importance in maintaining the, I would say, diversification and reducing the revenue risk on the overall portfolio with respect to asset management. Our portfolio is Build-Own-Operate-Maintain. There is no transfer on the entire portfolio. Now we have a credible track record of maximizing our availability and engineering. All these points are captured below at a granular level for further analysis. On slide number 12 is our corporate structure. Today, KKR owns 23% of shareholding in IndiGrid. Sterlite Power, the original sponsors, still owns 15%.
However, Sterlite Power has agreed to sell and KKR has agreed to buy this 15% once KKR becomes a sponsor, which will take KKR holding to approximately 38% and GIC holding to 21%, and the residual will be the public market capital investors. At the investment manager level, KKR is majority, with 60% ownership, and they will acquire another 14% at a yet agreed price in a year from now. Axis Trustee is a trustee for InvIT under InvIT Regulations. The subsidiaries that you see are each individual assets as per the names that we described earlier. Slide number 13 is about our shareholder base. As you can see, we have a robust shareholder base with over 55% owned by FIIs, including KKR and GIC. 15% is owned by domestic institutions, including insurance companies, mutual funds, pension funds, and corporates.
Both value and number of our retail investors have doubled since 2020. This shareholder base is important for us because it allows us to raise future capital and grow, as well as it allows us to tap in the right investor base who appreciate the value of the yield and the stable yield that we grow. Going to the next section is about industry outlook. We see that the transmission sector is facing tailwinds, and I would say that it's been fueled by tailwinds over the last several years, and this year is no different. Even during the overall downturn as well as the COVID impact that we talk about subsequently, there are certain key drivers to the industry which we believe that is going to ensure that the industry keeps growing. The first one is on the left-hand side.
There is a significant shift in supply and demand pattern that is taking place in the country. Most of the new generation capacity that could get launched would be renewable energy, considering the fact that it has achieved grid parity. This change on the supply side, along with the intermittent nature of the electricity supply from renewables, would require greater investment in transmission projects. On the demand side as well, there is a substantial load shift that we expect over next decade or so. With electric vehicle storage and rural electrification coming in, there is going to be a complete transformation of the load side requirement as well. Considering the significant shift on both supply side and demand side. The transmission is one sector which would be essential to invest more to ensure that the grid reliability, and while maintaining the supply and demand pattern.
The second big driver of this industry is also the need to have an efficient grid as your generation capacity grows. Historically, there has been a relative underinvestment in transmission in relation to generation, because the generation sector got prioritized about a decade earlier than the transmission. We believe that considering our substantial generating capacity already invested in, the incremental investment we would see happening in the transmission side to ensure that a better utilization, a well-coordinated utilization can happen of our existing generating capacities. To cite a number, transmission also ranked the first in CRISIL's InfraInvex Index of 2019 with respect to attractiveness to invest in this sector. This was owing to the fact that the sector does provide a very robust and regulatory framework. As you can see on the slide 15, bottom left corner.
The amendment of Electricity Act is also taking place as we speak, and there are crucial reform measures with respect to efficient dispute resolution, payment security mechanism, direct transfer of subsidies, and encouraging more retail renewables. All these policy initiatives, we believe, are the steps in the right direction and will set the sector growth in the right direction. There's also a very high focus on private sector participation, which we believe is good for companies like us, which increases the market that we play in, and therefore indirectly we get benefited out of that. There are also a lot of amendments happening in the new tariff policy, which will focus on streamlining several procedures to incentivize and disincentivize DISCOM for the right measures. The liquidity support during COVID-19 is also one of the sign that the government is working towards supporting this sector.
The last one is the historical structural policy measures with respect to DDUGJY or UDAY and IPDS schemes. We've seen at a working level the investment that these schemes have attracted, and we are very confident that it will add to the overall sector strength. Coming to slide number 16, this is something which is very relevant in today's context with COVID. On the right-hand side, we have given the chart of demand, and I'm sure all of us have faced all the hardships over the last two and a half months. As you can see on the charts, since the end of March when the lockdown was strictly enforced till May, there is a swift and substantial recovery in terms of peak demand as well as power consumption.
If you compare versus the 2019 numbers, the peak demand seems to be pretty much reaching its past level, plus consumption also is at less a few percentage down. We believe that for the entire financial year, while electricity consumption may be down by a couple of percentage or more, between on a run rate basis, on a month-on-month and a quarter-on-quarter basis, as the government decides to open up the lockdown in country, we will see the power demand coming up. Ministry of Power has also been very supportive during the time. They have provided exemption to transmission companies as from the lockdown, and our teams were able to maintain our lines across the country with specific passes.
As transmission tariffs are not linked to power flow and only based on availability of transmission elements, it was important for us to receive this as essential services tag so that we can maintain our line and earn our revenue. Ministry of Power also issued certain circulars during the lockdown period which clarified that there are no moratorium on the transmission charges. Only reduction of late payment surcharge from 18% per annum to 12% per annum for any payment which is made beyond 30 days. There is no moratorium provided, only the late payment surcharge have been marginally reduced. In addition to that, as you would have seen in the newspapers and announcement by the government, there is a INR 90,000 crore liquidity injection into electric distribution companies, which is being proposed and approved, and especially to clear the dues of generation and transmission company.
We believe that liquidity will ensure a smooth recovery in terms of the receivable payments and will support the sector in the recovery. Essentially from a power sector impact on the COVID policy, we believe that the transmission sector has largely remained insulated till now. With the measures taken by the government in the sector, we believe that the sector would sail through the crisis in a healthier way. The next section takes me to the operational highlights of our financial 20. To start with, I would say we have achieved 100% safe man-hours across our sites and location. There are about 600 people working across 13 states for us. We have maintained a consistent track record of availability and maximum incentive. Our average availability is topping 99.66. Our trips per line are at 0.4, which is in line with industry standards.
Our focus on reliability-centered maintenance with respect to rigorous preventive inspection and maintenance, defect correction, and life cycle management have increased in this year. We have decided to invest only in technology initiatives across drone-based operations, weather predictions, or helicopter supervisions for difficult terrains, which would support us in our initiative to maintain reliable availability. We also saw several emergency shutdowns caused by events beyond our control, like windstorms or other events, which we could, one, restore very fast. Second, obtain majority of lost time as being available under first measure of our contract, did not impact our revenue materially. On the right-hand side of slide 18, we provided our availability track record and the incentives that we have earned in the year. Besides that, we reduced the number of trips per line in this financial year. We achieved the same percentage of successful 100% safe man-hour.
The near-miss reporting have increased for us, which we see as a positive sign because we are putting a lot of efforts in the education and training. The solar power generation has gone up in our portfolio with respect to our self-consumption that we are using the solar power plant in our substations. The next part of our presentation on operational highlights was our technology initiatives. These are the four initiatives that we have taken in this financial year for different measures, which we deployed helicopter survey during the winter to ensure that we are ready for any emergency action in the NRSS project in case the snow-bound region there is an impact. We deployed a new tool called ClimaCell, which is developed by MIT specialist, which allows us at a tower level, what is the wind speed data across our portfolio.
This provides the live-time inputs for us to react and be ready for any natural calamity. For example, during Amphan, this tool was extremely useful for us to be ready, and in case of an event, we would have reacted very fast. Drone-based asset management or other supervision is being spoken about for a long time. We are doing that in POCs across our portfolio. While the country hasn't enabled yet the beyond visual line of sight enablement, as and when it does, we would be ready to utilize that to our advantage for both reducing our cost and increasing reliability. We believe this is a technology in a three to five years would be commercially viable for India to follow. There's also the largest cost item for us, in terms of supervision, which we can look to reduce with the investment in technology.
We are looking to invest more in digital asset management technologies to ensure that we can increase the reliability and reduce the cost. At a highlights level in COVID, we have no COVID incidents across 600 people working on our portfolio. Sufficient team are working day and night to ensure that assets remain safe, people remain safe, and we are in compliance with all the regulations and guidelines issued by the Government of India. We also managed the 9:00 P.M., nine-minute call on 5th of April successfully in coordination with the central regulator. The next section of our slide is about ESG prerogatives, which is something which we have started doing it, and we feel that it is important to mention that. We highlighted the key aspect of ESG impact, which we made on a business impact and which have a higher stakeholder impact.
We represented what we do in the subsequent slide. On the environmental GHG impact, we own two small solar power plants on our substations. We invested some time back, and we're using it for auxiliary consumption. We are doing tree plantation guys for the trees that we cut. Overall, substantial amount of cost has been paid for the forest land which we use, which goes toward deforestation of the area. On the slide 23 is about social aspect, with the primary one being on health and safety, which we have already covered in terms of achieving 100% safe man-hour. We go over and beyond that and provide more education to even people who work for us as our partners and contractors. 100% of our contractors have received that relevant HSE training.
On the right-hand side, we have provided the specific data about how much efforts that we have put in increasing the training as well as reducing the risk of health and safety. We implemented a tool called Legatrix, which enables us to manage our compliances across the portfolio. We do several community engagements across our portfolio to ensure that right of way doesn't result into a material risk as we go forward. Our board has remained the same since our last four quarters. It's a robust board with three independent members who have been there with us since we listed. There is one member from Sterlite Power. Mr. Sanjay Nayar joined after the investment in 2019, and I represent the management on the board. Our board on the governance side is fairly active.
We've given most of our important committees where either majority represented by independent members, et cetera, or they have been chaired by independent members. There's a very active and healthy participation that we want to put. It is also evident from our EGM results that for most of the voting that we have done, substantial amount of eligible investors have voted, and voted in majority positive. We have a strong process for internal audit and framework, which was implemented by KPMG. There are specific business ethics policies that are also implemented and followed by the company. Going to the next section of financial highlights of FY 2020. This just captures up to moment, I will say on a quarter-on-quarter basis, we have increased our revenue, EBITDA and NDCF by over 90%. On a three-year basis, we have delivered a CAGR of 60%.
Large part of this is possible with respect to acquisitions of NRSS, GPTL, and ENICL, which we saw over last year. ENICL acquisition happened in the month of March. Therefore, while our revenue for FY 2020 was at INR 1,232 crore, our run rate is at approximately INR 1,330 crore for FY 2021. A distribution that the board has approved is INR 3 per unit, INR 175 crore, which we are distributing. Our EBITDA margins have improved at 91% versus 90% last quarter. Our receivable days, we ended the year with a very good, healthy number of 55 days, and collection at 97% in FY 2020.
The next chart is about the NDCF on slide 28. Overall, in the H2, we have earned INR 370 crore of NDCF. On the H2 level, we are distributing INR 350 crore of NDCF out of that by distributing INR 175 crore in quarter four, which provided the lift.
This happens to be also one of the largest quarters in terms of our NDCF, because of the acquisitions that we did, as well as the working capital recovery that happened in quarter four. We ended the quarter with INR 256 crores of NDCF. Effectively, we are paying more than 90% of NDCF for H2, and we are maintaining INR 175 crores and INR 3 per unit for quarter four. As we discussed earlier, we are focused on managing a robust balance sheet. We are maintaining a AAA. Our weighted average cost of borrowing is at 8.6%. We are still only borrowed at 50% net debt to AUM, and therefore a substantial debt headroom available for us. Our EBITDA to interest cover is also at a fairly high level.
We closed the year with INR 475 crore of cash, which will allow us to maintain a robust balance sheet in the subsequent period during the scenario of COVID. We have a varied source of borrowing. We are borrowing from NLD, bank, NCD, and ECB. A variety of mix of both bank and capital market investors. From our repayment and refinancing schedule, we do not have any material refinancing coming in over next couple of years. The first of refinancing is coming in FY 2022. We believe that with our size and rating, we will be able to mitigate that. Slide 30 is about what we have promised and what we have delivered. When we listed, we promised a low volatility, superior total return to our investors.
We're very happy to see that our beta is 0.07 in comparison to all the other indices and stocks that we are compared with, which highlights a low beta, low volatility. Our total returns are substantially higher than the comparable indices. We have delivered a 32% total return, including INR 30.5 of distribution and the price change. Coming to the next slide, which is looking ahead. Our outlook for FY 2021 remains positive. We have a lot of pipeline assets, including select power assets, which we are looking to acquire in FY 2021. GPTL, which is part of the claimed asset of the INR 6,500 crore. We've already taken approval, and our investors have voted substantially positive for that. We look to consummate that transaction. We'll evaluate select opportunities in solar as well with central counterparties.
We'll focus on creating more pipeline of transmission projects besides the existing ones. We'll work on maintaining a strong balance sheet. We'll keep on our focus on maintaining adequate liquidity to mitigate the current uncertainties in the country and any other unprecedented scenario that may come up. We have at the moment sufficient cash balance and working capital to sail through. We look to diversify further our debt sources and elongate tenors as we look to incremental facilities and reduce the cost of debt. Our focus on robust asset management will remain as ever. We would ensure that we meet our commitment of highest availability. We invest in technology, invest in EHS during the year, and ensure that we have delivered a world-class EHS environment practices across our portfolio.
We'll continue to play our role as an industry stewardship role by spreading awareness about IndiGrid as well as InvITs in general. There are some policy initiatives which we are working with regulators for increasing participation on debt security side, like insurance and PF regulations. Besides that, we are still working with SEBI. We're requesting them to reduce the lot size from minimum INR 1 lakh to one unit at par with equity. We believe that if we continue our focus on FY 2021 on this, we would be able to deliver superior total returns, stable DPU, and growth in NDCF, what we have done over last three years. With that, I would take a pause and certainly open for question and answer.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session.
Anyone who wishes to ask a question may please press star then one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets while asking a question. Anyone who wishes to ask questions, please press star then one. The first question is on the line of Mohit Kumar from IDFC Securities. Please go ahead. Mohit Kumar from IDFC Securities, your line is unmuted. Please go ahead with the question.
Yeah. Good afternoon, sir. Congratulations. Good set of numbers. Sir, three questions I have primarily. Firstly, sir, are you guiding for any FY 2021 distribution?
Sir, will you ask all three and then I'll answer. Is that okay with you?
I'll ask, yes.
Yeah.
Secondly, on the debt, which of course the amount is INR 62 billion, and given that the rates are yet to ease, do you think it's the right time to look at some reduce our interest rates on our bonds or on our loan portfolio so that we have more cash flow to distribute to our investors? Thirdly, given the fact that How do you see the deal environment, given the fact that we are trying to target from INR 120 billion to additional INR 150 billion of assets over the next two years? Do you think COVID had changed anything for you, in the sense, do you think deal making will become easier with time or become difficult with time? That's it.
Okay. Thank you. I think, Mohit, I'll answer questions one by one. On terms of guidance, we believe that there is a lot of flux in the country today, both in terms of sector demand, lockdown, et cetera. While we have a very positive outlook of the sector and transmission would remain a safe sector, we are just waiting to see the impact of COVID, how it proceeds when the lockdown opens up. We are cautious and watching the scenario, and therefore we have not provided the formal guidance of FY 2021. We are positive. This is just the first month that we are seeing, first couple of months we are seeing after COVID. We are seeing all the positive signs of recovery for the sector. We have seen decent collections in the first couple of months.
We have seen the power demand coming back up, and we have seen policymakers supporting with liquidity. All three are positive signs, but we would like to wait for a few months more before we firmly commit a guidance. That's on the guidance. On the debt, I think I fully agree with you. The debt markets are good. We are seeing interest rates evening. On the other hand, we have also been locking our interest rates for some period. We do keep evaluating opportunities where there is a possibility to prepay certain loans and borrow cheaper as and when we do, it will come into our NDCF. It's not that entire INR-
6,200 crores can be refinanced on one day. We have locked in cost of debt, therefore we don't have an upside or we don't have a downside in many of them till the reset rate comes in. On the pipeline side, I think there are two questions that you asked. Do you see a pipeline? I think we see a very healthy pipeline. In my presentation also, I show about another INR 15,000 crores of transmission bids that are taking place in H1. There are several INR 10,000 crores of bids that took place in last six months. I think the pipeline is healthy. We will see assets coming in. For us, pipeline is more on a year-on-year basis than on a quarter-on-quarter basis. Our pipeline comes from completed projects, but we track them couple of years ahead in schedule.
We see a healthy pipeline coming in the sector. The last question that you asked about COVID impact, I would say every M&A transaction is a new M&A transaction, and therefore there are specific sometimes things become easier, sometimes things become difficult. I would say COVID has more logistical impact than any deal making impact. At the end of the day, all of us are working from home, and therefore our speed does reduce in terms of logistical matters. Other than that, I think we are focusing on what we did before. There is nothing that has changed in the market. We are fairly positive on that. I think logistically, things have become slightly difficult to operate, especially on an M&A transaction considering the lockdown. We believe it will open up with the new signs coming in soon.
Any comment on the collection part in April and May?
Sorry?
Sir, any comment on the collection for the April and May?
Oh, yeah. Without any liquidity support from government, et cetera, as well with a complete lockdown with such low demand, we have received more than 50% collections in April and May already. May is higher than April, we are seeing an encouraging trend out there also.
Okay, sir. Thank you, sir. Thank you.
Thank you. Thank you. The next question is from the line of Saptak Patari from JV Capital Management. Please go ahead.
Hi. Thank you very much. This New Year, Team IndiGrid and led by Sai just wanted to convey our hearty thanks and
Mainly because of this, during last two, three years, so many accidents are happening in financial field, in NBFCs and mutual funds, in some projects and all. The way you navigated this journey is really commendable. My hearty thanks and congratulations. Second, the trust you created. I think the IndiGrid Units Holders Trust is because of the current management. Just wanted to say thanks a lot. Thank you very much.
Thank you, Mr. Patari.
Thank you.
Thank you. The next question is from the line of Dhruv from HDFC Asset Management. Please go ahead.
Yeah. Thank you. Sir, if you can please shed some light on the upcoming three deals. Any timeline if you can share on them?
I'm sorry?
Yeah. On the three projects that we are looking to acquire, any timeline that you can share?
Sir, I think whatever is public is already public. We applied...
what we can do, we are Sorry. Yeah.
Yeah, we are working on closing it. We have received the investor approval in 11th of May from the EGM, and that is positive. We are going ahead with the execution. We will come to investors for approval only when we are fairly certain to close the transaction. I would say that we are working on it, and it should be soon announced.
Okay. All three will be completed within this year?
I think the question is KTL and NRSS?
Yeah. GPTL and KTL and NRSS.
See, GPTL will certainly be completed very early. On KTL and NRSS, they are still under construction. We would wait to comment on that till the time it is commissioned. We are monitoring those projects. We are doing diligence on those projects because they are our target projects. As and when they are commissioned, that would be a more appropriate time for us to commit a timeline, because at the moment they are still part commissioned or under construction.
Okay. Sir, just to clarify, if a project is commissioned, after that, do you do due diligence in terms of the operation of the line and then go ahead? It is an ongoing process that happens. The point is, if, say, for example, it's commissioned in, say, September, we would probably can acquire it in October or will it take time?
Sir, it depends on the type of arrangement we have for a particular project. For example, for GPTL, KTL and NRSS, we have signed a framework agreement, therefore, we have access to the information and to the project. Therefore, we start monitoring and doing diligence much earlier before it's commissioned, because that is already an agreed one between the two parties. However, for, let's say, a third-party project where we may not have a direct access early on, we have to wait and take part in the process, and as and when the data room opens up, we look at that.
Okay. Got it. Sir, are there any scheduled debt repayments in next two years?
Pardon me.
Scheduled debt repayments in the next two years, or we are planning to refinance them?
We plan to refinance it, but the scheduled repayments that we have presented over here are INR 62 crores and INR 77 crores in FY 2021 and FY 2022, which are the scheduled ones, but we would be looking to refinance them.
Okay. Broadly, if I'm correct here, the distributable cash flows should increase in the next two years, at least from the FY 2021s. Partly just because of the acquisition that you have done that has boosted and the full benefit will come in FY 2021, and the new acquisitions that you do.
Yeah, I think with the two acquisitions that we look to do, the NDCF should increase. However, as I said, on a guidance front, we'll have to wait and see because working capital is part of the NDCF. How the recovery of the sector happens to really give you an exact guidance on that.
Sure. I understand. Sir, broadly, if I have to understand, of the NDCF, almost 90% has to be distributed, right?
Yes.
Okay. At least the minimum that should happen.
Correct. On a half yearly basis.
On a half yearly. Yeah. Got it. That's it. Thanks a lot, sir.
Thank you.
Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference call, please limit your questions to two per participant. For any further questions, you may come back for the follow-up. The next question is on the line of Hitesh Arora from Unifi Capital. Please go ahead.
Yes. Hi, Harsh. On the collections bit, just wanted to clarify, of your April and May revenue, you've collected roughly 50% of that. Is that understanding correct?
Yes.
Okay. Just as a rough sense, you closed the financial year with 55 days. How much do you expect it to get elongated now, just as a rough, for Q1?
No, I understand. Fair enough. I think it is a rough estimate in terms of impact. We believe that there would be about 20-30 days of expansion of working capital that will take place because of this.
Okay.
Maybe with the liquidity measures kicking in, from July onwards, we will see a recovery happening on that. I think that we'll have to wait and watch, right? Our initial estimate is an impact of about 20 to 30 days of working capital impact, that is starting. We ended the year with sufficient cash balance to meet that requirement, meet that kind of expansion.
Okay. Fair enough. Thank you. Just one more. On NER, your bigger assets, in your previous presentation, you had mentioned that the completion date was around November of this year. Would you now oppose this COVID thing? Is it on track, or has it got delayed a bit? How is it looking there?
I think it's tough for me to comment on behalf of Sterlite Power, but I would say that certainly there is a two-month of impact to everyone in the country, right. We are not able to work. I would expect a couple of months of delay for sure on account of this COVID. Having said so, the regulators have already awarded that extra time to all the sectors. Some have done explicitly, some have done implicitly. Government has been very clear that this will be considered as a force majeure for extension of time. I can't comment on behalf of Sterlite Power, but I would say it's reasonable to assume that people haven't worked during the complete lockdown, so there will be a couple of months of impact.
Fair enough. Just one last question. On any guidance on your end, you had taken a loan or changed strategy for buying solar assets. Anything in the near term, any visibility in the near term for acquisition of solar assets?
Yeah.
What size would it be potentially?
To answer that, I think it's very clear on our outlook. It's showing as 5% of our overall page, right? It is actually a very small part of our strategy and not the core. We have taken the enabling resolution for solar expansion. We have been evaluating cautiously, and tough to provide a timeline of when we will acquire. What strategy we gave clearly is what we can recreate, that we would acquire small, it will be a small percentage of our AUM. We would look for only central counterparties like SECI and NTPC, and we'll look to acquire good quality assets. At the moment, I think these are the three things which we are focused on. There is no special goals for us that we have to acquire one solar project. We are more focused on risk management and acquiring what is right.
That's what we have been doing over the last three years. We'll continue.
Okay. Fair enough. Okay. Thank you. Thanks, Harsh.
Thank you.
Thank you.
The next question is on the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good evening, Harsh Shah, and thanks a lot for the strong set of numbers. I had two questions. Basically, one is on your guidance. I think what it appeared to us that post these acquisitions, our NDCF was going to be much higher compared to what it was as a run rate in FY 2020. People were expecting a higher kind of DPU going forward. Nevertheless, because money has got no color and we are seeing some turbulence because of the COVID situation, is it not better to put a halt on acquisitions right now, rather than not giving at least a minimum of INR 3 guidance for the complete year? Why pursue acquisition over a minimum guidance if things are looking a bit turbulent for you? That is number one.
Secondly, should I ask the second question, or you want to answer the first?
No, please go on.
The second question is on the collection efficiency. I think you have given the collection percentage for the last three financial years, and I think there is some sort of volatility in that sense. If you can throw some light, and also you said 50% you have collected for April and May in FY 2021. How does that compare to April and May of FY 2020?
No, perfect. Good questions. To answer your first question, Sarvesh, one is the balance sheet strength and the other is acquisition. I think we are looking for assets for which we have already raised capital. For example, for ENICL, GPTL, and other projects, we've already raised equity capital last year. The working capital changes get adjusted along with the acquisition. To be honest, these two are completely separate decisions. If you had asked this question about a month and a half ago, that what is the scenario of acquisitions versus balance sheet, I would say we would have been far more conservative because we would not know how the sector is going to react, how the collections are going to react in the months of April and May.
Looking at where we stand today, we have all the early signs that we have seen in the sector, which is recovery of demand, collections coming even without liquidity support, which was promised. Liquidity support getting announced. I think with these three, four measures, I think we are far more comfortable for the planned acquisition. Coming to your question on higher NDCF and DPU announcement. I think what we are doing is not declining that. We are saying we would like to watch for next couple of months of how the situation evolves in the country and in the sector before we can be firm about that guidance. I think at the moment where the country is in industry, it's fair for us to reserve the right for not providing guidance at the moment, as we see for next couple of months how the things unfold.
To your question, certainly, we would be conservative in terms of acquisition, but that is our base business. We look to acquire cash flow. As long as it is an accretive working capital adjusted acquisition, it will only add to the DPU. We are not saying at the moment that the NDCF will not grow this year or DPU will not grow this year. We're saying that we are going to watch for next couple of months before we provide our firm guidance. That's on the guidance bit. The second question was on collection efficiency. I would say that the changes that you have seen between the FY 2018, 2019 and 2020, I won't call it a volatile scenario. FY 2019 is slightly low because we acquired an asset in between with a slightly longer receivables at that time.
It is also impacted by overall the asset portfolio which was there. They are not completely comparable. Because they are part year of assets, some assets were different working capital at that time when we acquired, et cetera. Having said so, I would say even 97% or 100%, or even if it be average of 95%-98% of collection is a fairly good collections in the sector, and we are fairly comfortable with respect to that.
Understood. How does the number compare for April and May collection compare to last year?
Oh, sorry. Yes, I missed that question. It is a very specific question. I will give you a trend. Quarter one is typically the lowest collection quarter, and quarter four typically is the highest collection quarter. If you look at our NDCF in quarter four is typically highest because of working capital. You will see, even in our Slide 28, there is a recovery of working capital that has happened in quarter four. That logic, quarter one is typically lower. What I gave you a percentage of 50% is of our revenue. If you translate that to a historical track record, that number would come to around 60%.
Understood. Just one comment.
Collected 80, 85% in this quarter.
Understood. Just one comment on your previous question's answer. I think some investors would still appreciate if you come out with a statement saying that for committed acquisitions, it is always fine. For new acquisitions, first you should ensure the INR 3 minimum payout per quarter as we have been doing, before looking at any acquisition. If you see any threat to INR 3 per quarter also, then you should first safeguard the INR 3 DPU over the new acquisition.
No, I think that's a fair, I would say, recommendation and suggestion. I think, trustees, we are also focused on that. That we focus on the distribution first, then acquisition. I think that's a fair point.
Understood. All the best for the coming quarter, Sir. Thanks a lot.
Thank you.
Thank you.
The next question is on the line of Shirish Rane from IDFC Securities. Please go ahead.
Good afternoon, sir. My question pertains to the collection part. This 50% of your revenue is collection. I assume it is in the normative course of business. There is no sort of extra request by any DISCOM or a POSOCO that you should not collect this amount for some time or anything like that. Is that correct?
No, there is no moratorium. There is no request. There is no waiver.
As a normal course of business, and you expect it to collect over a period of time.
Correct. Exactly.
Second question was more on the solar assets. Can you elaborate a bit in terms of what kind of assets are you looking and what kind of sort of financing and distributable cash flows you will be looking at? Some sort of direction in which you can point. I understand you cannot tell exactly till you have a asset on table, but directionally, how are you thinking about solar asset acquisition? That would be helpful.
Okay. Sure. Directionally, as I said, we are looking for SECI and NTPC assets only. We are looking for, I would say, small acquisitions. If you assume we are INR 12,000 crore, less than 10% would be maximum INR 700,000 crore of acquisition, maximum. We are looking at assets which have an operational track record. Coming to your question on the NDCF. Now, that is linked to obviously overall size that we acquire and the way we finance it. If we acquire an INR 1,000 crore project at a reasonable valuation, it would result in a decent accretion. Obviously, specific numbers are difficult to provide, but that will result in a specific accretion to our portfolio.
Do you have anything on horizon at this point, the way you have a sort of transmission assets lined up? Is it more like, as it comes, you will see?
Okay. I think we have taken the enabling resolution at the moment for approval. First, we have developed a strategy of what kind of assets we want to acquire, which ensures that we can give guidance to both investors as well as to the market of what are we going to evaluate. We certainly keep evaluating assets, and we have some assets which we are looking at, but it's tough to commit on whether we are going to end up acquiring that or not because there is a long road, right, in terms of diligence and so a lot of factors will put into place. We will be looking to acquire, but at the moment, there is no visibility on whether we'll end up acquiring in two months or six months.
Okay. The last question, considering the interest rates fall in the market, are you looking to refinance your debt? If yes, what kind of interest saving you think you will get?
Okay. We are looking to refinance our debt. The cost of debt would depend on the tenure and the terms that we negotiate with at a different structure. I would say the last acquisition that we did at [PMIC] , we funded with a 8.15% cost of debt, that acquisition at the project level. I would say that's not necessarily the only benchmark cost, but it would range anything in between 8.15%-8.5%, is what we see in the market today.
Okay. You're saying below that is not possible at this juncture?
Okay. That we'll have to see as we come to close different acquisition. Below that, with a reasonable tenure, which fixes our rate for three to five years, would be difficult at the moment. That's something which is important for us because we prefer not to take floating rate loans.
You don't have a prepayment option in the existing debt retention.
We do. On a certain portfolio assets, we do have prepayment options.
Okay.
Therefore, we will look to refinance the assets where we have a prepayment option, and if it makes sense in terms of interest benefits, both.
Understood. Thank you very much for answering questions. Thank you.
Thank you.
Thank you.
The next question is from the line of Abhishek Puri from Axis Capital. Please go ahead.
Thank you for the opportunity. Congratulations for good set of results. Just wanted to check a couple of things in terms of conceptual understanding. We were looking at Power Grid numbers, and as per their call, their debtor days for March quarter is closer to 30, 35 days. Whereas for us it is closer to 55 days. How would that pooled collecting mechanism work for you, in this kind of a scenario? Whatever they collect will be equally distributed, or how that distribution happens?
Okay. Good question. I think the first answer to that is that as per collection, as per theory, it should be exactly same. However, there is typically a three-days gap between the money coming into their account and to our account. That's one gap. Second is, typically, when the year-end happened, in the last week, the lockdown got implemented and some of the payments could not be paid, but that would be probably half a day or one day worth of revenue. The third is Power Grid has also got another businesses which adds to their receivable, which is difficult to reconcile for us. Besides that, ours and Power Grid receivable should match, and we reconcile our books on an annual basis.
There's an audit that takes place, both by CAG, that have they reconciled with us or not, and by our internal auditors in tallying our books. On an annual basis, it gets tallied that if they received INR 100, we got INR 100. A couple of percent here and there on a month-end basis, it keeps changing because of payment frequency, time to transfer, et cetera. Besides that, it should be in the same line.
Fair enough. You mentioned CAG audits Power Grid book, that we know, but do they audit your books also to match their payments?
No. CAG audit Power Grid books to say that you had an obligation to pay as per the POC mechanism. Have you paid or not? Have you done reconciliation with the constituents of POC pool and signed off the reconciliation or not? That's what Power Grid needs to do as per the statute and contract with them.
Okay. Second conceptual question in terms of, because we've seen 50% collection in, say, April and May, that will be, I'm presuming, for the bills which were raised for March and April. In that scenario, you're already at 55 days as of March. If it crosses 60, as you pointed out, it may be a timing issue for 20 to 30 days extension could happen until inward liquidity is really pumped in and the money flows back to you or to Power Grid and then to you. In that scenario, as soon as you cross 60 days, would late payment surcharge be accounted for in your revenue item or P&L item?
The late payment surcharge gets start accounted after 35 days, not 60 days. That's just one correction.
Right.
The second is, because the late payment surcharge gets levied and collected by Power Grid on our behalf, for late payment surcharge, we do cash accounting instead of accrual accounting, because Power Grid is the one who is accruing it, collecting it, and therefore transferring it. To ensure that it is done conservatively, we do cash accounting on late payment surcharge. As well as on rebates.
Okay. If I look at your numbers, I think for the last two, the mid-year and the current closing year, we had 55 days of receivable. In that case, does our other income contain any component of late payment surcharge, or it is still not received and hence is not accounted?
No. We have received late payment surcharge during the year, as well as we have given rebates on some of the parts. Our revenue, the detailed financials would include the net late payment surcharge we have collected.
Okay. I just wanted to clarify because other income generally consists of that LPS part or other operating income, as other companies do. I just wanted to clarify that. It is a part of net sales.
Sure.
Okay, great.
In the detailed disclosure in the financial statement, you will see the late payment surcharge as a separately accountable provided number.
Right. Okay. Thank you so much, and all the best.
Thank you.
Thank you. The next person is on the line of Manish Gupta from Solidarity. Please go ahead.
Harsh, just one data point I just wanted to double-check. Your net debt is INR 6,400 crores. INR 6,400 crores is your gross debt, right? Because you have INR 475 crores of cash with you right now.
Okay.
Okay. I just wanted to confirm that. I had two conceptual questions. The first one is a very minor point, that when you look at the valuation report of all your projects, the cost of equity differs marginally by project. I couldn't understand, could you explain what the logic of that was? A related question again on the valuation report was, what is the assumption behind the terminal value that is being assumed in the project when the valuation report is done? The third conceptual question was that under the assumption that you don't acquire any additional projects from today, your DPU will gradually decline over time. I just wanted to check these three.
Okay.
Cool. Thanks.
To answer your first question, which was with respect to cost of equity. Your valuation report uses the cost of equity as per the WACC formula, and the WACC formula includes the CAPM model. The CAPM model includes the particular taxation that is applicable on that project, and that is linked to the overall tariff curve of the project. Therefore, the different projects have different tariff curves. The effective tax rate to calculate for CAPM model is slightly different, and therefore you will see a very minor difference between project to project in terms of WACC itself, not just cost of equity. I would say that's one marginal difference WACC can cause it. The second question that you asked was with respect to terminal value. We believe that these are permanent assets with us, and therefore there are potentially three ways the terminal value gets looked at.
One is to see that the contract is extended beyond 35 years, and if contract is extended beyond 35 years on a cost-plus basis, then we calculate the project cost, multiplied by 30%, multiplied by 15.5% ROE on a Reg 63 model, and assume that is extended for another 15 years and do the NPV of that. That's one method that gets evaluated. There have been precedents when people have filed for petitions for clarification. The CERC Commission has told that we would look to evaluate closer to the expiry date, but in principle, we would look for a cost-plus kind of a model. That's one way of valuing. The second way of valuing is through a scrap value, because at the end of the day, there is 350,000 tons of metal which is owned by these companies. The metal quantity is fairly accurate.
After that, one needs to assume a particular inflation over 35 years and what will be the price at the end of 35 years, minus the extraction cost, et cetera. This is constant. That gives us the second potential way of valuing the asset. The third one is to, let's say, call in replacement cost basis. Because the asset belongs to us, and over a period of time, the ability and the cost to build a new asset in the same corridor is going to exponentially increase. For example, the lines where we have today, if somebody was to build the lines today in the same locations, it's going to cost 50% more in just five years because of the inflation of manpower, inflation in the metal price, less corridors available, more metal going in the project, et cetera.
That is potentially, I would say, an opportunistic way of looking at it, which is an upside case. Between the three cases, as I said, a very high tariff to a cost-plus tariff to a metal value method. Whichever method one chooses, the impact of that today, after 35 years of discounting, is fairly small. We are playing in the range of 3%-5% of the FMV today in terms of the overall impact. That's to give you three ways that the auditor, the valuer also looks at it. What it effectively does finally is to put that Gordon Growth Model at the end of it to match one of the three or the most feasible or prudent of the three.
That's the method that is used, and the entire valuer method is publicly available, but these are the three which we believe gets applied. To your last question. If we don't do any more acquisitions besides the one which we've already committed, our DPU will remain INR 12 or can remain INR 12 for up to 10 years, and after that it will start to decline.
Okay. Very clear. Thank you.
Thank you.
Thank you.
The next question is from the line of Sunil Shah from Turtle Star Portfolio . Please go ahead.
Yeah. Good evening. Thank you very much for taking the DPU this quarter. Thank you so much for living up to the expectations which were there. My question first is on the NDCF, which is due for this quarter. I think on your slide 28, we are saying we have around INR 257 crores which is there, and that the kind of distribution which has happened is about INR 175 crores, if I'm getting the figure correct. Does that mean that the difference of about INR 80 odd crores is something which is surplus to us to when we started this quarter?
I would say, we have to distribute minimum 90% of the NDCF on a half yearly basis, and therefore on the slide number 28, if you look at the top table which is half yearly NDCF. Quarter three, we distributed more than what we earned. Right?
Okay.
Quarter four, we have earned more, but we have slightly distributed less.
Okay.
This INR 20, INR 30 crores quarter-on-quarter is something which we stabilize based on the changes that happen quarter-on-quarter on the NDCF front. Therefore the right way to look at it would be that on a half-year basis, how much is the cushion that we have created or on a full-year basis. Okay. On a full-year basis, we have distributed INR 700 crores and the NDCF is INR 720 crores. On a full-year basis, we have earned INR 20 crore more. On a half-year basis, we have earned slightly more than INR 20 crores more. It depends on which way you want to evaluate. On a quarter-on-quarter basis, this NDCF tool distribution changes keeps on happening. Quarter four is high NDCF, quarter one and quarter three are low NDCF.
Quarter four which is March quarter and September quarter are high collection quarters and therefore higher NDCF. Quarter one and quarter three by that logic is slightly lower. I mean, that's just the trend that we have seen happening in India. Therefore we keep this cushion available to us within the 10% bucket to be able to distribute more or less as per the quarter collection of NDCF.
Fair enough. Okay. Sir, my other question is on the solar projects that we intend to look at or evaluate them. Sir, I would just make one thought which I would like to share with you is, hypothetically assuming that the solar project was acquired somewhere in the month of April, and we had gone through the situation which has happened, then at that point in time, the solar projects, their revenues would have got affected too. Would that disturb our DPU going forward? I mean, the solar project, have the revenues been volatile in the month of April?
Okay, good. I tell you, again, we don't own any assets or data may not be as accurate as we provide for our own assets. The assets that we track, the solar generation numbers have not gone down in April. Both generation and collection numbers for the assets that we track, which is with central counterparties have been fairly good. Now I won't say that for entire solar sector in India because there are different states and different PPAs. The solar sector per se isn't going down in April. Rather, their generation numbers are at peak and the season, I would say, which is the summer season till monsoon, is the peak generation season as well. From the plant performance perspective, most of the solar projects are okay. That way there is no impact on account of the COVID in the generation numbers.
There may be specific state-specific issues. That is something which obviously would remain. Different contracts would have, there is no generation issues. Coming to the second part of your question about impact on us. Let me give a very small sensitivity. As I said, we are looking to acquire a small value of the solar projects. Out of our annual NDCF, we have INR 700 crore, which we are distributing and quarterly INR 175 crore. As we said, let's say there is a 10% portfolio of solar projects, and that would typically contribute about 5%, 10% of our NDCF, about INR 10 crore of NDCF may be incremental on a per quarter basis. As you saw numbers, we already keep pushing a sizable amount from a transmission revenue itself.
The ability of a solar project to materially impact our quarterly number is going to be very limited because we are acquiring that in a low size, first.
The possibility of that impacting our quarterly NDCF is limited.
Right, sir. Thanks for the clarity.
We have still not acquired a little bit in future, but we are just exactly briefing you how we look at that.
Sure. Thanks so much for the clear clarity, sir, and all the best for the future. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Ravi Shankar from Axel Fund. Please go ahead.
Thanks, sir. Actually, my question already answered. It was related to collections. I think a lot of people already asked the same question, thanks.
Thank you.
Thank you. The next question is from the line of Ritesh Parikh from Barclays. Please go ahead.
Thanks for the opportunity. Ritesh in general was wanted to have understanding of what kind of IRR we would be looking at when we are acquiring a new project, whether it's solar or a transmission one.
Okay. IRR keeps changing depending on the cost of debt and when we acquire, etcetera. Having said so, Ritesh, to give you a broad guidance, we look for anything from 12- 13% IRR in a transmission project. That's only a guidance. It can be higher also, it can be lower also depending on the size and different parameter, but on an average, we look at 12- 13% IRR.
Okay. That will be even for the solar?
Solar projects would come at a premium to that, we would look to have higher IRR in solar projects.
Okay. Now, just coming to our solar projects. One, but solar projects has certain amount of volatility and certain amount of risk in terms of the litigation we have seen in the past with other project sponsors. Why exactly looking at a solar InvIT, we have very stable line of revenue coming from this transmission line? Wanted your thoughts on that?
I think our thought is simple. Your point is correct. There have been litigations in the past. There have been tariff issues in the past, but most of these issues have been with the state PPAs. There are very limited instances of central sector undertakings like SECI and NTPC doing that. From that perspective, that risk is lesser in there. That gets filtered out when we evaluate a particular project. That's one. Second is, from our perspective, we are leveraging our existing skill set and balance sheet to ensure that we can acquire projects at a better return. Today, as we see in the market, there would be a lot of people who may want to monetize the solar portfolio.
Considering that we do have access to capital with our rating and the balance sheet, we may be able to generate superior returns versus, let's say, a normal holder of solar projects. Therefore, there is that much of bit of financial arbitrage for us to leverage on, especially in the same sector where the regulator is same, the counterparties are central counterparties. That is the reason to evaluate that. Common skill set, again, fixed price contract, limited volatility, and you avoid the volatility in terms of collection by selecting the right counterparties. That's how we are coming to that decision.
Okay. Last thing about, even in transmission, sir, are we seeing a healthy pipeline of projects availability in terms of availability?
Okay. In that, I think we are seeing that. It's just as I said earlier, we don't look at pipeline on a quarter-over-quarter basis. We look at on a six-month to 12 to 18-month period. We are seeing a healthy pipeline. There are already INR 10,000 crore which got bidded last year, last six months. We are seeing around a INR 15,000 crore project getting bid out next six months. We'll see those projects coming in the market to be sold in maybe three or four years from now. I think we do see a good pipeline available in the market. As and when we evaluate further assets, we will see that in the sector, we'll see more people to throw the more and more assets coming to bid at auction, build and sell. Thank you. That's it from my side.
Thank you.
Thank you.
The next question is from the line of Rishabh Sarda Lal from Pravin Ratilal Share and Stock Brokers. Please go ahead.
Yeah. Thanks for the opportunity. Congratulations on a good set of numbers. I just had one question. Recently, there was a news item saying that the local electric gear makers are seeking a ban on the Chinese companies due to security reasons. These gears are used by the power generation and transmission companies. If such a ban comes up, what kind of a cost impact do we have on IndiGrid, or do we have any or not?
Okay. I think we don't do generation or import. I think the only component which in our entire portfolio gets imported from China on the transmission line side is something called insulator. The connectors of insulator with the conductor, which is, to be honest, a 5% value in the portfolio.
Okay.
That's one. Second is we already imported those assets, and they can be changed with the domestic content as well. It's all we have to do. We are not impacted by any of this change in the country. The second one is substation side, we don't have any Chinese transformer, et cetera. Therefore, we are not impacted at all. I think we don't see an impact of the supply chain because of import ban from China coming in. There is a huge domestic market and domestic manufacturing for as long as that we are doing. We don't see the impact of that, Rishabh, on the business.
Right. Thanks a lot. Again, congratulations on a great set of numbers.
Thank you.
Thank you. The next question is from the line of Mahesh Shah from Edelweiss. Please go ahead.
Hello. Hi.
Hi.
I just had one question regarding the length of the solar assets. When we do acquire solar assets, what could be the typical PPA, like 25, 35 years? Are you targeting something, or is it something that's open to evaluation?
Typically, the PPAs are signed in the solar workspace units for 25 years. When we look to acquire with some bit of track record, we can look to do one to two year of track record, then that will make it 23 years. I would say we look for assets in the range of 20 to 25 years of contract.
Got it. Post these contract lives, how much is the equipment? Is it a similar thing to what we have in transmission lines in terms of residual value or whether the contracts can be extended, or is that different?
Okay. I think solar projects are not BOOM projects. Typically, solar projects are limited life projects, and therefore we value it like that.
Okay.
Solar projects on the other hand, have also lesser life, right? The cells have a lesser life. So we may use refarming to increase the return, but assuming beyond 25 years of that won't make sense.
Got it. Okay. Just another question. Given that there's enough of a pipeline, as you said, in terms of transmission assets, are you going to continue to acquire those too? Because from the calculation that you are looking to make about, say, 25% of the portfolio as solar assets, that would mean that 25% of the new acquisitions would probably be solar.
The 25% is more like a guidance and cap that we will not acquire more than 25.
Right.
Doesn't mean we have to acquire 25. We, as I said, are focused on acquiring good assets in a stable cash flow with operating track record. Therefore, we are happy even if we are 15%. There is no goal for us to achieve 25% of solar. We are not working from that goal perspective. We will be focusing on selecting the right asset, which fits the portfolio.
Okay. Got it. Congratulations on a good set of numbers. Thank you.
Thank you, Mahesh.
Thank you. The next question is from the line of Nimish Rajesh Shah, an investor. Please go ahead.
Yeah. Hi. Congratulations on a good set of numbers. I have three questions, actually. There was a force majeure event earlier in the year, and the recognition of the same was in process with the authorities. Has the same been completed? Second question is on slide number 23. The unsafe conditions have jumped by 15 times, and near-miss incidents have jumped by six times. All the while, the AUM has also increased. Is there any concern around this, is my second question. The third question is, it is a falling interest rate scenario right now, and our debt is mostly at fixed rate. Is there any provision to revisit this or something like that? Thank you.
I'll start from the last question. I think there are some projects which may have a provision to revisit, which is a call option or a put option, which is always a cost. It is a cost-benefit analysis that we keep doing. There are no free options to pre-pay anybody at any time, right? It's a trade-off. We believe in securing our customers, and therefore we have been hedging our costs instead of keeping it open. If the rate would have been the other way around, we'd be worried about that other one as well. There will be an opportunity, and we'll keep evaluating that. The next question which you asked on the unsafe condition and near miss. It's a good sign. Typically, when your unsafe conditions reporting goes up and near miss goes up, which means that people are feeling open to talk about it.
It is a cultural shift that we are pushing in the company. As you can see, number of training man-hours has doubled. What that does is makes more people aware about what is an unsafe condition, what is a near miss. As we invest more in the training, there would be unsafe condition reporting and near-miss reporting increase. We like that increase, because that means people are being cautious. People are watching what was not done rightly, and which builds a strong foundation. Therefore, it is a good sign, not a bad sign to see these reporting numbers going up. Correct. That's the second one. Your first question, if you can repeat that.
My first question was regarding, there was a force majeure event in one of the transmission lines earlier in the year. Is the recognition and everything complete? There were certificate which was to be obtained for the maintenance of line or it's 99% or something. Is that complete?
The state of that is that we took 74 days to restore that line. This is WPP power line of JTCL's entity. The respective authority has already approved certificates up to 60 days as a force majeure, and we received certificate availability for that, and therefore revenue has been recognized for that. The next 14 days, for the 20% of that line, we did not recognize the revenue. However, we are still appealing at the central level to give 14 days of revenue to us for that component as well, which will be around INR 1.5 c rore . The amount of CapEx that we spent, we have recovered. We have got confirmation from insurance company to recover a sizable amount of that out, which is about roughly a crore. I would say we have concluded the force majeure incident in a very positive note.
Hello. Thank you.
The next question is from the line of Dheeraj Weaver from Samvad Financial. Please go ahead.
Yeah. Hi. Just one question. Basically, we are finding some kind of EBITDA kind of it. Basically, it's shown INR 2,993 crore in one slide. When we go into the last distribution slide, so basically we find what, where we get NCDF, where we find our SPV EBITDA being different only by INR 10 crore or something. Can you just explain the reconciliation, the figures? Maybe through the slide.
Sure. Just a minute. You are referring to the next year slide and the NDFCs slide, is it?
Yeah. Basically next year we have financial highlight where we are getting the EBITDA quarterly.
Okay.
The slide 28, for example.
Yeah.
Slide 28 has got INR 306 EBITDA.
INR 670 crores of income.
Yeah, INR 670 crores. Yeah, I'm referring to Q4.
Correct.
That is S2. We got INR 306 crore as EBITDA.
Correct.
When I go down and in the next year, it's coming at INR 293 or something. That is also coming in your press release also.
Okay. Yeah.
When I go to slide 35, I get INR 299 crore.
Correct.
How you eventually reconcile? Is there something which you.
Yeah. There is a IGT expenditure that you see on the same chart on slide 28.
Okay.
Is INR 6.6 crores.
Okay. Yeah. That's one first reconciliation.
Yeah. You need to add that number as well to come to the EBITDA. This is an EBITDA, I mean, what you saw on the financials and press release are consolidated EBITDA on which the EBITDA % is calculated. What is getting represented over here, INR 306 crore, is the SPV level consolidation. There are expenditure beyond this at the IndiGrid level as well, which are shown separately. That is the reconciliation item that I can describe right now.
That would be majority. INR 6.6 crore would be SPV majority and another INR 2 crore would be there.
Right.
Okay. That's one part. Secondly, sir, I would just suggest that if you, like in hour of question an hour, you would realize that probably 15-20 minutes effort has gone into discussion on solar asset, which basically doesn't contribute any. Your submission basically is not going to contribute more than 25% of asset even as per your declaration or your disclosure. Would it make sense for management bandwidth, which is most critical thing for any organization, to give so much time to an asset. Unless we see that can become a multi-year revenue generating asset or something. I'm just finding if you see the kind of it, I think the dilation has happened from transmission which account for 100% of. As of now to solar, which is not contributing anything as of now, except for regional incentives.
Should it not make any management also to focus and just say. It's enabling regulation, it's fine. I think even if you look at the kind of effort you will be putting it, at DPU level is not even going to add INR 0.10 or INR 0.20.
Good question. No, it's a very important point that you made. I think from our perspective, we are answering because people are asking questions. As we have said also, we are not necessarily expanding aggressively into solar. If it is not worthwhile for a multi-year revenue, why will we also acquire. It's very simple. Now, to answer your question, if we acquire, we will acquire, which will make it worthwhile for a multi-year revenue. Right. Now, what does that mean? That we will not be acquiring for 10 bits acquisition. Right. At the moment, we are only responding because we had recognized our investors, some of the investors would have concerns, so we are addressing that. I would say we would certainly not do something which is not worthwhile.
Therefore, if we acquire solar assets, which would be adding a good chunk in DPU, then only we'll look to acquire. Right? Which will be sustainable, not for one time. Definitely, yeah.
Appreciate that. The last question is just, I'm a layman, so I don't understand the sector. We understand that Power Grid is going to do a InvIT flotation.
Yeah
existing grid asset which they are owning. Just like in asset reconstruction company, which I work, which has also clear structure. Initially when the sector started, CERC was not allowed to held security with it or some class of certificate of another asset reconstruction company. Five, seven years down the line, RBI permitted that. Theoretical question, can an InvIT invest into, say, IndiGrid wants to invest, they find it effective. Can they invest into Power Grid InvIT unit, infrastructure InvIT unit?
Good question. I mean, as of now, technically speaking, as per SEBI regulations, at the moment, an InvIT cannot invest in another InvIT. That is one. Maximum up to, let's say, about 10%, et cetera. It can't be sizable investment. However, as per our strategy, we would not like to necessarily invest in another InvIT, right? Because we also are the owner and operators of transmission assets. If we have extra 10%, we might as well give our investors and they can buy, either IndiGrid units or buy another InvIT's units. That is their prerogative. That is not part of our business plan or a model to acquire another InvIT. If Power Grid or other state transcos are monetizing their assets, we would certainly look to acquire.
Sure.
Like any share. It may not make sense for us to invest in other InvITs.
Appreciate. Thanks a lot for your wonderful performance and research, and do look forward to interact with you in future. I wish you and your team all the best. Happy Covid time and healthy Covid time.
Thanks.
Thank you.
Thank you.
The next question is from the line of Mohit Kumar from IDFC Securities. Please go ahead.
Hello. Sir, one question I have. Sir, last year, there were too many regulatory changes which were in favor of InvITs. Are there something which is expected to come or which are under discussion in the next six to 12 months?
I think from our perspective, we can tell you, I mean, what we know, and that publicly we are working on, is to say insurance companies and pension companies to be able to invest in debt securities of InvITs. Which will allow us to have longer tenures for loans. That's one which we are actively working on. The second one is, which I would say we are working on, but we don't know, is reduction of lot sizes from 1 lakh to 1 unit. We believe that will be a big boost to the sector. However, last year, SEBI only reduced from 5 lakh- 1 lakh. We will keep trying with SEBI and Ministry to reduce it to 1 unit. That's the second one. The third one is with respect to ability to add sponsors, right, in a particular InvIT.
For example, KKR has already applied to become a sponsor of IndiGrid. We are working with SEBI to come up with a policy guideline on how does one induct a new sponsor. I would say that would be a third one. Practically these three we believe we are working on. Whether they happen or not is obviously regulatory prerogative of different regulators. We are working on these three.
Understood, sir. Thank you.
Thank you. The next question is from the line of Manish from DP Investments. Please go ahead.
Thank you very much for giving me the opportunity. Congratulations, Mr. Harsh.
Thank you.
My question is, you mentioned that the interest rate on late payment has been reduced from 18%- 12%. How much it is going to affect going forward? You have beautifully explained the three residual scenarios. What is the minimum residual cost per unit you are expecting over a period of time, maybe at the end of the life cycle? What is the maximum? Thank you.
Okay. Thank you. Okay. I think to answer your second question first on the residual life, see, at the moment, if I use the worst method, okay?
Yes.
That quickly to scrap right? That kind of thing. Okay?
Right.
In today's terms, in today's value terms, the scrap value of our assets would be about INR 2,000 crores. Okay?
Right.
Today's terms.
Yeah.
Now, that means assuming there is zero inflation.
Right
for 35 years.
in that scenario, you will get INR 2,000 crores at the end of thirtieth year, thirty-fifth year. Right?
Yeah
That's INR 2,000 crores divided by whatever 58.5 crore units. INR 40, something like that, right?
INR 40.
Now-
Yeah. Okay.
INR 40. If you add one % inflation, two % inflation, three % inflation year on year.
right? The number will go keep going up. What is going to be your 35 years of inflation is something which at least we can't predict. I think that is going to be your view, right?
Right
look at it to calculate. I will leave that to you to evaluate, but I would just say it's a sizable chunk.
Yeah. The best case scenario you are saying right now.
number
in today's rate, it is coming around INR 40 per unit.
Correct.
Right.
That's a simple way to look at it. I'm oversimplifying so that the message is clear.
Yeah
to look at it.
We heard somewhere that INR seven it is going to be. That's the reason. Good you clarified that it would be around INR 40.
Today's value. When we value our cash flows, we don't take this value into account in today's terms.
Correct.
Just to be clear, we do discounted value of future cash flow, and this value is parked at the end of 35th year with a particular assumption, and that gets discounted today, in today's terms. Right?
Right
when your question was on what will be at the end of 35th year, it will be today's INR 2,000 crores plus the inflation assumption that we want to assume for 35 years. Right?
Yeah. Got it.
Okay.
The second question was about the penalty, because you have 55 days of credit, and if you have this penalty impact then from 18%-12%, what would be the impact to the profit and loss account?
Yeah, it is a very minimal impact. For example, we have collected approximately INR 68 crores of LPS, net LPS in the entire financial year last year. 12%-18%, if you have to replicate for next year, it will be a single-digit INR crore impact. It's a fairly small impact on the books.
Okay. Right. Fair enough. Thank you. Thank you very much. Really appreciate the good work you are doing. Thank you.
Thank you.
Thank you. The next question is from the line of Gopal S., an investor. Please go ahead.
Good afternoon, Mr. Shah. Thank you for your wonderful presentation and a great Q&A. This is definitely a great learning experience for people like me, a retail investor. I think most of the questions which I had were answered. I think simplest or the least question with my question is related to TDS on the DPUs. Recently, the Indian government has given the relief on TDS to be reduced from 10% to 7.5%. However, is this applicable to the DPU that IndiGrid is going to distribute?
Okay. Just a minute, I'll check. Divya is also on the call who is heading finance for IndiGrid. Divya, would you like to answer?
Yeah. Thank you, Mr. Shah. Sir, yes, on this DPU, the dividend, the interest which will be distributing to the resident investors, we will back after the concession rate.
Okay. Thanks a lot, Mr. Shah.
Thank you.
Thank you.
Ladies and gentlemen, this is the last question from the line of Swarnim Maheshwari from Edelweiss. Please go ahead.
Yeah, Harsh. Thank you so much. Sir, just one question. If you can just help us with this breakup of INR 475 crores of cash and investments. How much is pertaining to the investments? Just wanted to better understand that what is the free cash reserve that we have which can be distributed, because I'm sure there would be some part of DSRA also sitting over here.
Right. Out of INR 475 crore, there is INR 125 crore is of DSRA, which is the DSRA reserve account, INR 175 crore is the DPU, which we are distributing now. That is about INR 300 crore is so-called, let's say, committed capital of some kind. Either towards DSRA or towards distribution that we are doing. The residual amount of cash would be, one can assume is a free cash.
Okay. Got it. Right. Thank you so much, and wish you all the best. Would you have any closing comments over here, Harsh?
Yeah. No. Thank you, Swarnim. Anyway, we decided to have a longer call because it was an annual one and a three-year call. I think I would just like to thank everyone for the right questions and important questions. We are really happy that our investors are going deep in our business model and understanding our business model, the assets and our strategy. It's a really heartening to see. I think I would just reiterate our vision and strategy that our focus is to become the most admired RE platform coming out of Asia, and therefore, we would focus on acquiring stable assets with operating cash flow, long cash flow, and ensure that we keep distributing the stable income that we earn, and work on growing that with the acquisitions that we have been doing. Thank you.
Thank you. Ladies and gentlemen on behalf of Edelweiss Securities. That concludes this conference. Thank you for joining us, and you may now disconnect your lines.