Good day, and welcome to the IndiGrid Infrastructure Trust Q3 and Nine Months FY 2020 Result Conference Call hosted by Edelweiss Securities 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. I now hand the conference over to Mr. Swarnim Maheshwari from Edelweiss Securities Limited. Thank you, and over to you, sir.
Thanks, Anand. Good evening, everyone. We welcome you all to IndiGrid Trust Q3 and Nine Month FY 2020 Conference Call. At the outset, I would like to thank the management for giving us the opportunity. Mr. Harsh Shah, CEO, would be there on the call, and I would like him to give his opening remarks first, and then we'll have the question and answer session. Over to you, Harsh.
Hi, Swarnim, and hi, everyone. Thank you for joining on call. I welcome you all on the 11th Quarterly Investor Call for IndiGrid. I will just take you through the investor presentation and a summary and outlook. After that, we'll open for the questions. I am on page number one of the presentation, where we have described our overview and vision. Our vision is to become the most admired yield vehicle in Asia. We do envision to achieve INR 30,000 crore of AUM, while distributing predictable and growing distribution and focusing on best-in-class corporate governance. To introduce us, I would just say we are the only power transmission-focused yield platform. Our AUM today is approximately INR 11,000 crore. We own 18 transmission lines and four substations across 11 states.
We are rated AAA by all the three reputed rating agencies and our residual contract life of the agreement is about 32 years. We continue to own the assets beyond that as well. On slide number seven, I would just take through a few seconds to describe the shareholding and who are we. IndiGrid at the center is majority-owned by KKR with 23%, 15% by Sterlite Power, the sponsor which started the IndiGrid Infrastructure as a unit, and 62% by other unit holders. Sterlite Power has also agreed to sell the 15% to KKR, which would translate KKR holding to approximately 38%. This is subject to approval from SEBI as well as some other guidelines. The Investment Manager, which runs IndiGrid, KKR owns 60% of that, and 40% is owned by Sterlite Power.
On the second anniversary of the main transaction, KKR will acquire another 14% and will acquire 74% holding. Axis Trustee, as stipulated by SEBI guidelines, does a trusteeship role for IndiGrid for the investors of IndiGrid. Below are the assets which we have acquired since IPO, which is enumerated in the gray and blue boxes below. On slide number eight is our shareholding as on 27th December. You can see our shareholding is very well distributed across long-term FIIs between KKR and GIC and other investors, as well as retail mutual fund and life insurance companies amongst others. Today, we have about seven life insurance companies holding IndiGrid and four mutual funds, and value of retail and HNI investors have increased approximately two times since we listed in June 2017. Coming to quarterly results, quarter three financial highlights are year-on-year EBITDA has increased by 102% for the quarter.
Our availability has remained greater than 99.5%. Our debt to AUM is below 49%. Our rating is AAA. One of the key updates that has happened in the quarter is that SEBI has enabled the rights issue guidelines for InvITs, and we'll talk about in detail in the subsequent slides. We have continued to distribute INR 3 unit interest, and this time we have distributed our interest. On slide 11, I will elaborate the key positive regulatory development that has happened in this quarter. Before I delve into the specific rights issue guidelines which are published, I would like to take pause and describe what has happened over last four quarters. Over last four quarters, there have been significant changes by regulatory authorities to provide conducive environment for InvITs and REITs.
Starting with, in April 2019, SEBI issued a circular which enabled InvITs to have higher leverage than 49% under substantially strict regulation and monitoring, as long as the InvIT is maintaining AAA. This has enhanced the attractiveness of InvIT as an investment option, considering the fact that you can generate better returns and maintain a stable rating. Subsequent to that, SEBI came along and also reduced the lot size from minimum INR 5 lakh to INR 1 lakh. Our lot size has reduced from 5103 units to 1701 units. We believe the liquidity has improved because of that, and I'm sure in general, the participants have seen the benefit of that.
Third change, which will happen now, is rights issue, which I believe is a very important impetus to InvITs, considering the fact that InvITs are perpetual platforms, which is going to raise capital and acquire assets more than normal companies.
Therefore, rights issue being the most efficient and flexible way to raise capital, we believe is a very important enabler for InvITs for future capital raises. Besides that, this will also enable us as managers to offer opportunity to participate in every capital raise to all classes of investors, as against a preference issue where some of the investor class was not allowed. The last, RBI in early part of the Quarter 3 also enabled banks to lend to InvITs subject to certain criteria. In last four quarters, we have seen good amount of regulatory trust, which makes the environment conducive and level playing field for InvITs and REITs in India. Coming to operating performance for IndiGrid, we have presented both YTD FY 2020 as well as Quarter 3 2020 financial performance. As you can see in all the assets, we have maintained a substantially higher availability.
In some cases, slightly lower due to force majeure events, and we believe that we'll receive a force majeure availability certificate from CERC. Coming to the financial results for Quarter 3 FY 2020, as presented in slide number 13. In this quarter, we have recognized INR 339 crore of revenue and earned approximately INR 313 crore of EBITDA, which is slightly higher than two times the same period of Quarter 3 FY 2019. This is largely on account of the acquisitions we made in Quarter 1 and Quarter 2 of this year of NRSS and OGPTL.
This quarter we are receiving full impact of both the acquisitions. We have maintained our distribution at INR 3, and with this distribution in bank, we have done INR 30.56 a unit distribution since listing approximately INR 1,135 crore. On a quarterly basis, we have agreed to distribute INR 175 crore this quarter, INR 3 a unit, which will be paid out as interest.
Next slide describes our waterfall from EBITDA to distribution. As we said, we earned INR 313.9 crore of EBITDA in Quarter 3. We have paid net interest expenditure of INR 107.5 crore. We have repaid loan of INR 3.9 crore. We have working capital changes of INR 48.1 crore. Out of this, a significant number is about INR 14 crore is the value, which is on account of one-time insurance payment as advance for the rest of the financial year. There is approximately INR 6 crore of IM and TM which are paid. There is approximately INR 23 crore of slippage of receivables, which translates in approximately six days. We have ended the quarter with 96 days of receivable outstanding as against the norm that is 90 days.
We believe that on a quarter-on-quarter basis, this is a small movement that continues to happen. We provide capital reserve to adjust for this. We believe in Quarter 4, the collection will be better. That has been the trend over most of the years in past Quarter 4. We would end the year with the planned 90 receivable days. We have spent INR 3 crore of CapEx as well in this quarter. This has gone towards restoration during one of the force majeure events. We have filed the insurance claim for that. We believe we'll be able to realize the cash for this event. There is INR 6 crore tax expenditure largely on the interest income that we earned. In all, we have earned INR 154 crore of NDCF.
On account of the specific one-time expenditure of insurance for the advance year, as well as some small working capital changes, we are using the INR 21 crore reserve this quarter. We have distributed INR 175 crore of distribution for the quarter. Next slide is slide 15, where we've provided the distribution amount, INR 175 crore translated into the distribution per unit INR 3 entirely paid as interest. The ex-date would be 27th of January 2020. The record date is 28th of January 2020. We will be paying the distribution on or before 6th of February 2020. Next is on our liability side on our balance sheet. We believe we have contained the interest rate as well as refinancing risk till now. As you can see, our repayments are staggered across the year, we have fixed our interest rate.
On account of that, our weighted average cost of borrowing is 8.75%. Our weighted average maturity of debt is about seven years. We do not have any material refinancing coming in the immediate next 12 quarters. The first refinancing amount or a large amount is coming in FY 2023. We believe we are adequately capitalized as well as prepared for the same. On slide 17 is a performance since listing. As you can note on the bottom chart, we are at 0.07 beta, which is one of the lowest in the indices in comparison to any other indices as well as stocks. This signifies that we remain a low volatility stock. On slide 18, we're representing our total return.
Our total return as on January 17, last week when we issued this call, is 24.1%, which signifies that about INR 27.6 is distributed as dividends and about 3.5% is the negative price at 96.5. In comparison to most indices, we have outperformed the market, and this is something which we have been tracking over the last several quarters. This is while maintaining a beta of 0.07. We believe that with a focus on delivering majority of total returns via distributions, over a period of time, a substantial part of our return would come from distribution and it will continue to improve on a compounded basis. On slide 19 is a small comparison of how globally yield platforms have performed and paired.
As one can see that while we are small in comparison to the global platforms, however, it is a significant size in terms of a market cap. In terms of a yield, we are trading at a substantially higher spread versus the G-Sec, which we believe is fairly attractive. Globally, these platforms are traded from 2.5%-4.5%, based on the rating, liquidity, growth as well as stability. We believe that in India, we have a better and stable platform with the highest rating. We believe over a period of time, this should improve. I would go to slide number 22, where there is a growth pipeline for which we have signed agreements for. The first four projects on the left for which we have signed exclusive agreements, including framework assets as well as Right of First Offer. This put together is approximately INR 7,500 crore.
As per our earlier guidance, we intend to execute these agreements and MOAs in next 12 to 18 months as and when the projects are ready. There are other projects with the sponsors as well as there are third-party projects. We will continue to expect to be a relevant player in acquiring that going forward. With this, I would like to just take a pause and, Swarnim , open up for the question answer, then we can go in detail to the specific queries that the investor may have.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mohit Kumar from IDFC Securities. Please go ahead.
Yeah. Good evening, sir.
Hi, good evening, Mohit.
Sir, two questions. First is on the, I think the total revenue for the quarter compared to the Q2 has declined. Also the EBITDA, I think at a kind of 40 odd claim. Am I right in saying that?
You're right in saying that. This has happened because in Quarter 2 there was approximately INR 40 crore or INR 44 crore of one-time revenue and EBITDA that was generated based on arrears received of one of the earlier petitions. On a comparable basis, their EBITDA has increased.
This is normal, the rate will continue, right? The current EBITDA for this quarter.
Yes. That is correct. This is about INR 313,300 crore at approximately our run rate, which will continue.
Second is that given the fact that we have to dip on our cash reserve to meet the DPU guidance for the Q3. Do you think similar risk enhancing because of the fact that the discoms are not paying in time and our working capital increases?
I don't think that this has happened materially on account of working capital increase. I'll tell you there are two anomalies that exist in our business if you come to quarter on quarter. In Quarter 3 , we make a one-time payment for insurance for the entire year, approximately INR 16 crore-INR 18 crore, and which comes as a quarterly. It looks as a quarterly bit, but then it subsequently balances off for the rest of the year because that payment is made annually. There are some other one-time charges also that have been made. In addition to that, usually the second, what we have seen over the last five years, quarter four has got the best collection, then the quarter one is down, then quarter two is better, and quarter three is down.
There's this quarterly cyclicality that exists, and we are very confident that this 96 days of receivable will become 90 days in Quarter 4, and we're already seeing those trends in the subsequent collections.
Okay. My understanding is that most of the ENICL receivables are supposed to get paid on the same fee penalty, starts getting levied on discoms post 45 days. Am I right? For us, this 90 days is right in the higher side, isn't it?
Sorry. Two questions in this. One is, yes, the penalty gets levied above 45 days, and we also receive the same. The comparable number for 45 days is 75 days, because in the 45 days, the unbilled amount is not included, whereas when we communicate 90 days, it includes at the end of the month the unbilled amount. That is the, I would say, lesser accounting difference between the two trustees. I would compare it versus 75 and 90 days to compare the same.
Last question, what is the cash on the books right now, and what is the debt on the books?
To be honest, we have not disclosed the cash on the books in our financials. For us to communicate that would not be possible right now. Having said so, we have a debt outstanding of about INR 102 crore at any point in time, equivalent for our 1/4 of interest service, and we always maintain substantially higher amount than that in cash. Our debt outstanding is approximately INR 5,200 crore as on the quarter end.
Understood. Thank you, sir. Thank you.
To answer your question on that front, one more question. We also received approximately INR 5 crore of late payment surcharge in quarter three. I think that works. The difference between 75 days and 90 days keeps getting traded anyways.
Oh, understood, sir. Thank you.
Thank you. The next question is from the line of Aditya Sanghi from AT Capital. Please go ahead.
Yeah. Hi, Harsh. Congratulations on a solid set of numbers yet again. I wanted to ask basically two questions. One is that for the three projects that you have a framework agreement on with Sterlite Power over the next 18 months that you seek to acquire, what kind of monitoring you have in place with them where they're sticking to their commitment of completing the project on time, and therefore for you to acquire it?
Thank you, Aditya. It's a good question. Under the framework agreement, we have a very comprehensive monitoring right starting from inspection, audit of both financials, non-financial, technical parameters. For most of the projects, we have already appointed technical as well as financial advisors to work on monitoring those projects. I would say that we not only monitor the progress, but we also monitor the beyond progress qualitative factor as well, which enable us to finish the due diligence in a more efficient manner in the end. Yes, we have already appointed advisors to monitor those projects.
Are you seeing any sort of delay as you stand today with respect to any of the three projects from the timeline that you were expecting?
No. I don't see a delay at the moment on any of the projects that we had expected. To be honest, one of the ROFO projects, ENICL, was planned to be commissioned in the quarter three, that has already been commissioned. ENICL has already been commissioned and charged. The force majeure event has been mitigated there. At the moment, we are not seeing delay in any of the projects.
The ROFO project is not part of the three that you are seeking to buy first, right?
It's not about first. We have four projects on which we have exclusive rights. ENICL is a ROFO project, plus three as a framework project. All of them are exclusive to us. For Sterlite Power to approach anyone else, they need to take our call first, and therefore we consider all of them as a target asset and monitor all of them in parallel.
Understood. Second related question. How is your O&M structured with Sterlite Power? Do they bill you at actual? Do they bill you quarterly? Just want to get a sense of how that is progressing and whether you're seeing any sort of increase in O&M costs, as now that you have a few years of these projects under your control.
Okay. I would first answer your question in terms of the structure in which we are operating, and then the performance of O&M. I think there are three parties involved over here. First, that the investment manager level, we have a Chief Operating Officer, Mr. Satish Talmale, in our team, who monitors and who has all the authority to make decisions on O&M. He will be finding the authority on O&M matters. To support him, there is a team, as manager, to ensure the O&M is overseen well. Second, within IndiGrid itself, we outsource our contracts to third-party O&M contractors, in which the purchase orders are given directly by the IndiGrid subsidiaries, by the specific SPVs, and all the cost is directly booked in the project SPVs. Third, stakeholder is Sterlite Power, which is acting as a project manager under the statutory capacity as required by CERC.
The fee that they get is 10% of O&M expenditure that we incur under IndiGrid. It is over 10% of the O&M expenditure that we do at IndiGrid. The decision-making remains in the hands of the manager. This number on an annual basis is approximately INR 8 crore-INR 10 crore, the fees that Sterlite Power gets, as against the total INR 90 crore of O&M expenditure that is done directly by the SPVs to the third parties.
Understood.
Answering your second question.
And sorry...
Over a period of time, our O&M contracts have matured and improved. Rather in some of the cases, we have seen O&M cost improve as well. We haven't seen any O&M cost increase materially over last three, four years.
That's it. That's all from my side. All the best for the coming quarters. Thank you.
Thank you. The next question is from the line of Ravi Srikant from Muthoot Family Office. Please go ahead.
Hello. Yes, thanks for the opportunity. I had three slightly very basic questions, actually. One is on the presentation, you have mentioned that the revenue model for the trust is based on three revenue line items, which is basically availability, and then there is one non-escalable part of the tariff and an escalable part of the tariff. This availability incentive, is it based only if the lines are available or does there need to be any actual electricity flow through the lines as well?
Okay. To answer very simply that question, electricity flow is not a criteria to calculate availability.
Sure.
Availability is just a measure of availability that goes ability to transmit electricity and not actual transmission of electricity.
Okay. For the escalable as well as non-escalable part, as per the valuation model that you had published last quarter, so is that the actual number or that is subject to change?
Okay. The non-escalation component is an actual number mentioned in the contract. The escalable component that is mentioned the first year, which is the valuation year which we are doing, is the actual. Subsequent is compounded based on the inflation assumption disclosed by the valuer. In reality, the same valuation, the escalation happens based on CERC published escalation numbers on a semiannual basis.
Okay. Out of these three, which would be the biggest chunk of revenue?
Non-escalable. If I look at our entire revenue stream, about 95% will be non-escalable, 2% or 2%-2.5% will be escalable, and about 3% will be incentives.
Okay. That sort of answers my first question. The second question I had was, from what I understand, the trust sort of gives funds to the underlying SPV, either as interest or as equity, and based on the flows received, it is given out from the trust either as interest or dividend. Now the flows actually have all been in the form of interest. Is there any precedent why the entire investment has been made through loans? I understand there's a taxation part of it, but after the reduction in tax rates, I'm not too sure, but does it make sense to have some part of equity as well, so there's a dividend component to the cash payout as well?
Yeah. I think your question is very pertinent, but eventual taxability in the hands of investors is substantially different in India between foreign investors, domestic institutions, domestic family office, retail investors, et cetera. There's variety of taxation that is levied in India on the investors. What we really resolve for is that if we earn, let's say INR 100 of EBITDA, our attempt is to distribute entire INR 100 as much as possible and leave the taxation on the investors because that is where there are varied rates. In the absence of that, we believe that there'll be inefficient tax treatment that may happen. Having said so, I think it is different from different perspectives, so we will not be able to answer an absolute balance.
Okay. Going forward, is this how it will stay? Understanding that primarily the distribution would be in the form of interest payouts only.
We believe so. For a substantial period, we believe that is better for overall value chain, and we will be distributing substantial part of interest.
Okay. The last question was actually related to the amount of the payout. Assuming that you do not acquire any further assets through your ROFO clause. This three to four unit, how long will you be able to sustain this payout numbers?
Let's say a scenario where we do not acquire. First of all, I would urge you to not think like that we'll not be able to acquire other projects. Let's say in a scenario, we do not acquire any other projects, we'll be able to continue this for another 10 years. There's a substantial visibility of the same.
Oh, okay. For 10 years, even without the ROFO asset, you would be able to maintain the INR 3-3 payout.
The ROFO and framework assets which are visible to us for acquisition, for which we already signed the agreements. Beyond that, if we don't factor, we'll be able to do it for another 10 years.
Okay. That's it. Thanks a lot.
Thank you.
Thank you. The next question is from the line of Santosh Hiredesai from SBICAP Securities Limited. Please go ahead.
In terms of the growth strategy.
Sorry, we missed the end of the last question. Operator. Santosh, can you please repeat your question?
No, I was just trying to understand, get some color in terms of the pipeline of assets that we have. Where are we on that? Are we also open to look at, let's say, intrastate projects in terms of acquisitions, as in when, let's say, the sponsor is bidding for those assets and bidding those commissions?
Okay. We see a pipeline in two buckets. One bucket is the asset in which we already have an exclusive agreement, that is approximately INR 7,500 crore. Whether it is a ROFO or a framework asset, the four projects that we see in the presentation. That is our immediate goal, where there is higher certainty of acquisition, and we are fully capitalized for that. The second group of asset is any future assets with central counterparties like ISTS, et cetera. That's a future be it Sterlite Power or other completed projects. The third, as you mentioned, about the intrastate projects. To be honest, whether it's a Sterlite Powe r project or other projects, we would evaluate intrastate project as well.
However, we recognize the fact that they are one notch lower than the Inter-State transmission pool. Therefore, we would ensure that it does not become a substantial part of our portfolio. It will be very small in size and would be resulting in a better yield accretion. As well as we would be evaluating the contracts in a far deeper way. Different intrastate assets would have a different answer, to be honest. To say specifically, would we acquire all intrastate assets? Maybe no. Would we reject all intrastate assets? Maybe no. The answer would lie somewhere in between based on the contract and the state with which the contract is made. Directionally speaking, it will remain a very small portion to the portfolio if at all convert such opportunity.
Sure. Does it mean that we are also open to, let's say, diversifying to, let's say, renewable assets or something like that, or we'll stick to transmission assets?
I think at the moment, our charter is focused on transmission assets. As and when, if at all there is an opportunity that comes along, we would come for investors for their views and approval before any such step is taken.
All right. That answers my question. Thanks, and all the best.
Thank you.
Thank you. The next question is from the line of Sarvesh Gupta from Maximal Capital. Please go ahead.
Good evening. First question is, on the current assets that, outside of the ROFO and the framework assets, what kind of project IRR or what kind of IRRs are available for you to acquire?
Thanks, Sarvesh. I think, let's say it's not available to acquire. I won't be able to answer that question. Most of the M&A, I think I would say transmission assets are fairly stable, liquid, and sellable assets. Therefore, most of the transaction that we have seen, there are two or three bidders that compete for a particular asset. I won't say that there are some assets which are available at a particular IRR, and we'll get it, which is I would say, a very high-level statement. I don't know the number. We evaluate every opportunity on a specific merit in terms of capital structure, financing, credit rating, counterparty, and therefore it's a variety of factors that contribute the eventual yield that we buy.
Having said so, what I would say, direct towards is that we look for one most important factor when we acquire a project is that after acquisition, with or without dilution, the incremental project must result in accretion or IRR accretion on the IndiGrid portfolio. That is one of the, I would say, the bare minimum criteria that we apply. That as long as our returns are improving after cost of financing, be it debt or equity, that will be an accretive acquisition.
That I understand. Let's say you have INR 100, some asset is being sold at INR 100, then what is the IRR that will accrue to you if you buy it, given that it's a stable market? What are the current rates going on in terms of IRR?
No, sir. There is what I am saying, there are no current rates. It's a private market. If it was listed market, I would say that the price is trading at a particular price. In a private market, when we buy project and a long-term cash flow, the price discovery is subject to many factors, interest rates, liquidity, quality of counterparty, and a lot more. Unfortunately, there is no one answer available for me to provide to you that for INR 100 acquisition, what will you get.
Okay, understood. Secondly, on this receivable part, I could not understand. It's related to one of the questions asked by a previous caller, that you were saying that PGCIL has a 45 days kind of a time window out of which they will charge penalty. And in your case, you explained that if we subject to accounting, it becomes 75 days. What is this 30 days difference and can you just explain that part a bit more?
Sure. First of all, even for us, the 45 days applies as is. It's just a way of looking. In our books, when we say 90 days, on the 30th of the month or the last day of the month, we recognize that the unbilled amount is due to us, even though it is not billed, because we are recognizing revenue based on a contract. Whereas Power Grid has a process of billing on 5th of the next month, therefore, we recognize the revenue the next month. Therefore, for the same outstanding with the Power Grid accounting and communication philosophy, it would be communicated 60 days outstanding, whereas we will communicate 90 days outstanding. That is just a way of communication, the same receivable days. The other 30 days Power Grid show as a separate unbilled amount, and that is how it is separately shown.
Further questions?
Yeah. My question was that now I understand how Power Grid collects. After that, you would collect from Power Grid in some manner, right? How much time the gap is?
That takes about a day or two. We don't need to collect Power Grid as a CTU within Power Grid has a responsibility to distribute the money that they receive within about 48 hours to all the transmission licensees. On an average, I would say about 48 hours gap is there.
Okay. Understood. You get the penalty, whatever Power Grid collects, the penalty is also collected in case there is a delay beyond 45 days.
That's correct. For example, in this quarter itself, we collected about INR 5 crore of penalty on late payment surcharge.
Okay. What can be the norm for this penalty as a percentage of overall receivable that you collect over a cycle?
Yeah.
What can be the norm, that big number?
I think it's a good question. I think it's tough to communicate the norm, but I'll give you the parameters. Their charge is 18% beyond 45 days. On an average, let's say if you assume 15 days delay from that, then you can do a math with respect to that. For example, for us, this quarter it was INR 5 crore over a revenue of INR 339 crore. Approximately 1%, 1.5%. On the other hand, there are also incentives taken by some of the people who pay early, right? If one looks at late payment or charge minus the incentives, on an average, approximately 0.5% of revenue is something that we get.
Okay. Now my final question is with regards to this new rights issue framework which has been announced. Now, can we establish that going forward, we would always go for the rights issue for equity fundraising?
I think here, a valid question. I think the decision of going with a specific fundraising is taken by the board and considering several factors. I would say that yes, right issue is the most favorable for several reasons. One, it is including all the investors. Second, it provides pricing flexibility to the management and the board. In a normal preference issue, the risk remains that if the news leaks and the two-week pricing gets modified, the capital raising itself can be jeopardized. There is enough, I would say, flexibility for management or other incentives to go for board to go for right issue. Having said so, it is tough for me as a management to commit that this is the only way we are going to use it in future.
But, clearly, we are incentivized, as well as this is a better way to go for the capital raising in future.
Thank you, Harsh. All the best for the coming quarters.
Thank you.
Thank you. Before we take the next question, reminder to the participants, anyone who wishes to ask a question may press star one at this time. The next question is from the line of Jitesh Parikh from Barclays. Please go ahead.
Thanks for the opportunity. Sir, can you just tell me what is the total reserve you utilize the deficit right now at the end of Q3?
Okay.
Yeah.
At the end of the Q3, we have a balance of INR 66 crore.
INR 66 crore of deficit or?
No. Not the deficit. The balance. Okay. There is surplus available. Further distribution is required. Okay.
In the past, we had been giving a table of indicative DPU considering. Last one or two quarter, we have been stopped, so that will be helpful if you can share that going forward.
Sure. We take that feedback, Jitesh. We used to give it when there were subsequent acquisitions happening, and after the last two acquisition we stopped. Closer to the next acquisition, we'll certainly add that to provide a guidance on that.
Sure. Okay. That will be helpful. Last, we have a meaningful addition to our asset in this calendar year. I think my understanding is that we have already tied up for the debt component for the acquisition of the asset. Are the payments being made to the company on the post-acquisition or it is made in advance as such?
Sorry, can you repeat the last part of the question? I didn't get it clearly.
Yeah. We already have a pipeline or visibility for assets we have already agreed to acquire in the current year. Are the payment made in advance or we may make at the time of transfer of the asset as such?
Okay. No. I think, one, we have made an exclusive agreement. We have not committed to acquire because we need a unit holder approval to do so. We have not yet issued a notice for approval of unit holders. Second, the visibility is for next 12 to 18 months. We're not acquiring, and there's no mandatory timeline to acquire in a particular calendar year. Third, we raise debt only when we are acquiring. Fourth, we pay the consideration when we are acquiring the transfer and causing the transfer. At the moment, we have not taken any economic interest in any of the SPV. This is only an agreement to acquire, subject to meeting several conditions, including investor approval. We will be raising debt as and when those conditions are met, investors have approved, and we are acquiring those assets.
If I look at your asset pipeline visibility, so we have one asset available, GPTL in half 2020, indicative. Once that asset is available, we will take the shareholder approval and then arrange for the debt and make the payment as such. Is my understanding correct?
That is correct.
Okay. The last thing, what is our current cost of borrowing right now?
Current cost of borrowing is 8.75%.
Okay. Thank you.
Weighted average cost.
Yeah.
Thank you.
Thank you. The next question is from the lines, Mohit Kumar from IDFC Securities. Please go ahead.
Yes, sir. Good. First question is on the fact that there have been no acquisition on cost-plus asset in mid-term. Sorry, let me reframe. Would you consider buying out cost-plus asset , at any point of time? What are the regulatory challenges you foresee in acquiring those assets and the valuation challenges?
Okay. To answer business-wise and directionally, yes, we would acquire customers' projects. It is part of our mandate, and we are allowed to acquire. We believe that it will fit in our portfolio very well, considering the fact that in a customer's asset, that distribution is provided, the dividend is generated on a post-tax basis, and tax is also compensated. Such acquisition would enable us to distribute dividends to investors directly. We believe that there is a merit in acquiring customers' assets, and we would look for it. Coming to your next question is on the challenge. I think we see, and again, these are very high-level views, but we see some of the key challenges in acquiring a customer's asset is approval from regulatory authorities. Because most customers' assets are not in a particular SPV frame where the entire SPV can be transferred post the lock-in.
They need regulatory approval. That's one, I would say, critical procedural risk, I would say. Second, in terms of depending on which year we acquire, is it the last 10 years of the customer's asset or the first five? I think that would substantially differ in terms of value, the capital structure, et cetera. Basically, when are we acquiring the customer's asset will be a critical input as well in that. The third is, again, the counterparty. Is this customer's asset a central asset or a state asset would be another material differentiation between the two.
My question is, do you see any capital structuring challenges, given the fact it's equity ratio and of all, do you think regulators will have a relook at the entire capital structure before approving the deal? Do you think regulators are more or less, have understood the product?
No. I'm sorry, which regulator are we referring to? CERC or central?
Just say the CERC. Go and take the approval, given the fact that your capital structure will be entirely different. Do you think it will have much more challenge? It will be more challenging to convince the regulator to allow an InvIT to buy out the asset.
No, I don't think so. To be honest, I would put it that we are at an advantage in terms of acquiring Cost Plus asset, because we can modify our cost for our capital structure in a much more flexible manner. CERC's concern is always on capital structure of the asset than of the parent. When they evaluate the parent, the key criteria is that is it a first-time transmission asset buyer or it's an established operator of transmission assets. I believe IndiGrid, considering its capability and INR 11,000 crore of asset base on transmission, we would meet that requirement in an easier manner. I would say that would not be a challenge for us to acquire a Cost Plus asset.
Sir, one more question, sir. Given the fact that our acquisition is 12 to 18 months away, all the assets are as to be for us to acquire the assets. Do we have any plan to acquire the assets meanwhile, given that our leverage is only 49%? Secondly, what are the challenges do you see in terms of getting a AAA credit rating for increasing our leverage to 74%?
Okay. To answer your first question, it is not that we are going to acquire all four assets at the end of 12th or 18th month. As and when assets are completed, we are already monitoring them, and as and when they are completed and eligible for us to acquire and a satisfactory diligence has happened, we will look to acquire them. It can happen earlier as well. Second, as we acquire, we would be utilizing our debt headroom to acquire those assets. The third question that you asked is that we have been in discussions with the rating agencies in these subjects. To acquire all these four assets, we already conducted several analytical exercises. We are confident to maintain an AAA rating for that.
Okay. Thank you, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Hitesh Arora from Unifi Capital Private Limited. Please go ahead.
Hello. Congratulations on the numbers. Just on these assets that you've acquired in the past, do you want to get a sense of how many of those assets actually did you review? What is the proportion of the assets you reviewed? What is the proportion of assets you actually brought and deal with? Was it 100% or was it probably you left one or two?
Okay. Let me put it like that. It is not 100%. Right. Second, I am not sure we can use the conversion ratio as a number, because there are some assets which are INR 200 crore and some assets which are INR 4,000 crore. Right. To put the acquisition opportunity as one opportunity, it is very difficult to compare the two transactions like that. Having said so, to answer your question in a strategic way, we have let go substantial number of assets on different considerations. Therefore conversion is not 100% for sure.
Fair enough. Thanks. Just on this ROFO asset, it's already the ENICL that's already commissioned. How long do you have this right for before they can sell it to somebody else?
We have the right of first offer agreement is for seven years since we signed. The right of first offer agreement, the way it works is that Sterlite Power would send an expression of interest, and then we can express our value, and then we will engage into our discussions. To answer your first question, we have the right for seven years.
Okay. You think so another four years left?
Another four years left.
From your sense of timing, what is the timing to acquire it? It has to be an expression of interest sent by them first? Only then can the transaction proceed, or how is it going to work?
Okay. One is to answer your first question, as the asset is eligible to invest, we would be evaluating it. Second, as for the contract, when the asset is available to or rather commissioned, the counterparty is obliged to send us an expression of interest within first 12 months at least once.
Okay. It's already commissioned, so they should be sending it to you in the first. It should be within 12 months.
It can be. Correct.
Then you'll make a call. Okay. Do you mean you are already doing the diligence for that already?
Yeah. As I said, we keep monitoring all the assets for which we have rights. We already tracked the progress as well as the details of the project as it is moving.
Question on NTL, you talk about deemed availability. What happened there?
In NTL there are two incidents that have happened. One is a rooftop flew and fell onto a line and therefore we had to restore it. It took about three days off of one of the lines. The other one was a tree fell, which caused the line to move. Both the cases were completely a case of a very heavy wind, and it's like a half a kilometer of line removed by that kind of incident. We are confident that we'll receive the availability certificate on a deemed basis for that.
Okay. The CapEx that you mentioned, INR 1 crore was related to this?
No. CapEx related to JTCL with the event happened in Quarter 2, for which we are claiming force majeure certificate. The CapEx were booked in Quarter 3.
Okay.
For these two events, the CapEx were hardly INR few lakhs. For a year.
Okay. Fine. If there is anything else, we will come back. Thank you.
Thank you.
Thank you. The next question is from the line of Kunal Agarwal, individual investor. Please go ahead.
Hi, Harsh. Thanks for taking the question. I had two questions. One was, your cost of debt today is about 8.75%. Where do you see that cost of debt moving in the near future, and how are you guys thinking about diversifying your sources of debt? The second is, there's been a lot of commentary going on these days about the financial health of the power sector in general. I think in the government call where they were talking specifically about the health of the power sector. I understand in India we have a lot of safe harbors. We have this pooling mechanism. We have a host of monopoly sort of protection behind us.
I just wanted to understand from you as a qualitative point, how do you see the financial health of the sector translate into any roll on effects for IndiGrid going forward?
Sure. I think both are pertinent questions, Kunal. Thanks. To answer your first question on cost of debt, I think we have a strategy of locking in the cost of debt at different intervals. Therefore, in our portfolio, cost of debt is ranging from 7.85%- 9.1%, and we communicate a weighted average of 8.75%. Going forward, I think we are in a unique macroeconomic scenario where the G-Sec has come down, the spreads have widened in India, and the global scenario is substantially liquid, providing good cost of debt as well. At the moment, the way we are looking at it, the scenario is liquid. There is a good amount of sources available for us to borrow, both in India as well as externally.
Therefore directionally, we see a conducive environment to raise capital, especially for a platform like ours, which is focused on only, I would say, operating projects as well as rated AAA. We are bullish on that. Whether that will result in immediate cost saving or not, it is very difficult to communicate because we have locked in a cost of debt at the moment. That's one directionally. Second question you had on that was on diversification. At the moment, in our portfolio, we have NCD, we have bank loans, we have ECB. We have tapped into all sets of assets, all sets of, I would say, lenders and debt capital. Having said so, we keep evaluating many such options.
As and when something materializes, I think that is one of the key criteria because this contributes 70% of our balance sheet, which we track and try to optimize. That's the focus for us, both in terms of cost as well as long tenures.
Got it.
Second question you asked is on the health of power sector. This is a very important question. I'll take a step back and let's evaluate at a macro level, what is the role of power transmission? The role of power transmission in India especially, where generation and distributions are done across different locations, is to provide an efficient grid. An efficient grid is the backbone of an efficient power system because the consumers or the distribution company will be able to source the power from the cheapest sources. Unfortunately, if you think about the investment in power generation got prioritized in 2001. In last 20 years, about 85% of capacity addition has happened by private sector, which means substantial amount of hands and capital both are contributing towards building the generation side. The transmission side got prioritized about a decade later.
Therefore since then, incrementally, substantial capacity addition has happened in transmission, but it is still catching up the investment in generation that happened over last 20 years. One is that is too under-invested. If you go to distribution, it is even worse off. There have been selective privatizations that have taken place and the backdrop of regulation for privatization for an efficiency of power sector, which is separation of conductor from the power, is something which bill is still pending in the parliament. Coming to my commentary on that, to have an efficient power sector, the distribution sector would need to be reformed, which would not only include increase in prices, which has already taken place. If you look at it incremental, I won't say downgrade, but incremental deteriorating position has slowed down.
The structural change would only take place if the distribution companies are allowed to be more profitable on a going concern basis. Which would happen when they can really buy the power from where they want to break the PPAs of legacy PPAs or at least prioritize the infrastructure which enables them to start making money on a unit basis. We see a lot of move happening, but it is a decade-long reformation story that we see over here and transmission will play a key role. Now coming to how we are impacted by that. Till now we are not impacted and leaving aside all the strategic advantages of a grave and monopolistic nature of power grid.
Fundamental economic factor for which transmission has remained safe and we believe will remain safe is that the entire country's interstate transmission charges is hardly about 3% of entire power sector. That acts as a backbone. For most or rather the worst of the distribution companies or generating companies, it acts as a lifeline and it costs very less. That is one of the critical reasons for transmission sector, I believe, to be remaining healthy.
Okay. All right. Thank you.
Thank you.
Thank you. The next question is from the line of Rupen Masalia from RN Associates. Please go ahead.
Yeah, thanks for the opportunity. My question is pertaining to net distributable cashflow. At the current DPU rate of INR 3 per quarter, the amount is around INR 175 crore. On an annual basis, it comes to INR 700 crore. As alluded by you in an earlier question, due to seasonality in quarterly performance, would it be fair to estimate that for the financial year as a whole, there would be a sufficient NDCF, that is around INR 700+ crore , to take care of INR 12 DPU for the whole year without drawing into the capital or reserve?
Correct. I think, Mr. Masalia, very apt question. On an annual basis, we would have higher NDCF than what we distribute.
Okay. Thank you.
Thank you.
Thank you. The next question is from the line of Hitesh Arora from Unifi Capital. Please go ahead. Hitesh, your line is in talk mode. Please go ahead.
Yeah. I got disconnected. You were talking about the diversified sources of funding that you were looking to raise, including dollar funding, maybe, perhaps. I was wondering if you could kindly repeat on that.
Okay. What I was saying is that we already do borrow from several diversified sources, starting from banks, mutual funds, as well as we have an ECB in place for one of the SPVs. We already are tapping into several sources of capital, and we keep evaluating all debt-raising opportunities available. As and when we do the next raise of capital, we would come back with the specific update on that.
Okay. For the acquisition, looking to raise, I think ECB funding is also available as an option for you.
Yeah, that is correct, because RBI in last year enabled ECBs for refinancing rupee loans, which in the past was not allowed. That is something which allows us to look at ECBs also favorably.
Okay. Fair enough. Okay. Thank you.
Thank you.
The next question is from the line of Swarnim Maheshwari from Edelweiss Securities. Please go ahead.
Yeah. I have couple of questions. Firstly, just going beyond the sponsored pipeline, can you give us some color on the recent project TBCB bids and the competitive intensity? We understand that the last four, five bids were quite competitive. Can you throw some light over there?
Okay. Swarnim, I think, see, as a competitive bid, I think looking from outside, it's always very difficult to communicate whether the bids were competitive or not. I believe that the players which are competing for this TBCB pipeline, which is largely players who have got substantial experience in transmission, be it Power Grid, Adani Transmission, Sterlite Power, to name a few. I think more or less, people have bidded reasonably. For me, because we are not present in the under construction bid, so I would not know the exact competitive status. From a track record of last five, six years perspective, I think most of these bidders have bidded reasonably. From our perspective, I think, we only evaluate, to be honest, the EBITDA line, which is the cash flow that the project generates and the project CapEx.
I think we do not get into the efficiency of the bidding at the time of bid because the construction company or rather the developer is fully incentivized to ensure that they make good returns. They know that in terms of the cash flow, the valuation is pretty much known based on what transaction had taken place. I think large capable players being in place, so we have seen the bids to be fairly reasonable.
Oh, fair enough, sir. Thank you. Sir, secondly, just on this framework asset, if you can just give us some timeline indications, when are we looking to kind of acquire GPTL, GPPL, KNTL and NTL, some timelines or ENICL?
Okay. I would just say that, as we are not issued EGM notice, so till the time we are fully satisfied with the project and the dividends, I think difficult for us to give specific timeline. Having said so, there are dates provided over here. ENICL is already commissioned, as well as GPPL is on its line to get commissioned in February. I think by considering that we'll buy commissioned assets, those to become the first assets for us to evaluate.
Oh, that's great. We would have the diligent process is already underway with?
As I said, we keep monitoring the project in parallel, so the diligence is concurrent for us.
Okay. Sir finally, if you can just quantify the incentive income for this quarter?.
Just give me a minute, Swarnim, for that. The overall income is about INR 7.5 crore that is booked in as incentive for this quarter.
INR 7.5 crore?
Yeah. INR 7-8 crore.
Correct. Right, sir. Thank you so much. Wish you all the best.
Thank you.
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.
Thank you. Thank you, Swarnim, for holding the call. Thanks to all the investors who joined the call. As I see through the questions that have been asked, we are very happy to know that the investors have taken deep interest in our business and to understand as well as ask specific questions. We appreciate that. We see substantial amounts of growth in our business and both in terms of IndiGrid pipeline as well as future. We believe that we will continue to be able to deliver a superior total return in comparison to other indices on a risk-adjusted basis. A substantial part of our total return will come from a consistent distribution to our unit holders. And I l ook forward for your support as we continue the journey for IndiGrid. Thank you.
Thank you. Ladies and gentlemen, on behalf of Edelweiss Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.