In prior posts, I had mentioned InvITs, they are a close cousin of REITs, with the difference being in the nature of the assets owned by the trust. While REITs invest in income generating real estate assets; InvITs hold income generating infrastructure assets – there are two currently listed in India – the IRB InvIT and IndiGrid InvIT.

IRB InvIT holds road assets – 7 National Highways and the toll collected from these roads generate the income which is distributed to the unit holders 👉Equwise: Prompt Payouts by InvITs 💠

IndiGrid InvIT holds transmission lines and the revenue from the same is distributed to the unit holders.

IndiGrid InvIT’s story so far 

India Grid Trust (IndiGrid) is India’s first listed power sector infrastructure investment trust (InvIT), established on October, 2016. It’s sponsor was Sterlite Power, an independent power transmission company operating in the private sector and Sterlite Investment Managers (SIML) is the investment manager of IndiGrid. The IndiGrid IPO was in May 2017, the issue price being Rs.100/- and got listed on June 2017. Sterlite Power owned 20.7% and public held the remaining 79.3%.

Of the 11 inter-state power transmission projects owned by the Sponsor, IndiGrid initially had two projects – Bhopal Dhule Transmission Company Limited (“BDTCL”) and Jabalpur Transmission Company Limited (“JTCL”) – with a total network of 8 power transmission lines of approximately 1,936 circuit kms and two substations having 6,000 MVA of transformation capacity across four states.

Subsequently in Aug 2020, Sterlite Power sold off its 14.7% stake in India Grid Trust (IndiGrid) to institutional investors and HNIs. After selling their stake, Sterlite Power continues to remain a shareholder of Sterlite Investment Managers (SIML). But now the investment firm KKR has been voted as the sponsor of IndiGRid and currently owns ~23% stake in IndiGrid.

Separately, KKR also owns 60% stake in Sterlite Investment Managers Limited (SIML), the investment manager of IndiGrid. Acquisition of another ~14% stake in SIML is planned by June 2021, taking the total stake of KKR in SIML to ~74%

As of Jan 2021, they own 12 revenue-generating, operating assets, spanning over 34 transmission lines, spread across 6740 circuit kms and 9 substations with 12,290 MVA transformation capacity across fifteen states and one Union Territory.

“Their assets under management (AUM) are currently worth ~INR 150 Bn ie Rs. 15,000 crores (USD 2 Bn) with visibility of ~INR 180Bn (~US$2.5 Bn) over the next 6-12 months. “

From the graph below IndiGrid has provided 60% of absolute returns, 40% from the dividend and 20% change in the price since the listing in June 2017, higher than all the other equity indices and players in the power transmission/ infra sector.

The income distributed so far by IndiGrid InvIT

They aimed at a yearly distribution of Rs. 12/- unit to the unit holders. The distribution is paid quarterly even though the regulations mandate only half yearly payments. From Q3 FY20-21, they have set a annual payout of RS. 12.4/-

As per the rules governing the InvITs, 90% of the income generated has to be distributed to the unit holders, hence InvITs are good source of income, but the amount is not guaranteed as it is depended on the underlying business income generated.

Merits

• Steady distribution and hence a predictable source of income for the unit holders
• A robust business model even during the pandemic; there was no reduction in the distribution. “Though IndiGrid’s revenue is linked to the availability of grid and not actual electricity consumption, resumption of the industrial activity was a strong positive for the power generation sector given that these segments constitute about 40% of the overall power demand. With industrial activity beginning to pick up in the second quarter, demand for electricity and its transmission too began assuming normalcy. Household electricity consumption continued to be higher than normal, with a large part of the service-workforce continuing to operate out of their homes. As a result, there was no material impact of power demand due to the lockdown.

• Growth prospects directly linked to the GDP growth of the country. “India has developed into a power surplus nation from a power deficit one. Despite being the third largest electricity consumer after China and the U.S., the per capita electricity consumption in India in FY 2018-19 was 1,181 kWh (FY 2019-20 provisional: 1,208 kWh), which is considerably low compared to about 5,161 kWh in China and about 12,164 kWh in the U.S. India is the world’s third largest producer and consumer of electricity and a population of 1.4 billion. With its power demand set to double by 2040 and its electricity demand rising about three times.”

• Can capitalise on both the renewable and non-renewable sources

Risks

• The company has classified it’s business risks into time, place and capital – The need for faster approvals, space for planning green field projects and long term sustainable source of financing are vital to growing the business.
• Any natural calamity can hamper the transmission lines and the disrupt the cash flows
• The biggest risk is the leverage on debt amounting to Rs. 82.9 bn or Rs.8290 crores. The company’s net debt is 52% of its AUM of Rs. 15,000/- crores. SEBI has set a 70% on leverage for InvITs. Also they have lump sum re-payments due in the coming years as seen below. And further they are likely to increase the debt with the new planned acquisitions.

Recent news

• For Q3 FY 20-21, IndiGrid has paid Rs. 3.1/- per unit as distribution🏅.
• IndiGrid will be acquiring NER-II Transmission Limited (North East Region) from Sterlite Power boosting it’s AUM to Rs. 20,000/- crore ($2.8 bn). The resulting total network will include 38 power transmission lines and 11 substations over 7570 circuit km and 3350 MVA in 17 states a 1 UT. NER-II was incorporated on April 21, 2015 and the project was awarded to Sterlite by the Ministry of Power on a BOOM (Build, Own, Operate, Maintain) basis with a term of 35 years from the scheduled commercial operation date.
• In order to raise funds for the above acquisition, the sources are debt, equity via preference issue and most important for the retail investors, a rights issue, that will be announced soon.

The minimum lot size is for investing in IndiGrid is 1701 units and at CMP of Rs. 129.47/- the minimum amount required to invest is Rs. 2,20,228.47/-.

The re-scheduling of the debt esp. for FY 2023 is keenly looked at. With the current low interest rate regime, they may be able to re-finance the debt at lower cost. Let’s see🤞.

Till next post, take care !!