Power Grid InvIT is an enterprise in the form of a trust known as an infrastructure investment trust that owns revenue generating assets and the cash thus obtained from the operations of the assets is distributed to the unit holders (shareholders) of the trust. They are a close cousins of the Real Estate Investment Trusts (REIT).
The portfolio of assets held by Power Grid InvIT are five transmission line projects under a 35 years contract period-
POWERGRID Vizag Transmission Limited (“PVTL”)
POWERGRID Kala Amb Transmission Limited (“PKATL”)
POWERGRID Parli Transmission Limited (“PPTL”)
POWERGRID Warora Transmission Limited (“PWTL”)
POWERGRID Jabalpur Transmission Limited (“PJTL”)
PGInvIT holds 74% stake in the assets and the remaining 26% is held by the sponsor of the InvIT, Power Grid. The sponsor Power Grid is a govt. public sector organization, India’s largest and the world’s third largest power transmission company.
As per the government regulation, InvIT’s are mandated to distribute 90% of their NDCF (Net Distributable Cash Flow) to the unit holders and PGInvIT has distributed 100% of its Q2 NDCF amounting to Rs. 4.50/- per unit. PGInvIT will be making distributions to the shareholders every quarter in keeping with the trend of other listed InvIT and REITs.
The units of PGInvIT are listed on the stock exchanges. The IPO was in April 2021 at an offer price of Rs. 100/- per unit and the current share/ unit price is at Rs. 121/- per unit.
The type of returns available to the PGInvIT unit holders are (1) capital appreciation (2) quarterly distributions. But the quarterly frequency and the amount of distribution or payout are not mandatory. They are dependent on the profit and cash generated from the operations.
The company has said that it is confident of maintaining the current level of quarterly payouts to the unit holders and going forward will be looking to increase the payouts to a higher single digit or lower two digits. But they were cautious in giving out any figure as guidance.
Currently they have no debt; but they are looking at debt financing for future acquisitions of assets to add to the portfolio.
Should you consider PGInvIT as an investment ?
It carries all the risks of any equity investment – loss of capital and no guarantee of payouts. But the trust holds only operational transmission lines and going forward, they are planning to acquire more such operational assets. And they are mandated to return the cash flows to the shareholders and hence they can be considered as a quarterly cash cow. And they are confident of maintaining the current level of quarterly payout (Rs. 4.5/- per unit) and hope to increase it moderately in the future by acquiring new assets.
Currently debt free, they will be taking on debt to acquire additional assets. The resulting finance charges will dent the cash flow; but it’s wait and watch.
The sponsor Power Grid is planning to sell more of it’s assets as part of the govt. demonetisation of assets scheme and hence PGInvIT will be looking to acquire them. But going forward in keeping with the regulatory norms, Power Grid will be selling only the right on the cash flow of the assets and not the ownership itself as the assets (transmission lines) are interconnected, not stand alone and of national importance. This will add to PGInvIT’s portfolio of assets and it’s debt.
The future is not crystal clear and the management has a wait and watch approach. For H1, total income for PGInvIT was at Rs.5,225.38 mn/- resulting in a Net Distributable Cash Flow, NDCF to unit holders of Rs. 4096.21 mn/- and breaking that down, the investors are happy with the Rs. 4.5/- distribution per unit for Q2.
Till next post, take care !!