ICICI Securities
India Grid Trust (Buy)
CMP: ₹96.79
Target: ₹110
India Grid Trust (IndiGrid) is an infrastructure investment trust (“InvIT”) established to own inter-State power transmission assets in India.
We initiate coverage on IndiGrid with a ‘buy’ rating and target price of ₹110 (includes ₹2/unit as residual cash as of March 2018). Our target price is based on discounting the distribution per unit (DPU) of cash flows from the InvIT over the residual life of assets post FY18 at a cost of equity of 11 per cent and assumes injection of another 8 per cent assets into IndiGrid over FY19-22E through three incremental tranches of fund raising funded by a 51:49 mix of equity and debt.
Based on incremental dilution at ₹100 for balance three tranches of asset additions, we expect the IRR returns of the IndiGrid Trust to reach about 12 per cent by FY22E (this assumes ₹100/unit as the initial outgo). Our calculation also assumes inclusion of a terminal value for each asset considering perpetual growth rate of 2 per cent, cost of equity 12 per cent, cost of debt of 8.5 per cent and 50 per cent capital gearing. At current levels, the Trust unit offers an attractive cash yield of 12.6 per cent, 14 per cent and 14.6 per cent over FY19-21E, respectively, assuming a 100 per cent pay out of the net distributable cash slow (NDCF) every year.