PRIMARY OFFER. IndiGrid InvIT: Revenue visibility lends comfort

Investors looking to diversify their portfolio, can consider taking limited exposure in India Grid (IndiGrid).

The IndiGrid infrastructure investment trust or InvIT, as it is popularly called, currently owns two inter-State power transmissions assets in India.

With a stable revenue structure and long-term contracts, it offers good revenue visibility — unlike that from say a road or a construction project. One could expect a pre-tax yield of about 9.5 per cent in the first three years.

While there are plans to transfer eight more assets from the sponsor’s subsidiaries over the span of next three to five years, it is not without roadblocks and uncertainty.

If all goes well, it could give a further 4-5 per cent kicker to yields. However, assuming that only half its new assets actually come on stream, investors, could still look at a potential annual yield of 11-13 per cent, after three years.

IndiGrid will own two assets — Bhopal Dhule Transmission Company Ltd (BDTCL) and JTCL (Jabalpur Transmission Company Ltd). Transmission projects of both these companies were commissioned three year back. These companies earn fixed tariff — giving stability to revenues.

Moreover, these companies have a 35-year contract with Discoms, giving long-term visibility to revenues. Also, the revenue collection is better in these projects as collection and payment is handled by the Power Grid Corporation — and distributed to all transmission service providers on a proportional basis.

Currently, IndiGrid will own two assets — with a total network of eight power transmission lines of 1,936 km and two substations across four States. Both these assets were initially awarded to the sponsor Sterlite Power Transmission on a build-own-operate-maintain (BOOM) basis. The sponsor is part of the Anil Agarwal group.

BDTCL facilitates the transfer of electricity from coal-fired power generations sources in the States of Odisha and Chhattisgarh to power load centers of Maharashtra and Gujarat. JTCL in turn connects Chhattisgarh to Madhya Pradesh and its interiors. Both these projects have good potential to earn revenues from catering to rising power demand of the North and the West India — by connecting them to the power projects in the East.

Moreover, its investment managers have Right of First Offer (ROFO) in respect of eight more inter-State power transmission projects, with a transmission network of 21 power transmission lines of 4,831 km. Of these eight ROFO assets, three have already been commissioned, one is partially operational and four remain under various stages of development. All are expected to be operational over the next 3-5 years. However, these projects face execution risk, with four of the assets still needing forest clearance, while construction is still under progress for half of these projects.

IndiGrid has an AAA rating by Crisil and India Ratings, indicating a strong financial position.

The issue proceeds of ₹2,250 crore will be used to retire debt that is on the books of BDTCL and JTCL. As of March 2017, it had ₹3,950 crore of debt in its books.

For 2016-17, revenue from operations (two assets) were ₹467 crore, while EBITDA was ₹428 crore and finance cost — ₹367 crore. It made a post tax loss of ₹301 crore. Interest cost will, however, decline post-issue thus increasing profitability.

Meanwhile, India Grid Trust alloted 10.12 crore units ₹100 a unit, aggregating to ₹1,012.44 crore to 19 anchor investors, including Deutsche Global Infrastructure Fund, Driehaus and Rreef America LLC funds.