An Infrastructure Investment Trust (InvITs) is like a mutual fund, which enables direct investment of small amounts of money from possible individual/institutional investors in infrastructure to earn a small portion of the income as return.
The initial portfolio
assets comprise five power transmission projects located across five
states of India. The projects comprise 11 transmission lines,
including six 765 kV transmission lines and five 400 kV transmission
lines, with a total circuit length of approximately 3,698.59 km, and
three substations with 6,630 MVA of an aggregate transformation
capacity and 1,955.66 km of optical ground wire.
Positives:
(1) The assets were awarded under the Tariff Based Competitive Bidding mechanism on a build-own-operate-maintain basis with a long-term Transmission Service Agreement of 35 years.
(2) Sustainable revenue and cash flow as transmission charges being contracted for 35 years result in minimal price risk arising from transmission charge resetting.
(3) Sponsor company's share in India's cumulative inter-regional power transfer capacity was more than 85%.
Investment concerns:
(1) Initial portfolio assets have already registered more than 99% of availability which provides limited scope for growth in revenue in near future.
(2) InvIT having a very high net debt of ₹4,945 crores and debt to equity ratio of 3.36 times as on 31st December 2020
(3) Looking at the distressed balance sheet of Discoms InvIT receivables may increase in near future and create pressure on the InvIT balance sheet.
Outlook & Valuation:
InvIT net debt of ₹4,945 including debt of SPVs and Net Debt/EBIDTA of 4.0 times in FY2020 which is on the higher side. We expect very limited capital appreciation in near future for the InvIT. InvIT yield will be around 8% in FY2022, which is better than the other fixed income. However, we expect muted growth going forward as all assets in the InvIT portfolio are mature assets. As we are neutral on the outlook for the industry as well as the company, we would recommend to "NEUTRAL" to the issue.
Investment Rationale:
(1) The assets were awarded under the Tariff Based Competitive Bidding mechanism on a build-own-operate-maintain basis with a long-term Transmission Service Agreement of 35 years.
(2) Sustainable revenue and cash flow as transmission charges being contracted for 35 years result in minimal price risk arising from transmission charge resetting.
(3) Sponsor company's share in India's cumulative inter-regional power transfer capacity was more than 85%.
Investment concerns:
(1) Initial portfolio assets have already registered more than 99% of availability which provides limited scope for growth in revenue in near future.
(2) InvIT having a very high net debt of ₹4,945 crores and debt to equity ratio of 3.36 times as on 31st December 2020
(3) Looking at the distressed balance sheet of Discoms InvIT receivables may increase in near future and create pressure on the InvIT balance sheet.
Outlook & Valuation:
InvIT net debt of ₹4,945 including debt of SPVs and Net Debt/EBIDTA of 4.0 times in FY2020 which is on the higher side. We expect very limited capital appreciation in near future for the InvIT. InvIT yield will be around 8% in FY2022, which is better than the other fixed income. However, we expect muted growth going forward as all assets in the InvIT portfolio are mature assets. As we are neutral on the outlook for the industry as well as the company, we would recommend to "NEUTRAL" to the issue.
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