The first infrastructure trust, IRB InvIT Fund listed on the bourses today at a price of Rs 102.50 per share.
VD Mhaiskar, CMD, IRB Infrastructure Developers said the listing of the InvIT has been a proud moment for the company, adding that underlying projects remains the core strength of this trust.
IRB InvIT Fund, the first infrastructure trust to list on the exchanges, made its debut on the exchanges on Thursday at a price of Rs 102.50 per share. The fund raised nearly Rs 2,100 crore from anchor investors allotting nearly 20.53 crore units at Rs 102 apiece on Tuesday.
The trust has six projects, which would garner an EBITDA of around Rs 700 crore, he said in an interview to CNBC-TV18.
According to him, the traffic and inflation assumption on which the model is based one can pencil in a 9.5 percent revenue growth and 12 percent yield.
He also added that as of now there are 6 assets with the trust but the pipeline looks very strong.
Below is the verbatim transcript of the interview.
Sonia: Now that the InvIT listing is done, you can take us through what the future looks like. Our analyst was just talking about a traffic growth of around 6-10 percent that the street was expecting. But you tell us what you expect going ahead?
A: Yes, it is indeed a very big, proud moment for all of us at IRB as this first infrastructure investment trust gets listed. It has been a phenomenal journey and the underlying projects is the core strength of this trust as you rightly said. With six projects garnering an earnings before interest, depreciation and amortisation (EBITDA) of Rs 700 crore, I am sure it will give a good amount of confidence to the unit holders who have taken the leap of faith and have invested in this product. So the traffic and inflation assumptions based on which this whole model is built is pencilling in somewhere close to 9.5 percent revenue growth and a 12 percent kind of yield that we believe should be possible.
Latha: At 9.5 percent increase in revenue, how much is inflation and how much is revenue?
A: We are factoring in the inflation when I say it is on account of the tariff movement that we expect, so volume growth that we have envisaged is around 5.5 percent and inflation targeting is around 4.5 percent. But you have to keep in mind that 3 percent is going to be a fixed tarrif increase in half of the project so the impact of inflation per se is likely to be much lower. So that is how the 9.5 percent revenue growth is expected to come in.
Latha: That is exactly what I wanted to know. How are you allowed to inflate the tolls? 3 percent is fixed. What does the balance depend on? How much more can you increase the tolls?
A: 3 percent fixed elements and 40 percent core relation to inflation is how the overall tariff structure works out and then, the volume growth together, one can expect a 9.5 percent revenue growth is what we believe in.
Latha: Volume growth of 5.5 percent what has been the historical volume growth and is this 5.5 percent more than what you did more than what you did in the last five years?
A: No, in fact, I would say this is a very moderate assumption because if you look at the existing set of projects and their deliverables in the last few years, you will notice that they have given around 6-8 percent volume growth. So, this is a very moderate assumption that we are working on and there is a good scope for the projects to actually deliver more than better assumptions than we have taken.
Anuj: So, as of now, you have six assets under the portfolio? Going forward, would that increase?
A: Yes, there is a right of first refusal that IRB has given to the trust, so all the projects in the IRB portfolio which is almost 2x size what IRB is developing at this point compared to what we have transferred to the trust. Those will be the projects on which the trust would have a right of first refusal. As these projects become operational and stabilised, they would be made available to the trust and subject to the unit holders' approval, these projects can also be bought by the trust. So, there is a healthy pipeline of projects that will be made available to the trust.
Sonia: I wanted to come back to that earlier point about EBITDA. You mentioned that these six projects will garner an EBITDA of Rs 700 crore going ahead right? That compares to about Rs 850 crore in FY16 and about Rs 750 crore the year before. So, are you trying to say that compared to FY16, in the next few years, the EBITDA could be a bit lower?
A: No, I am saying EBITDA post tax, so probably you are looking at the pure EBITDA. We are saying this is the distributable EBITDA to the unit holders post tax and post revenue share to NHAI. So, kind of profit after tax (PAT) cash which we are talking about which will be available for distribution to the unit holders. So, that we are saying will be in the range of Rs 700 crore considering the numbers, where they stack up today.
Latha: IRB makes Rs 1,700 crore from this?
A: That is correct. The Rs 5,000 crore that we have raised, Rs 3,350 crore will be utilised towards repayment of the underlying debt and the balance Rs 1,700 crore will go back to the sponsors and will help reduce the leveraging at the IRB end as well. So, at the IRB end, the leveraging will go down from almost 3:1 where it stands today to almost 1.8:1. So, it is a significant reduction in the debt at the IRB end.
Latha: So, how does this progress? You said that there is a right of refusal for transferring future projects as well. I would assume that if you gave a yield like this, they will not refuse it and they will in fact include those assets in the InvIT. In that case, how do you see your debt to equity ratio progressing, say FY18-FY19?
A: What happens with the listing of the trust is a new vehicle and a complete ecosystem now comes into play where IRB, as we coin it, B.E.S.T. What happens now is IRB will Bid for projects, Execute them, Stabilise them and then offer it or Transfer it to the trust. So, without depending on capital raising, IRB will be able to take the execution risks, develop projects and then unlock value by transferring to the trust. So, going forward, I do not see a necessity for the leverage in IRB to go up beyond a particular point depending on how many projects we are developing in one point in time, but we will have an opportunity to keep unlocking value as we go forward. And that would keep the debt-equity, at all times to come, in a very decent range.
Sonia: You said the debt-equity will be at 1.8:1, but what will be the maximum absolute debt exposure post this issuance?
A: Maximum debt exposure today will be closer to Rs 12,000 crore post this transaction at the moment.
Latha: And by the end of the year, you expect it to come to?
A: As I said, as you develop new projects, you will draw new loans to develop those projects and you will keep selling assets, so it will be a factor of how many new projects you develop in a particular year and how many of them you sell in that year. So it will be a function of that, but we now have a pool where we can unlock the value and keep growing without leveraging beyond a particular point.
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