India Grid Trust InvIT IPO: Moderate on yield, high on predictability

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26 Aug, 2025 12:21

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With India Grid Trust’s (IndiGrid) initial offer sale coming up this week, investors will hope that it manages to replicate the successful public offering of IRB Infrastructure, India’s first such infrastructure investment trust.

At first glance, IndiGrid, which is sponsored by Sterlite Power Grid Ventures, might not be an appealing opportunity. To put it in perspective, IndiGrid holds two transmission assets.

Together they have a total network of eight power transmission lines of 1936 circuit kilometers and two substations with a total 6000 MVA (mega volt amp) of transmission capacity. Ideally, being a hybrid product, InvITs yields are supposed to be a notch better than plain-vanilla bond offerings. This is usually the case because unlike equity InvITs are considered safe investment avenues, though they might not necessarily grow your capital.

Based on the expected cash flows from these two transmission assets, IndiGrid’s indicative yield (or annual returns) works out to be in the neighbourhood of 10.9 percent (at an upper price band of Rs 98-100 a unit).

While the yield is attractive, it may differ or may be lower in the initial three years. Mind you, the investors will be paid an interest for which tax will have to be paid. Let’s assume an investor pumps in Rs 10 lakh (minimum size) in an InvIT. If he falls under the tax net of say 20-30 percent it would mean a yield of 7.63-8.72 percent, respectively, – this being quite low given the nature and complexity of the instrument.

Also, it begs the question, why is the company raising funds through the InvIT at an yield of 10.9 percent for retiring its debt which costs around 8 percent?

On the positive side, the volatility is expected to be far less and cash flows are going to be more secure.

First, these transmission assets generate a fixed amount of tariff which essentially means there is very little risk of volatility in cash flows unlike a road asset or other assets, whose cash flows may differ depending on growth in traffic.

Second, its customer is the government-owned transmission utility Power Grid. So, most likely there won’t be any payment delays or defaults.

Third, these assets have a very long life of about 35 years. Any investor who wants to park his money in long-term debt papers will want to favourably look at this InvIT.

Since risk profile of its transmission assets is better, it is not all poor pickings for the investors. Investors can enjoy a higher yield in future as and when the company adds more and more projects under the InvIT. Sterlite Power Grid has about 8 more transmission assets in its kitty that are supposed to be generating an EBITDA 3 times the EBITDA generated by the two assets that are now being offered under the InvIT.

Out of the eight assets, three transmission assets are operational and soon will fit the SEBI criteria of one-year minimum lifespan before they can qualify for a public offering through the InvIT route.

Meanwhile, the company is hopeful of adding a few operational assets over the next two years which promise an accretive yield. It essentially means the yields on the new assets will be better than the yield on existing units.

Through the proceeds of the issue (issue size is pegged at Rs 2250 crore), IndiGrid will use about Rs 1600 crore to pare its debt.

Subsequently, the company can actually raise further debt in the IndiGrid at around 8 percent. If the debt is spent well to acquire more such assets which could yield close to 11 percent or even higher, investors could be in for some rich harvesting.