At 12:15 pm, IRB InvIT Fund, the first infrastructure trust to list on Indian exchanges, was trading near its issue price of Rs 102 after rising slightly in early trade. Shares of the fund opened at Rs 103.25 on the BSE, a marginal gain of 1.23% over its issue price. The IPO, with a goal to raise Rs 5,040 crore, had a price band of Rs 100-102 and for was open bidding from May 3 to May 5 during which had received a subscription of 8.57 times the available shares. The market lot for secondary market trading has been fixed at 5,000 units which translate into a minimum transaction amount of Rs 5,10,000 at issue price.
IRB InvIT’s IPO, with a goal to raise Rs 5,040 crore, had a price band of Rs 100-102 and was open for bidding from May 3 to May 5 during which time it had received a subscription of 8.57 times the available shares. Prior to the opening of the bidding for the IPO, IRB InvIT Fund had raised around Rs 2,100 crore from anchor investors which included the government of Singapore, Deutsche Global Infrastructure Fund, Birla Sun Life Mutual Fund, HDFC Standard Life Insurance Co. Ltd and Birla Sun Life Insurance Co. Ltd.
Many analysts had rated the IPO as a buy given its strong future cash flows for investors but due to the oversubscription of the issue, many investors couldn’t get their hands on the shares. Before you decide whether there is still an opportunity to buy the shares, let’s look at what analysts had commented at the time of the IPO:
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“Launch of IRB’s InvIT as a big boost for the infrastructure sector. The successful listing of this InvIT will pave the way for many similar listings (three others are already lined up), and help the sector discover a new source of capital, other than equity (invested by developers) and debt (by financial institutions). It will enable BOT developers (such as IRB, Ashoka, Sadbhav, ITNL) to unlock value and ‘rotate’ capital in their portfolio,” Philip Capital had said in a research note.
“Of this (the IPO proceeds), Rs 3350 crore will be used for repayment of external debt, and the remaining Rs 1700 crore will accrue to IRB as repayment of sub-debt/equity-invested. This will provide the company with Rs 1700 crore of cash flow, which it can utilise to fund the equity requirement of current/future projects. It will also reduce the gross debt at the consolidated level by Rs 5000 crore, reducing the leverage to 2x from the current 3x, thereby possibly improving its credit rating and borrowing cost. At the same time, the company keeps 15% in the InvIT, ensuring it gains from the cash flows and potential upside in the InvIT units’ price,” Axis Capital had said in a research note.
In terms of valuations, we have considered the conservative traffic growth (3-5%) and higher discounting factor of around ~11% which results in the return of 25-30% on the enterprise value. Further, reduction in cost of debt and increase in traffic growth will lead to further higher returns. Hence, considering the above positives coupled with attractive valuations, we recommend a SUBSCRIBE on the issue,” Angel Broking had said in a 2 May research note.
“The listing opens up the window for other road developers to exit completed projects and churn their equity/deleverage balance sheet and would also spur interest from the NHAI to award more BOT projects vs. EPC/HAM as bidding interest would be higher since developers would now have an exit option,” Emkay Global Financial Services said in a 24 April note to its investors.