Infrastructure investment trusts (InvITs) preside over Rs 70,000 crore of assets under management (AUM), across sectors like real estate, gas transmission, telecom and power. Harsh Shah, CEO of KKR-backed IndiGrid, India’s first InvIT in power sector, tells Vikas Srivastava that, given India’s huge need for investment in infrastructure and the need to keep fiscal deficit under control, InvITs can be presented as a viable form of investment platform where large amount of foreign and domestic capital can be harnessed in near future.
The transmission segment has performed comparatively better than the overall power sector during the lockdown. How has been the business for IndiGrid, given that you also managed to acquire couple of assets during the period?
Ans: We have been more or less insulated from the lockdown as our business is based on take-or-pay basis. Even as the drop in revenue collections increased the working capital requirement, our prices remained firm. We are looking for our operations to continue to do well in the second quarter as well despite the current setbacks.
The government scheme to provide credit to States has started, which will improve liquidity in the sector. The peak power demand on June 7 and June 13 as per data by load despatch centres, was higher than the peak demand of last year same month, which is a good indicator that demand has also picked up. There is definitely a visible trend that the power consumption which touched a low on March 25 and March 26 has reached to normal levels by the week of June 16. Of course, everything is not normal, but electricity demand is a good indicator that things have started to look up.
How do you see the transmission sector to benefit from the overall improvement in liquidity in the sector?
Ans: The receivable cycle for the transmission sector was the lowest till now with an average of 50 days outstanding. However, due to COVID-19 the outstanding days has increased to 70-80 days due to gap of 30-40 days in collections. If the overall sectoral liquidity improves, we are hopeful the days outstanding will come down to 50-60 days in the next two quarters.
Over the last three years since the company was formed the overall asset under management and trading volumes have grown three times for IndiGrid. However, we have not seen many InVITs in the market despite the initial buzz?
Ans: Ever since we have launched the InvIT we have seen three times growth in AUM, revenues, and dividend distribution. However our growth was also supported by our investors like KKR and GIC who own majority stake in our company.
As far as growth in volumes is concerned, when IndiGrid was launched the overall trading block was Rs 5 lakh, which led to lower liquidity. This block was reduced to Rs 1 lakh last year, which led to substantial increase in volumes. We believe, If this is brought down to single unit in equity share that will proliferate InvITs further.
Within InvIT market, in the last three years over Rs 70,000 crore assets under management were created in InvITs across sectors like real estate, gas transmission, telecom tower, and power transmission lines, which is a phenomenal success for InvIT. Given the huge demand for investment in the country a lot of new investments will come up, like NHAI, Power grid, CDPQ, etc have already announced their plans for InvIT. We believe, given India’s need for investment on infrastructure as well as keeping fiscal deficit under control, InvITs can be presented as a viable form of investment platform where large amount of foreign and domestic capital can be channelised. In the next four to five years we can expect the AUM to increase exponentially given the interest of investors. It is clear the credibility is established, now it is time to make it available to the domestic investors by reducing the investment ticket to 1 unit from Rs 1 lakh lot.
You have done three asset acquisitions in the last three months. Have the acquisitions been completed in terms of transfer of money or were there some constraints due to lock down?
Ans: We have announced three acquisitions in the last three months, the first was Rs 1m000 crore ENICL project from Sterlite power for which we have raised the money and paid. The second project from Kalpataru of Rs 300 crore we have signed the definitive agreement but we have not transferred the money yet due to regulatory approvals, we are confident it will happen in a quarter. The third project Gurgaon-Palwal transmission project another Rs 1000 crore project from Sterlite Power has received investors approval but is yet to be executed. So overall the acquisitions are valued at close to Rs 2300 crore out of which Rs 1000 crore is transferred, another 1000 crore is in the process of getting transferred, the Rs 300 crore is awaiting regulatory approval, which will be done in a quarter.