IPO Note | InvITs
May 17, 2017
India Grid Trust (IndiGrid)
SUBSCRIBE
sue Open: May 17, 2017
Is
Issue Close: May 19, 2017
IndiGrid was established on Oct, 2016 by Sterlite Power Grid Ventures Limited
Issue Details
(Sponsor) and is registered with SEBI pursuant to the InvIT Regulations. Sponsor is
one of the leading independent power transmission companies operating in the
Fresh issue: *22.96 -**22.5 cr units
private sector. Sponsor owns 11 inter-state power transmission projects with a
Total Issue size (amount): *`2205cr -
total network of 30 power transmission lines of ~7,733 ckms and 9 substations
**2250cr
having 13,890 MVA of transformation capacity. Of the 11 inter-state power
Price Band: `98-100
transmission projects owned by the Sponsor, IndiGrid will initially acquire
2
projects (Initial Portfolio Assets) with a total network of eight power transmission
Lot Size: 10,206 units and in multiples of
lines of ~1,936 ckms and two substations having 6,000 MVA of transformation
5,103 units thereof
capacity across 4 states.
*Calculated on lower price band
Stable cash flows from assets with minimal counter party risks: Revenues are
** Calculated on upper price band
derived out of contracted tariffs under long term contracts (up to 35 years) from
Book Building
assets with low operating and maintenance costs. Payment securities in the form
Institutional
75% of issue
of a revolving letter of credit, a surcharge of 1.25% for late payments and lack of
Retail
25% of issue
alternate power infrastructure deters beneficiaries from defaulting. This
Parties to the issue
mechanism diversifies counter party risks, ensures a stable cash flow independent
of asset utilization and provides payment security.
Strong financial position: IndiGrid has been given a Corporate Credit Rating
Sponsor: Sterlite Power Grid Ventures Ltd.
AAA/Stable by CRISIL, ‘IND AAA’/Stable by India Ratings and ‘IrAAA’ with stable
Project Manager: Sterlite Power Grid Ventures
outlook by ICRA. Following utilization of the Issue Proceeds, debt to equity will be
Ltd.
below
49% (against industry standards
70%) as prescribed by the InvIT
Regulations. IndiGrid expects that low indebtedness will provide the ability to
Investment Manager: Sterlite Investment
Managers Ltd.
finance the growth of business without substantial dilution to Unit holders in the
near future and ensure stable distributions.
Trustee: Axis Trustee Services Ltd.
Rights to Sponsor’s pipeline of power transmission projects: IndiGrid enjoys the
benefit of ROFO Deed (Right of First Offer) with Sponsor’s eight inter-state power
transmission projects, with transmission network of 21 power transmission lines of
~4,831 ckms and five substations, and transformation capacity of 6,630 MVA.
Under the ROFO Deed or otherwise, any potential acquisitions of power
transmission projects will be assessed for their suitability with investment mandate
and is subject to mutual agreement between the Sponsor and the Investment
Manager on behalf of IndiGrid, as well as approval by Unit holders (2/3
majority).
Ownership and location of assets: Each of the Initial Portfolio Assets is located in
strategically important areas for electricity transmission connectivity, delivering
power from generating centers to load centers to meet inter-regional power
deficits and developing alternate lines may be challenging due to the terrain,
challenges in obtaining rights of way, limited corridors and high construction
costs. This is advantageous for sponsor as it can capitalize the opportunities to
increase capacity through upgrading existing corridor.
Abhishek Lodhiya
Outlook and Valuation: Considering the above positives coupled with attractive
+91 22 39357800 Ext: 6811
valuations, we recommend a SUBSCRIBE on the issue
[email protected]
Please refer to important disclosures at the end of this report
1
IndiGrid| IPO Note
Company background
India Grid Trust (IndiGrid) is an infrastructure investment trust (“InvIT”) established
to own inter-state power transmission assets in India. IndiGrid was established on
Oct, 2016 by the Sponsor, Sterlite Power Grid Ventures Limited, and is registered
with SEBI pursuant to the InvIT Regulations. Sponsor is one of the leading
independent power transmission companies operating in the private sector, with
extensive experience in bidding, designing, financing, constructing and
maintaining power transmission projects across India.
Sponsor is one of the leading independent power transmission companies
operating in the private sector. Sponsor owns 11 inter-state power transmission
projects with a total network of 30 power transmission lines of approximately
7,733 ckms and 9 substations having 13,890 MVA of transformation capacity.
Some of these projects have been fully commissioned, while others are at different
stages of development.
Sponsor generated consolidated total income of ₹506Cr in FY2016 and had total
consolidated assets of ₹6627Cr as on March 31, 2016. Of the 11 inter-state
power transmission projects owned by the Sponsor, IndiGrid will initially acquire
two projects with a total network of eight power transmission lines of ~1,936 ckms
and 2 substations having 6,000 MVA of transformation capacity across four states
(the “Initial Portfolio Assets”). Each of the Initial Portfolio Assets have been
completed and are revenue-generating for more than a year. Pursuant to the
ROFO Deed, IndiGrid has a ‘Right Of First Offer’ to acquire eight of the nine
remaining projects (the “ROFO Assets”).
Initial Portfolio Assets were awarded to subsidiaries of Sponsor under the ‘tariff
based competitive bidding’ mechanism
(“TBCB”) on a ‘build-own-operate-
maintain’ (“BOOM”) basis. The power transmission projects earn revenue pursuant
to long-term TSAs (Transmission Service Agreement) and tariff orders passed by
CERC in accordance with the Electricity Act, 2003 (“Tariff Orders”). These projects
receive availability-based tariffs under the TSAs irrespective of the quantum of
power transmitted through the line. The tariff for inter-state power transmission
projects in India, including the Initial Portfolio Assets, is contracted for the period of
the TSA, which is up to 35 years from the scheduled commission date of the asset,
which may be renewed in accordance with the TSA and the Electricity Act, 2003.
With periodic maintenance, the assets will have a useful life of 50 years according
to Lahmeyer.
Tariffs under these TSAs are billed and collected pursuant to the ‘point of
connection’ (“PoC”) mechanism, a regulatory payment pooling system offered to
Inter State Transmission Systems (“ISTS”) such as the systems operated by the Initial
Portfolio Assets. Under the PoC mechanism, payments are made to a central
payment pool and the proceeds are distributed proportionately to all transmission
services providers, such as the Initial Portfolio Assets. The availability-based tariffs
and PoC payment mechanism enable a stable and certain cash flow stream
May 17, 201
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IndiGrid| IPO Note
Exhibit 1: IndiGrid InvIT Structure
Source: Offer Document, Angel Research
Exhibit 2: Initial Portfolio
Source: Offer Document, Angel Research
May 17, 201
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IndiGrid| IPO Note
Issue details
The units will consist of fresh issue, aggregating to `2,250Cr at upper band of
`100 per unit. The Issue Proceeds from this Issue will be utilised towards providing
loans to BDTCL and JTCL for repayment or pre-payment of debt (including any
accrued interest and any applicable penalties) of banks, financial institutions, SGL1
and repayment of any other long term and short term liabilities and capital
expenditure creditors.
Objects of the offer
Providing loans to BDTCL and JTCL for repayment or pre-payment of debt
(including any accrued interest and any applicable penalties) of banks,
financial institutions, SGL1 and repayment of any other long term and short
term liabilities and capital expenditure creditors.
Distribution policy
The net distributable cash flows of IndiGrid (the “Distributable Income”) are
based on the cash flows generated from the underlying operations undertaken
by the InvIT Assets. Presently, cash flows receivables by IndiGrid may be in the
form of dividend, interest income or principal repayment received from the
InvIT Assets in relation to any debt sanctioned by IndiGrid, or a combination of
both.
In terms of the InvIT Regulations, not less than 90% of the net distributable
cash flows of each of the Initial Portfolio Assets, namely BDTCL and JTCL shall
be distributed to IndiGrid or SGL1, subject to applicable provisions in the
Companies Act, 2013 and not less than 90% of the net distributable cash
flows of IndiGrid shall be distributed to the Unit holders.
Further, with respect to the cash flows received by SGL1 from BDTCL and
JTCL, 100% of such cash flows shall be distributed to IndiGrid unless required
for debt servicing in any other loans of Initial Portfolio Assets or repair work in
BDTCL and JTCL.
Further, with respect to cash flows generated by SGL1 on its own, not less than
90% of such net distributable cash flows shall be distributed by SGL1 to
IndiGrid.
IndiGrid shall declare and distribute at least 90% of the Distributable Income
to the Unit holders, at least once in every six months in every Fiscal. However,
if any infrastructure asset is sold by IndiGrid or SGL1 or any of the Initial
Portfolio Assets, or if the equity shares or interest in the SGL1 or any of the
Initial Portfolio Assets are sold by IndiGrid; if IndiGrid proposes to re-invest the
sale proceeds into another infrastructure asset within one year, it shall not be
required to distribute any sales proceeds to IndiGrid or to the Unit holders.
Further, if IndiGrid proposes not to invest the sale proceeds into any other
infrastructure asset within one year, it shall be required to distribute the same
in the manner specified above.
May 17, 201
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IndiGrid| IPO Note
In accordance with the InvIT Regulations, distributions by IndiGrid shall be
made no later than 15 days from the date of such declarations. The
distribution, when made, shall be made in Indian Rupees.
Tax Structure InvITs
Interest received or receivables by IndiGrid from the Project SPVs should be
exempted from tax, subject to satisfaction of conditions given in section
10(23FC) of the Act. Further, in view of the provisions of section 14A of the
Act, any expenditure incurred in relation to earning the above exempt income
shall not be tax deductible.
Income arising for IndiGrid on transfer of equity shares or units of an equity
oriented fund or units of a business trust, will be exempt under section 10(38)
of the Act, if the said asset is a long-term capital asset and such transaction is
subject to STT. These assets turn long term if they are held for more than 12
months for equity shares or units of an equity oriented fund and more than 36
months for units of business trust.
Dividend received by IndiGrid referred to under section 115-O from domestic
companies on investments is exempt from tax under section 10(34) of the Act.
The provisions of section 115QA mandate domestic companies to pay an
additional tax at the rate of 20% (plus applicable surcharge and cess) on buy-
back of shares (not being shares listed on a recognized stock exchange).
Further, income arising from buy-back of unlisted shares shall not be taxable
as per section 10(34A) of the Act in the hands of IndiGrid.
IndiGrid shall not be subject to levy of dividend distribution tax on the amount
of income distributed to its unit holders.
Income arising on transfer of units of IndiGrid, will be exempt under section
10(38) of the Act if such units are held as long-term capital assets and such
transaction is chargeable to securities transaction tax (‘STT’). The determinative
period of holding for such units to qualify as long term capital asset is more
than 36 months.
In view of the provisions of section 14A of the Act, any expenditure incurred in
relation to earning the above exempt income shall not be tax deductible.
Short-term capital gains arising on transfer of the units of IndiGrid will be
chargeable to tax at the rate of 15% (plus applicable surcharge and cess) as
per the provisions of section 111A of the Act provided such transaction is
subject to STT. In case of a Unit holder being an individual or HUF, where the
total taxable income as reduced by short-term capital gains is below the basic
exemption limit, the short-term capital gains will be reduced to the extent of
the shortfall and only the balance short-term capital gains will be subjected to
such tax in accordance with the provision to sub-section (1) of section 111A of
the Act.
May 17, 201
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IndiGrid| IPO Note
Investment Rationale
Stable cash flows from assets with minimal counter party risks: Revenues are
derived out of contracted tariffs under long term contracts (up to 35 years) from
assets with relatively low operating and maintenance costs. Inter-state power
transmission projects receive tariffs on the basis of availability, irrespective of the
quantum of power transmitted through the line. Power transmission projects are
characterized by low levels of operating risk. The Initial Portfolio Assets are
operational power transmission projects with an operating history of at least one
year and no construction risks or major capital expenditure requirements. IndiGrid
has maintained an annual availability for each of the Initial Portfolio Assets in
excess of 98% since commissioning for which have earned maximum incentive
revenues under the respective TSAs. Maintaining availability of the Initial Portfolio
Assets in excess of 98%, gives IndiGrid the right to claim incentives under the TSA,
ensuring an adequate upside to maximize availability. The amount of incentive
revenue earned increases as availability levels increase, with a maximum incentive
revenue earned for maintaining 98% availability. Tariffs under the TSAs are billed
and collected pursuant to the PoC mechanism. Under the PoC mechanism,
payments are made to a central payment pool and the proceeds are distributed
proportionately to all transmission services providers, such as the Initial Portfolio
Assets. Any shortfall in collection of transmission charges by the CTU is shared on
a pro rata basis by all transmission service providers. Payment securities in the
form of a revolving letter of credit, a surcharge of 1.25% for late payments and
lack of alternate power infrastructure deters beneficiaries from defaulting. This
mechanism diversifies counter party risk, ensures a stable cash flow independent of
asset utilization and provides payment security.
Strong financial position: IndiGrid has been given a Corporate Credit Rating
AAA/Stable by CRISIL, ‘IND AAA’/Stable by India Ratings and “IrAAA” with stable
outlook by ICRA. Following utilization of the Issue Proceeds, aggregate
consolidated borrowings and deferred payments net of cash and cash equivalents
will be below 49% of the total value of IndiGrid’s assets, as prescribed by the InvIT
Regulations. The industry standard debt to equity ratio for inter-state power
transmission projects is 70% debt, according to the CRISIL Report. IndiGrid expects
that low indebtedness on balance sheet relative to our assets will provide with the
ability to finance the growth of business without substantial dilution to Unitholders
in the near future and ensure stable distributions.
Rights to our Sponsor’s pipeline of power transmission projects: IndiGrid enjoys the
ROFO Deed with Sponsor, IndiGrid has a ‘right of first offer’ in respect of eight
inter-state power transmission projects, having a transmission network of 21 power
transmission lines of approximately 4,831 ckms and five substations, with a
transformation capacity of 6,630 MVA. Of the eight ROFO Assets three have been
commissioned, one is partially operational and four remain under various stages
of development. Under the ROFO Deed or otherwise, any potential acquisitions of
power transmission projects will be assessed for their suitability with investment
mandate and is subject to mutual agreement between the Sponsor and the
Investment Manager on behalf of IndiGrid, as well as approval by Unit holders.
Ownership and location of assets: Each of the Initial Portfolio Assets is located in
strategically important areas for electricity transmission connectivity, delivering
power from generating centers to load centers to meet inter-regional power
deficits. Once a transmission project has been commissioned, it requires relatively
low levels of expenditure to operate and maintain, which means that the relevant
Initial Portfolio Assets will have the benefit of owning a critical asset without
May 17, 201
6
IndiGrid| IPO Note
incurring significant operational costs. In particular, with periodic maintenance,
transmission assets will have a useful life of 50 years, according to Lahmeyer. The
transmission lines of the Initial Portfolio Assets are predominantly located in areas
where developing alternate lines may be challenging due to the terrain, challenges
in obtaining rights of way, limited corridors and high construction costs. This puts
IndiGrid in an advantageous position to capitalize the opportunities to increase its
power transmission capacity through the same corridor by upgrading existing
systems.
Outlook and Valuation
Considering the above positives coupled with attractive valuations, we recommend
a SUBSCRIBE on the issue
Key risks
Any upward changes in the tariff structure or policies or modifications could
bring a material negative effect in the business.
The Sponsor’s ability to complete the construction of the ROFO Assets on time
is subject to its ability to award subcontracts to competent contractors in a
timely manner and to ensure the timely execution of such contracts, while
ensuring that the required quality is maintained by these contractors.
It may lose tariff revenues and incur significant repair and replacement costs
in the event their power transmission projects are rendered non operatable
due to force majeure events.
It may not be able to make distributions to unit holders as per estimations.
May 17, 201
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IndiGrid| IPO Note
Income Statement
Particulars
FY15
FY16
FY17
Revenue from operations
59.9
354.2
466.7
% chg
-
491.7
31.8
Total Expenditure
15.3
41.0
44.9
Employee benefit expense
0.7
4.9
3.5
Other expenses
14.6
36.1
41.4
EBITDA
44.6
313.2
421.8
% chg
-
602.6
34.7
(% of Net Sales)
74.5
88.4
90.4
Depreciation
37.7
96.6
380.1
EBIT
6.9
216.6
41.7
% chg
-
3,054.1
-80.8
(% of Net Sales)
11.5
61.2
8.9
Finance cost
93.7
329.9
368.2
Finance income
(10.9)
(2.2)
(0.4)
Other income
9.2
2.1
6.3
(% of PBT)
(13.7)
(1.9)
(2.0)
Loss before tax
(66.8)
(109.0)
(319.8)
% chg
-
-
-
Total tax expense
(19.6)
(30.6)
(18.7)
Loss for the year
(47.2)
(78.4)
(301.1)
Source: Offer Document, Angel Research
May 17, 201
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IndiGrid| IPO Note
Balance Sheet
Particulars
FY15
FY16
FY17
ASSETS
I. Non-current assets
(a) Property, plant and equipment
1,699.1
3,967.2
3,577.3
(b) Capital work-in-progress
2,039.0
0.2
-
(c) Intangible Assets
0.3
0.2
-
(d) Financial assets
0.0
0.0
0.0
(i) Trade and other receivables
10.2
10.2
3.1
(ii) Loans
127.6
71.8
-
(iii) Other financial assets
27.3
27.0
0.3
(e) Deferred tax assets (net)
5.8
10.6
-
(f) Other assets
51.4
8.2
3.5
Total Non-Current Assets
3,960.7
4,095.4
3,584.2
II. Current assets
(a) Financial assets
(i) Investments
-
0.7
46.0
(ii) Trade and other receivables
17.7
63.9
47.8
(iii) Cash and cash equivalents
54.8
21.7
23.1
(iv) Others financial assets
17.4
45.5
53.0
(b) Other assets
3.3
15.1
19.5
Total Current Assets
93.2
146.9
189.5
Total assets
4,053.9
4,242.3
3,773.7
EQUITY AND LIABILITIES
EQUITY
(a) Equity Capital
17.7
17.7
17.7
(b) Other equity
295.3
216.9
-84.2
Total equity
312.9
234.6
-66.6
LIABILITIES
I. Non-current liabilities
(a) Financial liabilities
(i) Borrowings
3,257.8
3,484.9
3,452.6
(ii) Other financial liabilities
0.8
0.8
0.8
(b) Provisions
0.8
-
-
(c) Deferred tax liabilities (net)
171.3
145.5
111.0
Total Non -Current Liabilities
3,430.7
3,631.2
3,564.4
II. Current liabilities
(a) Financial liabilities
(i) Borrowings
12.9
166.5
89.8
(ii) Trade and other payables
4.6
2.2
3.4
(iii) Other financial liabilities
290.8
207.3
181.9
(b) Liabilities for current tax (net)
-
-
0.4
(c) Other liabilities
1.2
0.6
0.4
(d) Provisions
0.8
-
-
Total Current Liabilities
310.3
376.6
275.9
Total liabilities
3,741.0
4,007.8
3,840.2
Total equity and liabilities
4,053.9
4,242.3
3,773.7
Source: Offer Document, Angel Research
May 17, 201
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IndiGrid| IPO Note
Cash Flow Statement
Particulars
FY15
FY16
FY17
Cash flow from Operating Activities
Loss before tax
(66.8)
(108.9)
(319.8)
Adjustments:
Depreciation and amortisation expense
37.7
96.6
380.2
Loss on derivative instruments (net)
3.5
13.8
15.2
Loss on disposal of property plant and equipment
0.6
-
0.0
Interest income on bank deposit
-
(1.9)
0.00
Finance costs
93.7
329.9
368.2
Income from investment in mutual funds
-0.5
-2.1
-2.0
(Profit) on sale of Investment
-
-
(2.7)
Operating profit before WC changes
68.2
327.5
439.0
Changes in working capital
(45.5)
(71.6)
1.74
Cash generated from operations
22.7
255.9
440.8
Direct taxes (paid) /refund received (net)
(3.4)
4.7
(0.1)
Net cash flow from/(used in) operating activities (A)
19.3
260.6
440.6
Cash flow from Investing Activities
Purchase of property, plant and equipment(incld. CWIP& adv.)
(759. 7)
(369.7)
(33.2)
(Purchase)/Sale of mutual fund investments (net)
0.5
1.4
(43.3)
Sale of Investment in subsidiary
-
-
152.7
Loans to subsidiaries
(149.4)
(54.7)
-
Loans repaid/adjusted by subsidiaries
196.0
110.5
-
Interest income on bank deposits
-
1.9
0.0
Net cash flow from /(used in) investing activities (B)
(712.6)
(310.6)
76.2
Cash flow from Financing Activities
Proceeds from issue of Non-convertible debentures
1288.2
-
-
Proceeds from issue of shares
17.5
-
-
Proceeds of loan from holding company (net)
390.6
483.1
38.0
Repayments of loan from holding company (net)
(689.6)
(408.1)
(160.0)
Refund of Share application money
(175.3)
-
-
Proceeds from long term loans
231.2
2131.8
-
Repayment of long term loans
-
(1905.8)
(115.4)
Proceeds from short term loans
5.1
-
-
Repayment of short term loans
(23.1)
(12.9)
-
Rollforward loss on forward contracts
-
-
(15.3)
Finance costs
(327.9)
(271.3)
(262.7)
Net cash flow from / (used in) financing activities (C)
716.7
16.9
(515.5)
Net inc/(dec) in cash and cash equivalents (A + B + C)
(23.4)
(33.1)
1.4
Cash and cash equivalents as at beginning of the year
31.5
54.8
21.7
Cash and cash equivalents as at the end of the year
54.8
21.7
23.1
Source: Offer Document, Angel Research
May 17, 201
10
IndiGrid| IPO Note
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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May 17, 201
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