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Stable showing; new asset addition key

India Grid Trust (IndiGrid), turned in yet another stable quarter with a DPU of INR3.2/unit. Three key highlights: i) Collection efficiency improved to 105% and debtor days dipped to 52. ii) DPU of INR3.2/unit includes INR1.3 from capital repayment. iii) Given a strong TBCB order pipeline of INR1tn, IndiGrid is evaluating bidding for projects with partners, which could require B/S exposure –a key monitorable.

IndiGrid has a track record of growth (4x growth in AUM in four years) on ROFO as well as third-party assets. We await more clarity on the next round of growth assets and IndiGrid’s potential balance sheet exposure thereof. Hardening of 10Y G-sec yields is an additional risk to our valuation framework (not to DPU). Maintain ‘HOLD’.

Strong P&L driven by acquisitions; collection efficiency improves

IndiGrid reported 48% YoY growth in EBITDA, driven by new acquisitions and strong operational efficiency. The Digital Asset Management initiative has been implemented for about 25% assets; the balance is likely by end-FY22 ( adding 50- 100bps to EBITDA margin). Collection efficiency improved to 105% (debtors days at 52) from 69% collection efficiency in Q1 (debtor days at 60), suggesting recovery from covid impact. NDCF thus grew 13% YoY to INR2.2bn, and IndiGrid announced DPU of INR3.19/unit, up 6% YoY. Average availability of assets was at 99.8%, which led to more than ~INR100mn in incentive income during the quarter.

Cost of debt comes down further; watch out for bid for new assets

IndiGrid’s blended cost of debt stands at ~7.8% now (80bps reduction in past one year); it is targeting 7.5% Kd by FY22. Access to dollar bond market could further deepen the debt market for InvITs, aiding in lowering the cost of funds. In our view, there is a likely interest cost savings of INR300-350mn on refinancing of FY23 debt (at 8.5%) to 7–7.5% levels (last debt raised at 6.75%). This bodes well for the FY23/24 DPU. At 57% net debt/AUM, there is room for INR50–60bn worth of assets acquisition, of which 20% comes from KTL acquisition and the balance new assets acquisition will be a key variable to watch out for.

Outlook and valuation: Fairly valued; maintain ‘HOLD’

In our view the stock is factoring in future growth assuming 65% net debt/AUM, and hence the next round of acquisition is a key monitorable from value addition perspective. Our valuation framework is the combination of yield (9% currently) and capital appreciation, which implies limited upside potential. Maintain ‘HOLD’.

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