Daily Archives: July 31, 2019

IRB INVIT FUND

AUM: 7500 crores

Market Cap: 3890 crores

Issue Price per unit: Rs. 102 (12% implied yield)

Lot size: 5000 units

Current Market Price per unit: Rs. 67 (18% implied yield)

Total Distribution per unit: Rs. 22

Current Year Distribution per unit: Rs. 12.25

Associates from JSAlphaa attended the AGM held on 9-07-2019 at Andheri, Mumbai from 11am to 12:30 pm approx

Management answering questions:

1. R.P. Singh- Chairman of the board
2. Mr. Tushar Kawedia- CFO

The following were the main concerns raised by investors which were answered by the management in the following manner:

1. Why did the price fall from 102 to 66?

The management blamed macro factors like demonetisation, GST and the changes in mining laws in Rajasthan which lowered the toll collection along 2 of their projects. They were very vague and could not justify the fall properly.

2. Will they be able to maintain the Rs 12 payout after their agreement for 2 of the roads expires next year?

The management was confident in maintaining their current cash flows despite the termination of their agreement for 2 roads provided their projections for traffic growth and increase in toll remains in line with 5.5 & 5%, and inflation is at an adequate rate. Further, they assured investors of an extension in collection periods if their projections for traffic growth and toll collections fall short.

3. By how much has the management increased its stake and does it plan to continue to do so?

The management has been purchasing units from the open market and has increased its stake by 3.5% and total holdings from 15% have now reached around 18.5% .They also implied that they plan on increasing their stake further but did not confirm or deny it.

4. Does the fund plan on repaying the principle amount back and by when?

The fund will return the principle amount back to the unit holders by 2041 provided there are no new project acquisitions. The exact breakup of the interest +dividend +principle is up to the management but they plan on dividend payouts from 2021. A total amount of Rs400 since IPO till 2041 is expected to be paid out to the unit holders which includes interest dividend and principle amounts.

5. What are the risks associated in the future?

The management was slightly concerned about inflation rates not being in line with the government’s projections. If the inflation rate is not high enough, the toll amount collected will not be enough and will not qualify them for an extension and the unit holders will receive correspondingly lower returns. Hence inflation rates and changes in government regulation regarding tolls and their collections remain the biggest risk associated.

6. How will the management raise funds for new projects?

The management was not sure about acquiring any new projects unless they are in synergy and match the current returns which are being provided (around 18%) which is difficult to find. If they do find a good fit they plan on using the 10% which in not distributed and mostly via debt. However their answered remained vague and unsure about new projects.

Benefits of Investing:

• Higher implied yield and Lower downside risk in comparison to investors who invested at amounts higher and entered at IPO.
• The governments increased interest in improving and laying out more infrastructure may benefit this trust
• Liquidity since it is listed

Risks associated:

• Changes in government policy where they might stop collecting tolls altogether.
• The extensions provided may not be enough to recover cash flows lost if the traffic growth and increase in toll collections don’t match anticipated levels and will extend the recovery horizon beyond 2041
• Inflation not matching projected levels will skew cash flows and returns to investors
• The trust may not be able to maintain the Rs. 12 / implied yield at current levels if they plan on acquiring new projects. Or they cannot acquire new projects due to the current implied yield being too high.
• The management didn’t give a clear picture when asked about the price falling from 102 to 67