IRB InvIT Fund

IRB InvIT reported a 4% YoY growth in toll revenue to ₹228 crore for Q2 FY25. Management highlighted that this modest growth was achieved despite significant operational challenges from unusually heavy monsoons and flooding across India, which suppressed traffic. The total consolidated income reached ₹271 crore. A distribution of ₹2.00 per unit was declared, broken down into ₹1.20 as interest, ₹0.23 as dividend (tax-exempt), and ₹0.57 as return of capital.

A key focus of the call was the recurring farmer protests affecting the Pathankot Amritsar project, which has led to temporary tolling suspensions. Management reassured investors that the project's Internal Rate of Return (IRR) is 'fully protected' under the concession agreement. This protection comes from two forms of compensation from NHAI: an equivalent extension of the concession period and a 50% reimbursement of interest and O&M expenses, rendering the disruptions NPV-neutral to the InvIT.

Investors voiced strong concerns over the unit's low market price of around ₹62. Management directly addressed the topic of a share buyback, stating that while they have approached the regulator, SEBI remains opposed to InvITs conducting buybacks as it contradicts the core principle of distributing at least 90% of cash flows. The trust maintains a healthy balance sheet with a net debt-to-value ratio of 0.3:1, which provides ample capacity for future asset acquisitions.

Management anticipates a stronger second half of the fiscal year, consistent with historical trends. The benefits of a recently completed refinancing exercise are expected to flow through to the DPU starting from Q3 FY25, provided operational performance improves. The acquisition pipeline remains robust, with two HAM assets (Vadodara Mumbai package-7, Pathankot-Mandi) expected to be ready for offer in FY25, and the Chittoor Thachur project in FY26. Based on the current asset base, management guided for a DPU of ₹8.5 to ₹9 over the next four to five years.

In response to questions about revenue growth, management detailed the tariff hike formula for its key assets: a 3% fixed increase plus 40% of the WPI from the preceding December. However, due to low WPI and a rule that rounds tariffs to the nearest ₹5, the effective tariff revision for the year was only about 2.5%. This structural limitation explains why revenue growth from tariff hikes has been muted in the current low-inflation environment.