IRB InvIT Fund — Q3 FY25 earnings call

Call held 28 Jan 2025

Management summary

IRB InvIT Fund reported a resilient Q3 FY25 with improved profitability, marked by a 10% YoY growth in EBITDA to Rs. 231 crores, despite flat revenues due to protest-led disruptions in Punjab. The fund declared a stable distribution of Rs. 2 per unit. The key strategic development is the evaluation of a transformative acquisition of five BOT projects valued at Rs. 15,000 crores, which promises to significantly extend the InvIT's asset life. Management reaffirmed its full-year DPU guidance while outlining the funding structure and timeline for the potential acquisition.

Highlights

  • Announced a distribution of Rs. 2.00 per unit for Q3 FY25, comprising Rs. 0.74 as interest, Rs. 0.24 as dividend, and Rs. 1.02 as return of capital.

  • Total consolidated income stood at Rs. 282 crores, nearly flat compared to Rs. 283 crores YoY.

  • Consolidated toll revenues grew to Rs. 238 crores from Rs. 233 crores YoY, driven by strong traffic.

  • EBITDA increased by 10% YoY to Rs. 231 crores from Rs. 210 crores in Q3 FY24.

  • Profit After Tax (PAT) rose 12.3% YoY to Rs. 91 crores from Rs. 81 crores.

  • Received a preliminary offer to acquire five BOT projects with an Enterprise Value of ~Rs. 15,000 crores, which would extend the InvIT's average life from 14 to ~19 years.

  • Key projects showed robust YoY traffic growth: Tumkur-Chitradurga (7%), Jaipur Deoli (9%), and Talegaon Amravati (5%).

  • Toll collections at the Amritsar Pathankot project were disrupted by farmers' protests, with claims filed under Force Majeure provisions.

Concerns

  • Acquisition funding and potential equity dilution.

Key financials

  1. Total Consolidated Income ₹282 Cr -0.35%YoY
  2. Consolidated Toll Revenues ₹238 Cr +2.1%YoY
  3. EBITDA ₹231 Cr +10%YoY
  4. PAT ₹91 Cr +12.3%YoY
  5. Interest Costs ₹76 Cr +10.1%YoY
  6. Distribution Per Unit ₹2

What they filed

Q1 FY27: revenue up 69.1%, net profit down 21.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue270 275 282 291 277 +3%450 +64%528 +87%492 +69%
EBITDA224 224 232 245 232 +4%372 +66%388 +67%396 +62%
Net profit85 91 94 100 83 −2%60 −34%97 +3%79 −21%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Key Project Traffic Growth (YoY)
    7% Tumkur-Chitradurga9% Jaipur Deoli5% Talegaon Amravati

Guidance & targets

Dividend

  • Distribution Per Unit (DPU) Dividend · FY25 · Medium confidence close to Rs. 8.00 per unit, within the range of Rs. 8.00 to Rs. 8.50
    For this financial year, as previously discussed, we expect to pay close to Rs. 8.00 per unit i.e. within the range of Rs. 8.00 to Rs. 8.50 per unit.

    — Management

Volume

  • Portfolio Traffic Growth Volume · Near-term · Medium confidence around 5.5% to 6.5%
    However, on a portfolio basis, if India's GDP growth remains between 6% to 6.5%, we anticipate achieving traffic growth of around 5.5% to 6.5%.

    — Management

Other

  • Tariff Hike Other · from April 2025 · High confidence close to 3.5%
    It is expected to be close to 3.5%.

    — Management

Capex

  • Acquisition Closure Timeline Capex · next 5-6 months · Medium confidence within the next five to six months
    With nearly two months already completed, we anticipate closing this transaction within the next five to six months.

    — Management

  • HAM Asset Availability for Acquisition Capex · FY26 & FY27 · High confidence Two assets by FY26, One asset by FY27
    Two assets: Operational by FY26 - One asset: Operational by FY27

    — Management

Risks & concerns

  • Acquisition funding and potential equity dilution.

    high

    The proposed acquisition has a large equity component of ~Rs. 8,000 crores, which will require a mix of debt and new equity, potentially diluting existing unitholders.

    Analyst acknowledged

  • Disruption to toll collections from external events like protests.

    medium

    The Amritsar Pathankot project was impacted in Q3. Management is relying on Force Majeure clauses for compensation and concession extension to mitigate financial loss.

    Management acknowledged

  • Unit price trading at a discount to NAV, amplifying the negative impact of cash flow delays.

    medium

    An analyst pointed out that for unitholders, delayed cash is more costly than the project's IRR suggests. Management focused on the project's technical IRR neutrality instead of the market return impact.

    Analyst deflected

Areas of evasion (1)

  • Did not fully address the analyst's point about the unitholder's opportunity cost vs. project IRR neutrality when units trade at a discount to NAV.

Q&A highlights

2 direct
Funding plan for the proposed Rs. 15,000 crore acquisition of five assets. Direct
EV is Rs. 15,000 crores so projects have roughly close to Rs.7,000 crores of debt, which means the equity value is closer to Rs. 8,000 crores. And that Rs. 8,000 crores need to be funded in the form of debt and equity.

This is the most significant strategic initiative, and the large Rs. 8,000 crore equity component signals a potential for a substantial capital raise that could impact existing unitholders.

Asked by Vivek Surekha

The concept of 'IRR neutrality' for disruptions when units trade at a discount to NAV. Partial
When I mentioned IRR neutrality, I'm referring to the typical IRR range for these projects, which is between 16% to 18%... So, to clarify, our IRR discussion pertains to this 16% to 18% range i.e. Equity IRR, not the debt cost like 8% or 9%.

It reveals a potential disconnect between management's project-level financial view and the market-based return expectations of unitholders, who face a higher opportunity cost from delayed cash flows.

Asked by Dhiraj Dave

Rationale for assets being offered via a Private InvIT instead of directly from the sponsor. Direct
The Private InvIT served as a development platform for these assets when IRB initially won them, and they were under construction. At that stage, they weren't revenue-generating and, as per Regulations, couldn't be part of the Public InvIT... Now that these assets have matured, they're being offered to the Public InvIT by the Private InvIT.

This clarifies the corporate structure and the asset pipeline, providing transparency on the process and history of the assets being considered for acquisition.

Asked by Ashok Shah

2 min read 6 chapters

Detailed narrative

Q3 FY25 Performance and Distribution

For the quarter ended December 31, 2024, IRB InvIT reported a total consolidated income of Rs. 282 crores, nearly flat from Rs. 283 crores YoY. However, profitability improved significantly, with EBITDA rising 10% to Rs. 231 crores and PAT increasing 12.3% to Rs. 91 crores. The Trust announced a distribution of Rs. 2 per unit, which consists of Rs. 0.74 as interest, Rs. 0.24 as dividend, and Rs. 1.02 as a return of capital. Management maintained its full-year DPU guidance to be in the range of Rs. 8.00 to Rs. 8.50 per unit.

Traffic Growth and Operational Update

The portfolio witnessed robust traffic growth, which drove a 2.1% YoY increase in consolidated toll revenues to Rs. 238 crores. Key corridors performed well, with the Tumkur-Chitradurga project seeing 7% YoY traffic growth, Jaipur Deoli 9%, and Talegaon Amravati 5%. Looking ahead, management anticipates overall portfolio traffic growth of around 5.5% to 6.5%, contingent on India's GDP growth remaining between 6% and 6.5%. A tariff hike of approximately 3.5% is also expected from April 2025.

Impact of Punjab Protests on Amritsar Pathankot Project

The Amritsar Pathankot project's toll collections were disrupted during October and November 2024 due to farmers' protests. Management has filed claims under the Force Majeure provisions of the Concession Agreement. They stated that the agreement provides for relief consisting of 50% reimbursement of interest and O&M costs, plus a corresponding extension of the concession period, which should make the event 'financially neutral from an IRR perspective'.

Transformative Acquisition Opportunity

The InvIT has received a preliminary, non-binding offer to acquire five completed and revenue-generating BOT projects. These assets have a combined Enterprise Value of approximately Rs. 15,000 crores and a weighted average residual life of about 21 years. Management highlighted that a successful acquisition would significantly extend the InvIT's weighted average life from the current 14 years to approximately 19 years.

Acquisition Funding and Timeline

The proposed Rs. 15,000 crore acquisition includes assets with roughly Rs. 7,000 crores of existing debt. This leaves an equity value of about Rs. 8,000 crores that needs to be funded through a combination of new debt and equity. Management is currently evaluating the opportunity, a process that involves an independent traffic survey and regulatory approvals, and anticipates closing the transaction within the next five to six months. The InvIT currently has an additional debt buffer of around Rs. 2,500 crores.

Debt Profile and Interest Rates

The Trust's current interest rate on debt is close to 8.7%. Management clarified that the entire debt is variable and linked to the MCLR, specifically the three-month MCLR. This structure ensures that the InvIT will automatically benefit from any future reductions in the repo rate by the central bank, with the pass-through occurring at regular intervals following MCLR cuts by the lending banks.

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