POWERGRID Infra InvIT issue review (May apply)

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Review By Dilip Davda on April 26, 2021

•    First InvIT offer from a leading PSU in the segment.
•    It has posted good financial performance.
•    PGIIT has not ascertained its NAV so far.
•    Investors may consider an investment with a long term perspective.

PREFACE:
This is the first InvIT from Public Sector Undertaking (PSU) and that too the biggest one so far in history. The sponsors are a mega player in the sector with many ongoing projects and hence this at par offer with a long term perspective appears reasonable. It is coming out with a combo offer of primary as well as the secondary offer of InvITs to the tune of Rs. 7735 cr. Nearest peer IndiGrid has given good returns to its unitholders.

ABOUT COMPANY:
POWERGRID Infrastructure Investment Trust (PGIIT) is set up to own, construct, operate, maintain and invest as an infrastructure investment trust as permissible in terms of the InvIT Regulations, including in power transmission assets in India. It is registered with SEBI as an InvIT on January 7, 2021. PGIIT's Sponsor, Power Grid Corporation of India Limited, also acting in the capacity of Project Manager, is a CPSE under the Ministry of Power, GoI (Government of India) and is listed on BSE and NSE. The Sponsor was conferred with 'Maharatna' status on October 23, 2019, by the GoI.

As of March 31, 2019, the Sponsor was the third-largest CPSE in terms of the gross block as per the Public Enterprises Survey 2018-19 issued by the GoI, Ministry of Heavy Industries and Public Enterprises, Department of Public Enterprises in February 2020 ('Public Enterprises Survey'). As of November 1, 2020, the Sponsor was the largest power transmission company in India in terms of the length of transmission lines measured in-circuit kilometres (Source: CEA).

As of August 31, 2020, the Sponsor's share in India's cumulative inter-regional power transfer capacity was more than 85% (Source: CEA). Further, for Fiscal 2020, the Sponsor's share in the transmission charges for ISTS billed by the CTU is over 85% (Source: POWERGRID). According to the World Bank, the Sponsor was internationally the third-largest transmission utility as of October 25, 2019 (Source: www.worldbank.org/en/country/india/overview#3).

The Sponsor has been ranked the 'Fastest Growing Electric Utility' in the 'Asia/Pacific Rim' region for seven successive years since 2014 based on compound growth rate according to Platts Top 250 Global Energy Company Rankings® and is the only Electric Utility to feature in the Top 50 Fastest-Growing Energy Companies list since 2014. The Sponsor is engaged in project planning, designing, financing, constructing, operating, and maintaining power transmission projects across India and undertakes operations in the Indian telecom infrastructure sector. As of December 31, 2020, the Sponsor also provides transmission and distribution consultancy services in India and other jurisdictions, with footprints in 21 countries (including India).

As of December 31, 2020, the Sponsor owned the Sponsor TBCB Projects. The Sponsor, through its wholly-owned subsidiaries, is setting up, implementing and operating transmission projects at various locations in India where the right to provide transmission services is procured under the TBCB mechanism. As of December 31, eight of these ISTS SPVs had commenced commercial operations, comprising 39 transmission lines (6,398 ckm), with a total power transformation capacity of 9,630 MVA. The remaining Sponsor TBCB projects are at different stages of development.

Of the Sponsor TBCB Projects, PGIIT proposes to acquire five projects initially with a total network of 11 power transmission lines of approximately 3,698.59 ckm and three substations having 6,630 MVA of aggregate transformation capacity, as of December 31, 2020, across five states in India (the 'Initial Portfolio Assets').

PGIIT's Investment Manager, POWERGRID Unchahar Transmission Limited, a wholly-owned subsidiary of the Sponsor, is responsible for managing it and the Initial Portfolio Assets as well as undertaking investment decisions relating to PGIIT's assets. The Investment Manager has been engaged in the power transmission business since Fiscal 2014 and has relevant infrastructure sub-sector experience owing to its involvement in the construction and operation of a transmission system. The Investment manager meets the prerequisite experience as required under the InvIT Regulations. The Investment Manager has overall responsibility for setting PGIIT's strategic direction, including in relation to its future acquisitions, divestment, or enhancement of assets.

ISSUE DETAILS:
PGIIT is coming out with a maiden InvITs issue worth Rs. 7735 cr. Consisting of fresh issue of Rs. 4993.48 cr.  (approx. 499348300 units) and offer for sale of Rs. 2741.51 cr. (approx. 274150800 units) with the price band of Rs. 99- Rs. 100 per unit. Based on the upper price band, it will issue approx. 773499100 units. The minimum application will be for 1100 units and in multiples thereof, thereafter.

The issue opens for subscription on April 29, 2021, and will close on May 03, 2021. Post allotment, InvITs will be listed on BSE and NSE. PGIIT has reserved 75% of the issue for Institutional investors and a balance of 25% for non-Institutional investors (i.e. HNIs and Retail categories). This Offer shall constitute at least 10% of the total outstanding units on a post-offer basis.

The issue is jointly lead managed by ICICI Securities Ltd., Axis Capital Ltd., Edelweiss Financial Services Ltd. and HSBC Securities and Capital Markets (India) Pvt. Ltd. KFin Technologies Pvt. Ltd. is the registrar to the issue. IDBI Trusteeship Services Ltd. Is the trustee for this offer.

As per the valuer's report, its Enterprise value based on the cash flow from operations ratio in relation to offer price at the upper price cap -current/projected - is at 8.65 (31.03.2020), 7.53 (31.03.2022), 7.79 (31.03.2023) and 8.00 (31.03.2023). 

FINANCIAL PERFORMANCE:
PGIIT's total revenue from operations for the nine months ended December 31, 2020, and the Fiscals 2020, 2019 and 2018, was Rs.  1009.08 cr., Rs. 1334.09 cr., Rs. 984.12 cr. and Rs. 345.60 cr. while net profit for the said periods were Rs. 337.14 cr., Rs. 378.83 cr., Rs. 248.06 cr. and Rs. 114.13 cr. respectively.

PGIIT have been given a credit rating of Provisional [ICRA] AAA (Stable), CARE AAA (Is); Stable and Provisional CCR AAA/Stable by ICRA Limited, CARE Ratings Limited and CRISIL Ratings Limited, respectively.

As of December 31, 2020, PGIIT's debt-equity ratio was 3.36.

DIVIDEND POLICY:
PGIIT intends to distribute at least 90% of the net cash available for distribution to its Unitholders once at least every quarter in every financial year. However, the first declaration of distribution by the Trust shall be made within six months from the listing and trading of units pursuant to the Offer, subject to compliance with the InvIT Regulations.

COMPARISION WITH LISTED PEERS:
The net asset value per unit of PGIIT is currently not ascertainable and accordingly, investors will not be able to compare the company with the listed industry peers.

MAJOR CONCERNS:
PGIIT may not be able to make distributions to its unitholders comparable to their estimated or anticipated distributions or the level of distributions may fall.

This being the first issue of the Trust, there has been no formal market for the Units of the Trust. No assurance can be given regarding active or sustained trading in the Units or regarding the price at which the Units will be traded after listing.

MERCHANT BANKER'S PERFORMANCE:
The four BRLMs associated with the offer have handled 36 public issues in the past three fiscals including the current financial year, out of which 16 issues closed below the issue price on the listing date.

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