IRB INVIT TRUST- new game in the town!

(jatinmakkar1993) #1

IRB Infrastructure Investment Trust (IRB InvIT) is entering the primary market on Wednesday 3rd May 2017, to raise Rs. 4,300 crore via a fresh issue of units and an offer for sale (OFS) of upto 3.48 crore units, in the price band of Rs. 100 to Rs. 102 per unit, with a 25% greenshoe option. Since minimum issue size is 10,000 units (i.e. Rs. 10 lakh at lower end) issue is clearly not for retail investors (which have Rs. 2 lakh threshold for IPO of equity shares). Post listing too, lot size has been kept large at 5,000 units (i.e. Rs. 5 lakh at lower end) to discourage retail participation. Minimum 25% of the Rs. 5,030 crore issue (including greeshoe portion) is reserved non-institutional investors (read HNIs), with balance 75% for institutions. To be listed on NSE and BSE, issue closes on Friday 5th May 2017.

IRB InvIT is a Special Purpose Vehicle (SPV) or a bundle of IRB Infrastructure Developer’s 6 operational toll-collecting road projects covering 3,645 lane kms of highways in Maharashtra, Gujarat, Rajasthan, Karnataka and Tamil Nadu, with average balance concession period of 16 years. As per regulations, it is required to distribute 90% of distributable cash to unit-holders in form of dividends, which is tax free (in the hands of the trust and unit-holders), at a frequency of 6 months.

This is the maiden IPO of any investment trust in India, the financial product not being a debt nor pure play equity, since it lacks a fixed rate of interest and assurance of principal repayment like debt, while risk borne is higher (inflation, toll collection, interest rate etc.) similar to equity. Thus, it is quasi-debt mixed with some equity risk. Based on holding period for computing capital gains, it tilts more towards debt, since, to qualify as a long term asset, holding period is a minimum of 3 years, unlike listed equity shares, enjoying a shorter 1 year holding window, despite both being subject to securities transaction tax (STT). This step-treatment for tax purposes may not go down too well with prospective HNIs.

While sole income stream of toll collection garnered Rs. 987 crore in combined revenue for these 6 projects, it reported negative PAT of Rs. 76 crore for FY16, on account of massive interest outgo of Rs. 435 crore. While loss after tax contracted to Rs. 13 crore for 9MFY17, interest burden remains high at Rs. 310 crore. Fresh issue proceeds will retire debt worth Rs. 3,350 crore (of the total Rs. 4,745 crore as of 30-4-17), while about Rs. 1,680 crore will flow to the sponsor IRB Infrastructure Developer, which will aid the latter’s balance sheet. Lower interest burden should turnaround the operations in the first year itself, enabling timely dividend payments. At Rs. 102 per unit, the Enterprise value of the SPV is pegged at Rs. 5,922 crore. Estimated yield on the product is about 10-12% pa post tax, which is however, not guaranteed, while scope for capital appreciation is negligible, unless issue is grossly over-subscribed.

It is important to note: While India Ratings has assigned AAA credit rating for the underlying assets, it has not rated the units being offering in the current IPO. Likewise, CARE’s AAA rating is again not assigned to the units being offered currently, but on the presumption that the total debt of the trust will not exceed Rs. 1,000 crore, post completion of the IPO. Thus, it would be wrong to assume ‘AAA’, the highest credit rating, for this IPO.

Success of this new product is yet to be proven as both regulations are untested so is their suitability for India. Take for example, Standard Chartered PLC, which came with an IPO of Indian Depository Receipts (IDR) in May 2010, had drawn a lot of investor and media attention, but could not capitalise on its first-mover advantage. The IDR, having issued at Rs. 104 a piece are now ruling at Rs. 53 per share, nearly half of its 7 year old IPO price. Thus, new products may not always find favour. Only time will tell!

Given the ongoing bull run in Indian equities, IRB InvIT is suited only as a diversification option for ultra HNIs, with liquidity needs, after understanding the novel financial instrument well. Since it is quasi debt, mixed with some equity risk, it scores over pure debt instruments, while obviously trailing equity.


(jatinmakkar1993) #2

Please find the enclosed attachment of IRB INVIT TRUST along with repayment schedules. This is just an starting effort. Please correct where i may be wrong.



Am novice to this concept and thus prone to errors, need some clarification.

  1. Will 100% of generated cash be distributed as dividend? As per my understanding, max 10% of toll collection can be used for expenses and of the remaining 90%, again 10% can be retained and other 90% should be distributed away. So dcf calculation should change accordingly and thus IRR figure too would be different.

  2. As per DRHP, fair enterprise value of all 6 projects works out to be around 8000 crore whereas fair equity value works out to be nearly 3000 crores. Can you please let me know where these 5300 crores collected from ipo would form part of only equity value or enterprise value ?? If that’s only equity value, then it means, those who applied to Invits got units at almost 75% premium and if its at enterprise value, they got it at 30% discount.

Thanks in advance.

(jatinmakkar1993) #4

Atleast 90% has to be distributed. 10% is on the descrition of the trust management.
Didn’t got your second question.

(Yogesh Sane) #5

First post in this thread is copied verbatim from here without acknowledgement. I am sure this does not confirm to VP guidelines.

(yudiagg) #7

I fully support cooling off period. Such forums can certainly be misused during bull periods.

(jatinmakkar1993) #10

@Yogesh_s introduction part and basic details are from prospectus and they are not going to change even if posted by SP tulsian or me. Even If moderators want i can take a corrective action to convert it into my language or the first can be deleted. Thanks for enlightening.

(jatinmakkar1993) #11

The valuation part is the main part. I would request you to read it before making any opinion.

(Chandra) #14

OK I overlooked . Deleted my posting on IRB Infra.

(Dhiraj Dave) #15

On March 19 2018, price of IRB investment decline to lowest level of 75 per unit. The managmenet has conference call transcript of which are avaialble on website. I findin this investment interesting at current price. I have updated the worksheet attached in first message by @jatinmakkar1993.

This sheet is updated with cashflow from Amritsar project added by the company. There are lot of moving part (execution risk, inflation risk, traffic risk and last, but not least maangement risk) which may make return very volatile.

Looking forward to view of other members.
Dhiraj working on IRB Investment IT March 20 2018.xlsx (15.5 KB)
The cashflow estimate for Amrtisar project are from the company disclosure for FHFY18 Financial details which can be find in following link.

Discl: I have invested small position at around 77-78 level. My view may be biased due to my investment.

(sko5prasad) #16

What is the lot size for IRB INVIT to take position in open market?

(Dhiraj Dave) #17

I believe it is 5000 units. At current price of around 85 per unit, it would cost around Rs 4,25,000/- per unit and that would be minimum investment. Please note that this is new hybrid instrument and one need to take proper analysis of risk and reward. The expected cashflow for the investor depend on traffic growth in the project invested by the trust and also other factors like Repair cost, Concession agreement with NHAI specifically with respect to hike in toll. All these increase risk for this asset class as compared with pure fixed income assets.
Discl: I hold investment in IRB invest trust and hence my view may be biased. I am not SEBI registered analyst and investor shall do his/her due diligence before investing.