PGINVIT impairment of investments in subsidiaries and book value

I have difficulties in understanding the cash flow statement of PGINVIT.

  1. The item “Impairment of investments in subsidiary” seems to be extremely high compared to last year. How do we know what led to this and in which subsidiary?

  2. Do the numbers inside brackets like (11362.6) mean negative values?

  3. In spite of the huge impairment, we still see the cash flow is positive and better than last year. Is my understanding correct that (45938.75) invested last year is an outflow of cash and this has given returns, a positive inflow of 11720.73 in 2023?

Also, I noticed that the book value is alternating between a high and low, like a square value. What could be the reason for this?

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This could be good question to ask in following thread
Investing Basics - Feel free to ask the most basic questions - Stock Analysis & Valuation - ValuePickr Forum

All REITS/INVITS undergo a periodic exercise to determine the net asset value of their underlying investments in subsidiaries. Whenever there is a difference between the asset value on the balance sheet and the likely future cash flows the asset value gets revised and possibly there is impairment.

This is similar to depreciation, the difference being depreciation is more predictable and regular

https://www.pginvit.in/uploads/65d94e0b-bee6-42f2-b39b-1513880a91f6/Financial_Results_31.03.2023.pdf
If you see page 18 of the annual report you will notice impairment has been done across the board for all assets in PGINVIT. This could be a one off exercise and may not happen every year. Current cashflow will get a boost as impairment is a non cash activity (it should be balanced out in the balance sheet and income statement). However would be good to keep in mind the potential of future cash flows from these assets. Hope this helps

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Thank you Pulak for the nice answer

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So do I repost it or is there a way to move this question to that thread?

Thank you @mbkv for asking the question.

However , i have a small question to ask , i.e what is the future scope of this INVIT i mean will there be only 5-6 transmissions lines in the future or will Powergrid will win and then allocate to this invit ?

Why is it trading at a 12% current distribution yield… Is the Rs 12 distribution per year sustainable for at least 2 years?

Not sustainable, if they do not get more revenue-generating assets. They did dip into reserves to maintain this 12%, please check the details.

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Why do you think its not sustainable given the current assets. Where will the money leak? the price of transmission will escalate with inflation if it not already built into the pricing. Secondly, even if they dont escalate Rs 12 dividend looks steady unless management says so. Last quarter the management had to dig in about few paisa ( i believe they took 10-15 paisa from reserve to meet their stated Rs 3 per quarter goal). I dont think management is smart in quoting a yield ahead of time when so many variables could impact cost. They should instead talk about long term PPAs etc so that investors get visibility into future cashflows.

As i see it, its a good place to park cash and get 9-12% yield and if govt bond rates go down then this stock will rally as it provides a much higher yield. So if govt rates stay put u get paid a good yield but if govt rates fall u get capital appreciation too.

Management quality is good since these are PowerGrid guys with experience. Holding for 20-25% gain in capital while collecting 12% yield.

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This assumes no asset addition on top of the 5 transmission lines they already have a 74% stake in.

There is a significant dip in revenues from FY 28 and same is available in the valuation report . Although management confirmed Rs 3 quarterly distribution for current FY but they indicated some dip in next year. Acquisition of balance 25 percent from Power Grid for 4 balance assets is also not going to contribute much to distribution. Conservative commentary by PSU employees and no enthusiasm for other asset additions has led to gradual decline from 130 levels. Investors who invested at those levels have already seen significant capital depreciation with only solace of 3rs quarterly distribution.

I am watching the scrip for last one year and looking for an entry and current yield is luring but risk of capital depreciation is keeping me at bay. Looking for initiating position from 95 levels and increasing one every fall as these yields for AAA rated govt instrument is already at lucrative levels .

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You have an excellent point there about comparison to AAA rated govt instruments.