This has been clarified by management in one of the Concalls. PGInvit has to pay for balance stake and after that stake becoming 100 percent, there is no impact on DPU for investors. This transaction has no meaning for investors and DPU will anyways decrease from 2027 unless new assets are taken by PGInvit. Quantum of decrease also not informed but as I can understand its significant based on the valuation report.
P.S: Not invested and only tracking as its AAA rated instrument
3 Likes
I agree with your views
I have been studying about INVITs and REIT’s and other instruments with some predictable cashflows.
After reading above thread and doing my independent thinking, I seem to gravitating to the following, (the views are tried to be elaborated in a context of geopolitical risks and other asset class yielding dividends or delivering particular returns )
Pros for PG INVIT
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Good Visibilty of cash flow.
At a price of 86.7rs per share on 18/11/2024 closing basis and assuming 10rs as DPU annually the yield would be around 11.57% . -
Having low debt on it BS, the company is well positioned to acquire good assets than its peers.( other listed player’s seem to have lot more debt )
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with current geopolitical uncertainty , this seems to be a good place to diversify.
4)Again, if one believes in mean reversion, equities at current valuations also, are more prone to time and price correction at this time.
Whereas other assets like gold, bonds ,Reits, Fractional Investments in realestate, Bonds and FD’s are offering much lower returns than the DPU offered now ( and likely to offer over longer period of 5years or so) to retail investors.
Here I am not even comparing the risk associated with other asset class as I compare it to investment in PG Invit.
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Many in contributer to this thread, have expressed that rate cut seems eminent in near future.
Moreover the trend of rate cuts seems to be less doubted over a decadale of period. Thus, if the Invit is looked upon as a bond( assuming no growth in asset) the cupon rate offered likely to kick in demand sooner or later. -
Unlike other assets, the demand for power transmission looks to remain strong and residual life of assets of about 29 years offers a good longterm visibility of cashflows.
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With just 3 Invit’s and 3 to 4 Reit’s in our market, these assets need to perform and create opportunities for other players to unlock value and tap the markets.
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At some or other point,these instruments is likely to find chase and catch fancy of Insurance companies and mutual funds ( with rush of sustained flow to capital markets).
An individual investor has liberty to invest, cash out, keep some gunpowder dry, unlike MF’s who beyond a point cannot sit of cash and need to hunt for opportunities with less drawdowns.
Cons
1)During the latest concall, company mentioned, its first priority is acquire the balance stake from Powergrid which is likely to have lower contribution to enhance DPU.
Thus low growth in asset portfolio and or misallocation seems to be the risk.( but such risk exists for any other listed non-invit company)
My conclusion
Thinking in terms of probability, at current juncture reward outweighs risk…
Discoslure:
Invested and looking to build more position
5 Likes
Excerpts from Rating agency
The InvIT has acquired 26% stake in four special-purpose vehicles (SPVs) - POWERGRID KalaAmb Transmission Ltd, POWERGRID Jabalpur Transmission Ltd, POWERGRID Warora Transmission Ltd and POWERGRID Parli Transmission Ltd, from Power Grid Corporation of India Ltd (PGCIL; ‘Crisil AAA/Stable/Crisil A1+’) on December 30, 2024, for a consideration of Rs 506.63 crore. The acquisition was funded through additional debt of Rs 506 crore raised at the InvIT level. With this acquisition, PGInvIT holds 100% stake in all five assets (including Vizag Transmission Ltd).
PGInvIT acquired five operational transmission SPVs from PGCIL in fiscal 2022. The assets have an operational track record of over six years with healthy transmission system availability above the normative level of 98%. Collection efficiency was 101% for the first six months of fiscal 2025 as all SPVs are interstate transmission system (ISTS) licensees, falling under the point of connection pool mechanism.
The reaffirmation reflects the stable revenue profile of the trust, with all underlying transmission SPVs operating under the Central Electricity Regulatory Commission (CERC) Sharing of Inter-State Transmission Charges and Losses Regulations, 2020. This, along with their healthy track record of maintaining line availability higher than the normative level and remaining life of ~28-year under transmission service agreements (TSAs), ensures steady cash flow. The rating also reflects the strong financial risk profile of the InvIT.
The financial risk profile is supported by low leverage, with debt of Rs 567.73 crore as on September 30, 2024, and ratio of net debt to assets under management (AUM) of -0.13%. Post debt-funded acquisition of 26% stake in the four SPVs, ratio of net debt/AUM will increase to around 6%, against 70% cap prescribed by the Securities Exchange Board of India for InvITs that are rated ‘AAA’ and have made at least six continuous distributions. This provides sufficient headroom for debt-funded acquisitions. Additionally, the long debt tenure (till fiscal 2041) leads to a comfortable debt service coverage ratio (DSCR).
Full link here Rating Rationale