India Grid Trust (INDIGRID) Q3 FY23 Earnings Concall Transcript

India Grid Trust (NSE:INDIGRID) Q3 FY23 Earnings Concall dated Jan. 30, 2023.

Corporate Participants:

Harsh Shah — Chief Executive Officer and Whole-time Director

Satish Talmale — Chief Operating Officer

Divya Bedi Verma — Chief Financial Officer

Meghana Pandit — Chief Investment Officer

Analysts:

Jiten Rushi — Axis Capital — Analyst

Mohit Kumar — DAM Capital — Analyst

Rahul Marathe — ICICI Prudential Pension Funds — Analyst

Pratik Kothari — Unique Portfolio Managers — Analyst

Chandramouli M — Individual Investor — Analyst

Vishal Doshi — Individual Investor — Analyst

Sunil Shah — Turtle Star — Analyst

Unidentified Participant — — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the India Grid Trust Q3 FY ’23 Earnings Call, hosted by Axis Capital Limited. [Operator Instructions] I now hand the conference over to Mr. Jiten Rushi from Axis Capital. Thank you and over to you sir.

Jiten Rushi — Axis Capital — Analyst

Yeah, thank you Inba. Good evening, ladies and gentlemen, on behalf of Axis Capital, I am pleased to welcome you all for the IndiGrid Trust Q3 FY ’23 Earnings Conference Call.

We have with us the management team of Indi with us, which has been represented by Mr. Harsh Shah, CEO and Whole Whole-Time Director; with Ms. Divya Bedi Verma, CFO; Ms. Meghana Pandit, CIO; and Mr. Satish Talmale, COO. We thank the management for giving us this opportunity.

We shall begin with opening remarks from the management followed by a Q&A session. I would like to now hand over the call to the management for opening remarks. Thank you and over to you sir.

Operator

It looks like a sir’s line has just dropped, ladies and gentlemen, we request you to please remain connected. We’ll get Mr. Shah, back on the call and connected, over to you sir.

Harsh Shah — Chief Executive Officer and Whole-time Director

Good Evening. Yeah, hi, good evening, everyone, and thank you for joining the call today. Thank you Axis team to post us to start with, as we have done, I would like to reiterate our vision on Slide number 3. We have set out to become the most admired yield vehicle in Asia and I think all the actions, and decisions that we have taken is to keeping in mind to achieve this vision. And we believe the strategy of a focused business model, value-accretive growth, predictable distribution, and optimal cap structure has contributed significantly on this vision over the last five years. We continuously strive to live up to that.

Coming to the quarter, Slide 5, where I’ll have a quarterly update regarding the highlights of the quarter. In this quarter, particularly in was an absolutely heavy quarter with two or three acquisitions of different types getting signed. At one side, we assigned around INR1,500 crores [Indecipherable] of PPL from Sterlite Power which is part of the framework assets. On the other side, we have signed framework agreement with GR Infra Limited for around INR5,000 crores of assets to [Indecipherable] and eventually monetize the of IndiGrid. [Technical Issues]

Operator

Sorry to interrupt, Mr. Shah, we are unable to hear you very clearly, if we can just switch to handset mode and speak probably will be able to hear you.

Harsh Shah — Chief Executive Officer and Whole-time Director

Sure, okay. Okay. Sorry is that better?

Operator

Yes sir, thank you very much.

Harsh Shah — Chief Executive Officer and Whole-time Director

Great. So, the GR Infra one, while I was talking about maybe these are INR5,000 crores, inbox [Phonetic] where we will bid for certain assets together and we also signed a — I would say term sheet and a framework agreement for specific asset rather than transmission with GR Infra. And in the same quarter, we concluded the acquisition of Raichur Sholapur Transmission Company Limited from three developers. So we see this quarter as a — as a very successful quarter with respect to the business acquisition.

On the other side, on the financial performance, we have continued our robust performance, where our EBITDA and revenue both grew by 4% year-on-year. Collections have remained at 100% this quarter. And DPU increase versus last year versus this year, we are at a 3.5% growth, which we are confident to deliver this year and we’ll pay the INR3.3 DPU this quarter. Our net-debt to AUM remains at 58% this is pre-acquisition of KTL, but significantly below the 70% leverage cap as per SEBI which provides us ability to grow without Delhi [Phonetic].

On the operating performance side, our average availability remained 99.76% is what provides us maximum incentives. Proud to achieve 2 million safe man-hours achieved and then still going on. On the BI platform, which we have developed, which is utilizing the earlier digital investment that is yielding a lot of results in terms of ability to optimize the cost and I would say use even drone technologies to ensure that our long-term O&M costs remains lower.

So that’s the quarter three, highlights of the performance on the next slide, Slide number 6 is about the industry update. In general, the power sector remained strong and it is one of the good high-frequency indicator of economic activity and in general, the demand growth has increased and has continued to increase and to be honest, demand growth has surpassed the economy and what historically people have predicted. So we do feel confident that the demand growth in India on the electricity side will continue to grow, on account of variety of short-term and long-term measures, and short-term may be linked to the economic activity. But on the longer run, like EV-fication of transport might add substantially big boost in years to come.

On the transmission side, CEA recently released a report, which showcases about INR250,000 crores of capex required to modernize and set-up the country for 500 gigawatt of RE capacity and achieving energy transition.

So all-in-all, I would say that in general the transmission network in India we are — we believe that is going to expand substantially. On account of the general load growth second India’s efforts towards energy transition. So we believe that there is going to be substantial amount of capex and we will have our reasonable amount of business out of that.

With that outlook on quarter in the year I would — I would say mic, to my colleague, Satish Talmale who is Chief Operating Officer to take you through the operating performance of IndiGrid for this quarter.

Satish Talmale — Chief Operating Officer

Thank you, Harsh. Hi, everyone. Good afternoon. Happy to share quarterly operational performance for IndiGrid portfolio of assets. So again, we focus, our objective on zero-harm on HSE perspective. For the quarter, we had no major incident, Zero LTI, Loss Time Injuries, Zero MTC, Medical Treatment

Cases, Zero FAC, First Aid Cases. As Harsh mentioned, we’re really proud to achieve two million safe man-hour milestone and we will strive to continue that performance every quarter.

On transmission availability performance, we have achieved portfolio-wide 99.76% availability. Typically, quarter three and quarter-four are the quarters for performing all the annual shutdown activities. As you can see on the right-hand side, there are few assets where it is slightly below 99.75% that is attributable to the planned shutdown outages, which we have undertaken to improve the reliability of the asset. And majority of the assets are on the track to achieve 99.75% target availability.

On reliability, this quarter was one of the record quarter for us in IndiGrid history. We achieved 0.08 trips per-line which is I think best-in the industry at a peer comparison level and this is all due to all the hard work for which ground teams are putting to make sure the assets are reliable and there are no defects in the system.

Digital asset management as we updated previous quarter, all the assets on the portfolio are operating via DigiGrid platform and now we’re working on advanced analytics, which will help us to make better fact-based decisions to improve the performance on reliability, safety, as well as on the cost optimization. Happy to share that we completed over two solarization project at Bhopal and Dhule substation. Idea was to you net 0 auxiliary power consumption via renewable energy sources, so that we achieve our net 0 objectives, which is part of our EHU framework.

Again, as our EHU framework is concerned, biodiversity is a major initiative, which we have undertaken and already action planning study has been initiated for all the critical portfolio as such. On the left-hand side, chart, again, the focus on training continued in the quarter. As I said, there were no lost-time incident incidents in the quarter. Unsafe condition reporting, there is a focus to that. There is a culture to report all the unsafe conditions at sites. Earnings is something, which helps us to prevent any future accident. So that is also being continuously reported.

Our solar utility 100 MW power plant has generated 46.32 million units for the quarter, with a performance of 21.9% for CUF, with availability of 99.41% and it is one of the best-performing plant in the entire solar park. So we are trying to achieve our consistent track record to maintain superior availability. With that, I will hand it over to Divya.

Divya Bedi Verma — Chief Financial Officer

Thank you, Satish, [Indecipherable] we are on Slide number 8. Good quarter, with a stable performance as compared to the previous quarter, previous year have a revenue of INR590 crores with a 4% growth, EBITDA at INR536 crores. NDCF generated for the quarter is INR294 crores and we are as per our guidance, committed and Board has approved the distribution of INR3.30 per unit.

Collections for the quarter were good at 100%. We collected 100% of the revenue. And although for the previous year similar quarter the collection percentage was at 103%. But collections have — have improved over previous quarter. In quarter 2, we were that 96% of the collection. DSO, days stands at 63 days as on December ’22. And that’s month-on-month collection efficiency for up to November-December we have seen good progress, with above 200% collections for the quarter.

Coming, on the next Slide number 9, DPU is INR3.30. It will be distributed in form of interest and capital repayment. Interest is INR2.80 and capital repayment is approximately INR0.50. The outstanding units as end-of-the quarter it’s around INR70 Crores and the gross distribution to all the unit holders of INR2.30 is is coming to INR231 crores. Record date for the distribution is 31st January and the tentative date at which the unit holder will receive the distribution is 9th of February.

NAV as on December stood at INR133. Post this quarter distribution, IndiGrid have distributed — would have distributed INR68.41 per unit with a total distribution of INR3,646 crores, distribution. On the right-hand side, we showcased the trend of distribution year-on-year basis, which is stable and scalable growth of 3% to 4% year-on-year. We are on-track to meet this [Indecipherable] guidance of the INR13.20 per unit.

Coming on the next Slide 10, which showcases a waterfall from our EBITDA to the NDCF generation. At the SPV level, we have a consolidated EBITDA of INR530 crores, make up the finance cost, working capital movement, capex, and taxing at SPV. NDCF diluted and SPV comes to around INR543 crores, the net of the trust level expenses, interest cost and tax. We have generated NDCF of INR294 crores, which is well-above our guidance requirement which will be distributed INR131 crores and this quarter again we are replenishing results, so the — this gives us an upside of INR63 crores of reserve. With this the total reserves, end-of-the-quarter three at a console plus level is around INR217 Crores. So that’s all. I hand over to Meghana to take the subsequent slides.

Meghana Pandit — Chief Investment Officer

Thanks, Divya. Good evening, everyone. I am on Slide number 11, giving you a snapshot of the balance sheet as on 31st of December. We remain AAA-rated by the three leading agencies and our average cost of debt portfolio continues to be at around 7.5%. We ended the quarter with a cash balance of about INR1,039 crores, which includes the distribution for this quarter, and [Indecipherable] and balance cash. The mix between the fixed-rate borrowings and straight borrowings crossed the total gross borrowing of INR13,000 odd crores continues to be tilted towards fixed-rate of more than three-fourths of the book.

Our net-debt to AUM, as on 31st December, continues to be at 58%, leaving a significant headroom for acquisition. Interest coverage ratio remains at a healthy now over 2.2 times. The incremental cost of debt in-line with the interesting cycle in the market have for this quarter was slightly higher at around 7.8% for the third-quarter. Graph [Phonetic] on the right-hand side provides the mix of the sources of borrowing which today spans on the bank loan signed about 60% odd, NCDs, about 40%. NCDs been subscribed by various investors of mutual funds, corporates, retail HNIs, insurance companies and the banks all lets so between private banking and PSU banking like. The bottom chart provides the repayment, actually financing schedule of the loan book over the next 10, 15 years. And as you can see that broadly, not more than 10% to 12% of the overall loan book comes up for repayment/refinancing in a particular year, ensuring that we have not — we are not going to bunched up of any debt maturity coming up in a single year.

Moving on to Slide number 12, on the total return chart, as on 31st of December, we continue to provide superior risk-adjusted returns. Annualized return being about 14% and total returns of 105%. Break up of the total return in between distrubution and price change of 65% and 40%, this doesn’t include the third-quarter our distribution.

On the risk basis, again, beta continued to remain very close to 0, both on the debt side as well as on the equity side, we have continued to outperform [Indecipherable] and the Infra stocks. Just to spend a couple of minutes on the next slide, Slide number 13, on the framework agreement and with GR Infra. This is an agreement to acquire Rajgarh Transmission Limited which GR Infra won. This is of interstate transmission that is based competitively bid competition project. This has been [Indecipherable] for the establishment of Pachora SEZ and a substation of 400 kV transmission line. The in COD for this project is expected to be by December ’23. It’s again is on a BOOM basis and awarded on the BOOM basis. The payment will be under the industry transmission PoC mechanism by the CTU.

The levelized tariff for this project is about INR41 crores, so with a TSA tenure of 35 years. IndiGrid will be acquiring this project upon its COD in the third-quarter of next [Indecipherable]. In addition to this, we have also signed an MoU with GR Infra to jointly bid up to INR5,000 crore of various transformation projects which are coming up. This is a jointly bid identified transmission project. Idea is both GR as well as IndiGrid will be working jointly on this bid and IGT will be acquired in the project from GR Infra.

Going to Slide number 14, this is we signed a binding Share Purchase Agreement with Sterlite Power for acquisition of Khargone Transmission Project. This is one of the framework assets so that we are acquiring. And this constitutes of revenue-generating elements again an Interstate Transmission Project part of the PoC mechanism with CTU and BOOM project with 35 years. The balance life remaining for this project is about 32 years. This has become operational and revenue-generating since December 2021. The levelized tariff being about INR150 million-odd crores. The size of the project from an acquisition perspective is close to about INR1,000 Crores. And likely to expect, likely to add about INR85 odd crores to net distributable cash-flow for IndiGrid on a yearly basis.

Post-acquisition of this project the AU1 for IndiGrid will increase to about INR22,700 odd crores. And completely fixed in IndiGrid strategy of acquiring value-accretive assets. Unique feature about this asset, again, is there is existing synergies with one of our existing 765 KV networks in Bhopal, Dhule Transmission Project. So one transmission will terminate in the Dhule substation, by which we are able to optimize on the operations and maintenance for Khargone Transmission post its acquisition.

I will just request Harsh to take the next couple of slides on the business outlook over the next few quarters, please.

Harsh Shah — Chief Executive Officer and Whole-time Director

Thanks, Meghana. Slide number 15, we have tried to capture our historical track-record, and what might happen in future. And I think some of you might have been investors since IPO or even have been present around that. So we had showed this chart that five years ago to showcase, how the DPU chart would look like if there were only IPO assets which is IP assets as mentioned above. Then, there was a set of assets, which we targeted to acquire, which is in the last few acquisitions, number-one. We acquired other two big asset acquisitions in 2019, which were ENICL, OGPTL, and NRSS analysis that is the green and subsequently, we have been continuously doing that.

Now what this chart showcases the way in which and the yield can actually deliver predictability and predictable growth is by acquiring assets consistently at the right price and right growth which would enable us to not only streamline our DPU predictability, but also increase it over a period of time. And that’s why this chart showcased because just to showcase. If you look at from FY ’23 and behind it is the value-accretive growth that has panned out and year-on-year, we increased by 3% to 4%. And as we stand today in FY ’23, we not only have headroom to maintain what we have distributed for a long-time, but also our ability to grow by acquisitions, as well as the acquisitions that we have done till now.

Going on Slide 16 is the business outlook for us for the rest of the year and a few months. So on the portfolio strategy. I think we would remain to continue, to maintain our assets well and ensure that what we have committed and promised gets delivered as a sustainable distribution to our investors. This year, we would look to deliver the DPU guidance of 13.2, nine months of which you’ve already done. We’ll continue to acquire assets. We have in all acquired about or signed to acquire about INR2000 crore over last quarter. And in the future outlay that we see in the transmission sector about INR2.5 lakh crores is a sizable opportunity. In addition as and when the state assets become monetizable, we believe that’s going to be a large-scale expansion as well.

We are also, looking for other power transmission bids as well as adjacent spaces like utility-scale battery storage, which do provide sustainable cash flows. The balance sheet side, I think as maintained before, we like to remain in the mean and when interest rates were falling too fast we didn’t fall too fast and when interest rates were rising too much our cost of debt at portfolio average level, it’s going to pretty much remain. Lesser than the growth that has taken place in the interest rates. So we tried to remain in the mean to ensure that there is less variable is variability in terms of our interest-rate cost and we can provide predictable distribution.

On the asset management side, we will continue to maintain maximum availability and our incentives. In a lot of our portfolio, we have done self-reliant O&M practices, which pretty much means that there is no contractual OMC, our own team members at IndiGrid are maintaining those assets. In addition to we are looking at more business intelligence platform, which will further allow us to optimize the cost and increase reliability. We commit to and try to maintain the 1/EHS and keep access across our portfolio.

On the next point, while many of them are linked, especially the first two is with respect to certain amendments in the tax anomalies that we’re seeing between the taxation and others. I think it’s, let’s hope, what the budget throws, but this is something which we do believe that will result into more liquidity and better liquidity for investors and [Indecipherable] and therefore attract more capital. I think that’s where we kind of end the short presentation for the quarter. We can please open for question-and-answers.

Questions and Answers:

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen we will wait for a moment while the question queue assembles. Our first question is from the line of Mohit Kumar from DAM Capital, please go ahead.

Mohit Kumar — DAM Capital — Analyst

Good evening, sir. Sir first question is on this framework agreement. So we have identified the projects and are the projects are going to bid-out in next three months or is it a slightly longer-term in nature?

Harsh Shah — Chief Executive Officer and Whole-time Director

Yes, we identified the projects there specific projects that we are working on. I think the big segments that were specific, but they are the once we already announced by the [Indecipherable]. So it will be one of those projects.

Mohit Kumar — DAM Capital — Analyst

And sir, what could be the is post all these transactions, all the acquisitions especially once you finish the KTL? And how much extra limit we have to borrow and acquire the asset? And how do you look at raising the capital in FY ’24, yeah?

Harsh Shah — Chief Executive Officer and Whole-time Director

Yeah. So I think that’s a math, I can run hazard a guess, but I think if you add in our AUM and debt INR1,700 crores will be adding between Raichur and this it will give that number, but Meghana do you have the specific number handy, which you can share.

Meghana Pandit — Chief Investment Officer

Yeah, so, Mohit, today we are at 58%, which is — which is after Raichur, after acquiring Khargone Transmission, it will go to somewhere between INR66 crores to 61% percent. And that’s the identified asset. After that post-acquisition, of course, we will add it both depending on the size of the acquisition, it will get added to the debt as well as to the bottom-line. But even after acquiring Khargone as you can see there is still significant headroom that is available to us.

Mohit Kumar — DAM Capital — Analyst

Sir, last question, sir, what is holding up the demonetization update PowerGrid asset and is there any thinking to quickly assess out. Is there something harder?

Harsh Shah — Chief Executive Officer and Whole-time Director

So I don’t know about the year say part, but, but I think see whether the PowerGrid monetizes or not those assets which are with Power Grid is to be [Technical Issues]. If we see from the Investment Manager of Finance the perspective I would see that any public asset monetization, sale of assets of concession should go through a competitive bidding process, and that will be the right thing to do because at the end-of-the day, the assets are built with taxpayers’ money and it’s important that a right transparent bid process takes place for any monetization be ir power grid or others.

So I think. That’s our view is, whether Power Grid decides to monetize or not. Obviously, it’s a listed company with a separate Board. It — it’s their choice and decision. But I would — I would rather say even state monetization, if you look at the OMT guidelines we are very-very clearly identifying that it should be an auction. And I hope that states come up with that process very soon, because that’s where most amount of capital is also needed.

Mohit Kumar — DAM Capital — Analyst

Right. Okay sir, thank you, sir, thank you for the answer. Thank you.

Operator

Thank you. Our next question is from the line of Rahul Marathe from ICICI Prudential Pension Funds. Please go ahead.

Rahul Marathe — ICICI Prudential Pension Funds — Analyst

Thank you, sir for the opportunity. So if would like to take me through this MoU that you have signed with, GR Infra, so just wanted to get some clarity. Like are there any kind of greenfield risks that we would be exposing ourselves to in this joint bidding, yeah?

Harsh Shah — Chief Executive Officer and Whole-time Director

Yeah, thanks. I think I would say that the MoU is, it’s more like an alignment different projects under that. And I would say that in the framework that we have signed for Rajgarh transmission, we are not taking — we are not taking any greenfield risk, but projects where we may have synergies with like, let’s say, an expansion or connecting way with our own substation or a small line. We don’t mind taking that risk, we have already taken it in Kallam and that’s going well. So but it is — both parties will need to agree to a particular project and what is at the end-of-the-day, what is the maximum value that both parties bring to table, that’s what one evaluates to win in a competitive process.

So such MoU you allows us to talk freely and you know developed — explore different options and one of the options can be that there are projects where IndiGrid feels, there is most value for IndiGrid you might pick the under-construction risk as well.

Rahul Marathe — ICICI Prudential Pension Funds — Analyst

So what would be the total exposure of such kind of risk in our totally AUM, like you would have some risk management on that framework?

Harsh Shah — Chief Executive Officer and Whole-time Director

So I would say, look, we might have management, risk management framework, but that’s not public and we can make it. But there is a clear guideline of SEBI that we will never be more than 10%, so that is like a low for us. Right. We can not be and we would not like to be even closer to that number, but what exactly we do within which percentage is more risk management framework at the management level.

Rahul Marathe — ICICI Prudential Pension Funds — Analyst

Thank you.

Operator

Thank you. Our next question is from the line of Pratik Kothari from Unique Portfolio Managers. Please go ahead.

Pratik Kothari — Unique Portfolio Managers — Analyst

Hi, good evening, and congratulations for a couple of potential acquisitions after long time. And highly appreciate you sharing indicative DPU chart. I have a question regarding this MoU again. This seems to be a very interesting opportunity for us, I mean, the method to go forward. If we just highlight any risks that we need to be aware of why do get into such agreement or what are you confident of?

Harsh Shah — Chief Executive Officer and Whole-time Director

So the MoU itself doesn’t pose any risk, right. As I’ve said MoU is a memorandum of understanding. So we are working with a common understanding for certain set of projects, that itself will never pose a risk. But as I said, we will look to do different type of arrangements for bids which are more strategic or [Indecipherable] of IndiGrid. So there may be an under-construction project which may undertake. But then it is only decided by many other parameters so that risk on today, it’s not there. You may take it, but that would be considering, if we are getting substantial synergies over there.

Pratik Kothari — Unique Portfolio Managers — Analyst

But in such MoU, is it that in this case GR Infra would be the developer and once that is done IndiGrid takes on. So where does this under-construction bit come in?

Harsh Shah — Chief Executive Officer and Whole-time Director

Okay, so one is, what you described is a framework car type of assets, which we have done before, and that’s what we’ve done for Raichur side [Phonetic]. And when I say under-construction risk, for example, right now, we have taken Kallam Transmission as a 100% under-construction with IndiGrid, while it’s going well. But there are projects in which we might have synergies and the risks, which are not suitable for IndiGrid. We might partner with somebody and that could be GR Infra for one of the projects. It depends on where IndiGrid can add value and those projects we might take under-construction risks to us to say that we might bid for it.

Pratik Kothari — Unique Portfolio Managers — Analyst

Right, fine. And just one small clarification, you have mentioned the levelized tariff, tariff for couple of aggregators. Explain what does that mean.

Harsh Shah — Chief Executive Officer and Whole-time Director

So any bid document that has a number which gets compared that whomsoever is the lowest number will be declared a winner. And that number becomes public. So the levelized tariff is that number. We quote for 35 numbers in the model in the bid. So to compare with one number the Bid Process Coordinator may use a discount rate, it can be 10%, 12% different depending on what they explicitly stated in the bid. So, and that gives us the levelized tariff. Then they announced that this bidder has won this project at this levelized tarrif. And this is a public announcement. So that is the number that this levelized tariff is referring to.

Pratik Kothari — Unique Portfolio Managers — Analyst

And is it fair on our part to compare what you’re paying for this asset versus the levelized tariff for the capex [Phonetic] asset?

Harsh Shah — Chief Executive Officer and Whole-time Director

Not for capex. Yeah, one, there are two anomalies in that because levelized tariff will change depending on what bid processor or coordinator took the discount rate, right, which can be substantially different than the other. So the mathematics may not play-out very well. And second is, we don’t pay for capex, we pay for acquisition value. So if and again, most of our assets have a tariff cover publicly available. So you can use a particular discount rate and then compare that to the cost of acquisition that we have paid, not capex cost of acquisition.

Pratik Kothari — Unique Portfolio Managers — Analyst

Thank you and all the best.

Harsh Shah — Chief Executive Officer and Whole-time Director

Thank you.

Operator

Thank you. Our next question is from the line of Chandramouli M, an Individual Investor. Please go ahead.

Chandramouli M — Individual Investor — Analyst

Hi sir, [Technical Issues] distributing as a capital payment, is it the tax into any [Technical Issues].

Harsh Shah — Chief Executive Officer and Whole-time Director

Sorry, I could not hear your language was not clear.

Operator

Mr. Chandramouli you are on phone can you switch to a handset and please?

Chandramouli M — Individual Investor — Analyst

Hello, can you hear me?

Operator

You can ask your question. You’ll have to repeat your question.

Chandramouli M — Individual Investor — Analyst

Okay, sir in the [Technical Issues] per unit, which you were distributing this quarter as a capital repayment is it tax free for an unit holder?

Harsh Shah — Chief Executive Officer and Whole-time Director

Okay, sir, there is a disclosure on one of our old — in the website and exchanges, for any tax treatment, I think it is best to refer to that, because taxes, this is not area of expertise that how individuals will get taxed. But we have taken a lot of advice on the tax treatment — potential tax treatments. I think it is best to refer to that to check the tax treatment of that. Okay, we can tell you we are not [Technical Issues] from that because we are not required to, that’s the view from the [Technical Issues].

Chandramouli M — Individual Investor — Analyst

Okay. sir, the next one is, you had mentioned that the new acquisition will add about INR85 crores of NDCF from the coming years. That means, if my understanding is correct NDCF will go up by another 8% to 9% from the current level. So is it fair to assume that the distribution per unit will also increase in that range next year? Hello?

Operator

Ladies and gentlemen, it looks like Mr. Harsha’s line is disconnected. We request you to please remain connected while we join him back. Please remain connected. We’ll get sir, connected back. Ladies and gentlemen, thank you for your patience. We have the line from Mr. Shah connected and I’m going to unmute the line for Mr. Chandramouli.

Chandramouli M — Individual Investor — Analyst

Yeah. Hello sir.

Harsh Shah — Chief Executive Officer and Whole-time Director

Yes, please.

Chandramouli M — Individual Investor — Analyst

Yeah, so you had mentioned that the new acquisition will add about INR85 crores of NDCF which means the NDCF will go up by another 8% to 9% from the current level. So can we expect the same kind of incremental — I mean distribution in the coming years.

Harsh Shah — Chief Executive Officer and Whole-time Director

So I think the reason why we showcased that chart before was exactly that what can be done. However, whether the distribution is increase or not we historically taken a decision in the quarter for both we think for the [Indecipherable]. So we will be able to guide on that only in the next quarter, however. If you look at last five years track-record we have consistently done it. We applied two parameters. One parameter is that when we increase distribution, we want to increase it in a way that at least for next five-six years even if we go acquire anything distribution still remains at that level, right. And that is very important for our business model, because we may not acquire assets in some years. We may not acquire assets every quarter and our business should still provide enough headway to provide distribution visibility to investors and us the timing that when the market is right for acquisition, we acquired at the right price. So we keep that flexibility, but we compare and whenever there is an ability to increase distribution consistent and it will remain stable for next five to six years, we look-forward to increase that. That has been our strategy in that. And historically we have done it whether it gets done this quarter or not, it’s a Board decision and we’ll take it up in the next quarter.

Chandramouli M — Individual Investor — Analyst

Thank you, sir. That’s all for me. Thank you.

Harsh Shah — Chief Executive Officer and Whole-time Director

Thanks for the [Technical Issues].

Operator

Thank you. [Operator Instructions] Our next question is from the line of Vishal Doshi, an individual investor. Please go ahead.

Vishal Doshi — Individual Investor — Analyst

Sure, thank you. I have a simple presentation mentioning the distribution per unit, as on year-on-your. [Technical Issues] quarter three FY ’22 of those 3.13, quarter three FY ’23, so if you see the breakup on the Slide number 9 of the presentation. It shows the distribution per unit 3.19 with a breakup of interest rate 3.1137 dividend yield and capital repayment as 0.18, but if you total to this 3.1 and 0.18, it comes to a total of 3.29, which obviously 0.19 and if you compare it with the payment of quarter three, which is 3.30. I think there is barely any year-on-year increase in the distribution per unit. So we would request for clarification on the same.

Harsh Shah — Chief Executive Officer and Whole-time Director

Sorry, if I — if I get your questions right, what are saying is that because there is capital repayment there is not enough increases. Is that what you are saying?

Vishal Doshi — Individual Investor — Analyst

Yes, that was my second question. But my first question is that, is there any error in the reporting numbers, like if you see the decision priority [Phonetic], it is 3.19, am I right. However, if you see the Slide number 9, it shows that the interest is 3.11 and and capital repayment as 0.18. If you total these two items, it becomes 3.29 rather than 3.19.

Harsh Shah — Chief Executive Officer and Whole-time Director

No, so. I think, first is that you are looking at quarter three FY ’22, you should have been looking at quarter three FY ’23.

Vishal Doshi — Individual Investor — Analyst

No. So, I’m comparing the quarter three FY ’22 versus quarter three FY ’23, so suppose if my quarter three FY ’22 two is not 3.19 if it is 3.29 if I compared with 3.30, there is no 3.5% year-on-year increase in the [Speech Overlap] unit.

Harsh Shah — Chief Executive Officer and Whole-time Director

But in quarter three, you are saying quarter three FY ’22 to 3.19, you’re comparing with what number, sorry, I’m…

Vishal Doshi — Individual Investor — Analyst

3.3 quarter three FY ’23.

Harsh Shah — Chief Executive Officer and Whole-time Director

Correct. So 3.2 versus 3.3 is about 3.5% increase. Is that right?

Vishal Doshi — Individual Investor — Analyst

Yeah, but that 3.2 is exactly 3.29, so is it possible for someone in the office to maybe open to the presentation and [Speech Overlap].

Harsh Shah — Chief Executive Officer and Whole-time Director

Certainly, I can look at it, so you’re saying that 3.1 plus 0.863…

Vishal Doshi — Individual Investor — Analyst

That itself is 3.29.

Harsh Shah — Chief Executive Officer and Whole-time Director

Understood, understood, sir. I can tell you that there seems to be an error here 3.19 is sacrosanct because that’s what the distributer has totalled. But if you… [Speech Overlap]

Vishal Doshi — Individual Investor — Analyst

But if you total two items, then it is 3.29.

Harsh Shah — Chief Executive Officer and Whole-time Director

I understand. I understand and that’s why I think there seems to be an error in FY ’22 disclosure of 3.11 and 0.1863 [Phonetic], give us a minute here, Divya with us she will just check in a second.

Vishal Doshi — Individual Investor — Analyst

So obviously you are correctly inferred my second question, there is a rise in the capital repayment so. I just wanted to understand, although, we understand that there is some sort of in EMI schedule where that the loan gets repaid and your interest component gets decreased, although you are still maintaining maybe the same level of distribution per unit. But in terms of the interest rate just wanted to pick-up your thoughts. Is there a possibility to have the higher interest income and maybe in a similar fashion if — at the same time, you want to have the objective of maintaining the constant distribution per unit for the next maybe say three, four, five, six as you have mentioned in the previous query?

Harsh Shah — Chief Executive Officer and Whole-time Director

Good. So as described that in this, there is there are two conceptual inaccuracies. Point one, comparing the interest and principal versus an EMI is conceptually, not a I would say the correct assumption over here, because 99% of our assets are permanent assets, right and the reason why they are second is it is second anomalies [Phonetic] which is not in our choice to decide what interest and principal. The income from InvITs rather, let’s say, income in the hands of InvIT are kept as a pass-through. And with that CBDT is required us to act, the trust itself as a pass-through vehicle. And therefore whatever form and manner the SPV can give up the cash to the InvITs, right, is the same manner in which IndiGrid needs to give it back to investors.

So now what happened in some of the SPVs, there is, let’s say, there is more EBITDA then the interest that you can charge, right. So the residual EBITDA comes from SPV to InvIT in form of principal repayments. And therefore IndiGrid needs to also provide that as principal repayment to investors. Now this is not a repayment of your capital. There is no cash value over here. This is just the manner in which the money is being transferred to ACV to InvIT and InvIT to the investors. The whole reason to choose Trust [Phonetic] as a vehicle was to provide this ability because in companies, you cannot do this to give it to investors. Right. You cannot take-out the capital repayment away to owners of the business and that is the conceptual change. That’s why you’ve chosen Trust.

So one clarity is that it is not in our hands. It depends on, we have 14, 15, SPVs [Foreign Speech], the capital structure is different. Depending on that, they will give up some interest, some dividends, some principles. We just added it up at InvIT, make adjustments and distribute. It is not — it’s not in our ability to change that.

So that’s one. Second is conceptually this is not really capital, given asset value a day before the principal repayment was also the same. Today is also the same, it is just the mode in which the money is passed to the Investor because we have chosen Trust up platform, right. As the Government has chosen Trust as a legal entry. So I think there is a — plus, we need to check the 3.19 plus, that certainly, we take that you. I think you’re right on that. We will double-check and get back on that. But the second conceptual, is that principal repayment is just the mode in which the money is passed on to unit holders, not a conceptual repayment of capital.

Vishal Doshi — Individual Investor — Analyst

Got it, third point if I may be allowed to a second question, or relating to the same thing?

Harsh Shah — Chief Executive Officer and Whole-time Director

Sorry.

Vishal Doshi — Individual Investor — Analyst

Should I go ahead with the second question, can I go with the second question, please?

Harsh Shah — Chief Executive Officer and Whole-time Director

Yes, okay.

Vishal Doshi — Individual Investor — Analyst

Yeah, so. I also see that you have actually part from INR63 crores has not been in distribution and [Indecipherable] it as reserve. The reserve balances increased INR207 crores. Thus cumulative, so I do understand that it will be for some future acquisitions or for some future planning or may be it is out from a stability point-of-view. When I see the Slide number 15 with respect to the same and see the chart, maybe you can just help us in understanding the same. FY ’24 and ’25 onwards the DPU line is again 13.20, so if you can maybe throw some light, because you have the reserves of [Indecipherable] plus in as centered in the previous question that you might have an extra EBITDA up because of the acquisitions [Indecipherable] around INR85 crores. So how does that actually really pan-out, which we are not able to see in the Slide number 15, on guideline or the framework for the distribution per unit.

Harsh Shah — Chief Executive Officer and Whole-time Director

Okay, sir, a very long analysis, but let me describe what I understood, then you say yes or no. And then, I can answer.

Vishal Doshi — Individual Investor — Analyst

Sure, sure.

Harsh Shah — Chief Executive Officer and Whole-time Director

So your question is that you are earning X [Technical Issues] with a set of assets if you increase — if we acquire these assets and earn why DPU, which is higher than the X and you might have to increase the DPU but in the Slide number 15, there is a chart. According to them, there is FY ’24 onwards, DPU is going up or can go up. So how does this tally with each other? Is that the question?

Vishal Doshi — Individual Investor — Analyst

Yeah, and there was just one missing point was that you have the surplus reserve of INR217 crores yet to be distributed.

Harsh Shah — Chief Executive Officer and Whole-time Director

Understood, understood, yes. Got it. So first question let me answer on surplus okay. Surplus many uses. Surplus is used to stabilize, surplus is used to keep liquidity for acquisition, surplus is used to fight against volatility sometimes. So it’s a variety of uses for the surplus that we have flexibility to use. We think that the surplus is extremely useful and we have seen that in two occasions, right. There are many occasions. Okay, so let’s say the first location is in the COVID first-quarter. While our business is doing fine. We are confident on our collection. But for that one quarter, quarter one of FY ’21. There was a dip in collection, because nobody went to offices. So what you do?

So, then we could dip into our reserves and pay from that. And quarter two or three onwards we recovered and there was no issue. So it’s an important tool for management to be able to provide you predictably. So that’s one. It can be used, [Indecipherable] but I would not include reserve in this analysis. What we do is in this analysis now coming to Slide number 15, we calculate that if you don’t do anything and we just keep refinancing some of our liabilities and keep on operating the asset as-is with the number of assets that are in our hands, how does the BPU profile look for next 5, 10 years right. Now, if you look at on FY ’23, where we have given 13.2, so if you don’t do anything the red curve was continuing, right. So if we don’t acquire any assets also 13.2 was fairly robust and ongoing, not an issue.

Now, we acquired or rather, let’s say, we have signed to acquire it right now is three assets, different point in time. So at some point in time in FY ’24, ’25, there is going to be sufficient incremental NDCF that might get generated which we have to distribute to unit holders, right. Now when it happens, how much it happens within the 10% criteria also said, if we need to maintain that. It’s a model that we have and we say, okay if you’re NDCF is more than let’s say 90% NDCF, you have to distribute and if we have sufficient cash that we have earned, sometimes we may have to increased DPU, right, but it gets modeled every quarter post-results, post cash, and post-NDCF.

So this is more for an indication, right of how if somebody wants to model our entire tariff curve, which are published in valuation reports someone might read similar analysis. It’s more guideline. It’s not an accurate prediction in which quarter and year. DPU will go up.

Vishal Doshi — Individual Investor — Analyst

Okay, Fair point. Thanks for sharing those insights. Thank you and congratulations once again.

Harsh Shah — Chief Executive Officer and Whole-time Director

Thank you.

Operator

Thank you. Our next question is from the line of Sunil Shah from Turtle Star. Please go ahead.

Sunil Shah — Turtle Star — Analyst

Yeah, thank you for the opportunity. Welcome, Harsh always good to hear you, Meghana and everybody on the call. Thank you so much for this call and everything that you shared.

It’s nice-to-have the Slide 15 back-in the presentation deck. Now what I understand is the slide is indicating all the assets which are reasonably in-place and which are more or less in the framework side as well. Barring the new three assets. So the MoU which we are going to signed off those assets are completely going to be future and is still not at all captured or envisaged in this Slide 15. Is my thinking clear on this?

Harsh Shah — Chief Executive Officer and Whole-time Director

Yes, your thinking is right. And that’s what we’re not putting anything for which we have not signed agreements or a confirmed bid or things like that. This is based on — the orange line is based on exactly the Raichur, Kallam, and KTL.

Sunil Shah — Turtle Star — Analyst

Yeah, so that’s completely visible to us and so that’s what is right.

Harsh Shah — Chief Executive Officer and Whole-time Director

Yeah.

Sunil Shah — Turtle Star — Analyst

Okay, yeah. Great. I guess all other questions have been answered by everybody else and they have asked everything. So thank you so much, we can move out to the next question. Thanks.

Operator

Thank you. Our next question is from the line of [Indecipherable], an Individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Hello. Hello.

Harsh Shah — Chief Executive Officer and Whole-time Director

Yeah, we can hear you.

Unidentified Participant — — Analyst

First of all, congratulations. I am an investors since many years. I would like to congratulate for your yield accretive acquisition. My question is that the acquisitions that we are going to do worth INR1,500 crores for which I mean, I have read the valuation report. We are acquiring at around 8.5% ROI. And so what will be our cost of interest for that because, if there is a little increase in rate of interest. It will not be that much easily accretive. Can you please throw some light on that?

Harsh Shah — Chief Executive Officer and Whole-time Director

Correct, correct, no. I think it’s a very important question and clarification. So it’s good to have this question. The 8.5% that you may be referring in the valuation report is VAT, and it is not our rate of interest cost at which we are buying. The — what the valuation report does is calculates the VAT. Takes the tax of 20% or 25% whatever is applicable and reduces the EBITDA of the project to come to the value. So therefore the 8.5% which is there as VAT discounts, the cash-flow after removing 20% tax from there. Whereas in reality, we don’t pay 20% tax. So if one was to calculate what is the rate of interest or the way you are trying to compare, you should just discount rate to come to the F&B that is there, without tax impact and that number will be higher than 8.5% for F&B calculation.

So coming to the interest side. I think agree with your point, so. If I were to describe it is it has a spread at a cost of debt versus at this point rate at which you have discounted cash flows, the spread between that — between them is sizably higher. The moment you look at it from EBITDA discount perspective. So we will have a good amount of spread between our cost of debt and the rate of discounting at which you are purchase. So, I don’t see it as an impact, coming on us substantially. And again, we are using the current cost of debt and capital, which is at I would say, I won’t — I won’t say a peak, but at an elevated level of interest rates.

Unidentified Participant — — Analyst

Yeah, definitely not that bottom.

Harsh Shah — Chief Executive Officer and Whole-time Director

Yes, definitely not at bottom correct. So, I think if even at this rate, there is sufficient cushion in terms of further variability in this will be accretive on this acquisition.

Unidentified Participant — — Analyst

And what will be our borrowing capacity left after this acquisition?

Harsh Shah — Chief Executive Officer and Whole-time Director

I think earlier somebody asked that question, there would be significant, I don’t have the exact number, but one could calculate, but anywhere from INR2,000 to INR3,000 crores is the record. So it’s a sizable amount.

Operator

Thank you. That was the last question for today. I now request the management team to add a few closing comments.

Harsh Shah — Chief Executive Officer and Whole-time Director

Thank you. All right, thanks a lot for hosting us and thanks all the investors to join the call. And we’re really happy about the set of questions that come to us, very important ones. And I think I also recognize one of the question which was about [Indecipherable] on the DPU breakup for FY ’22, we will correct that. But other than that, I think very important questions. We are glad that our investors understand our business so well. They understand values by which we are living the flexibility like keeping reserve with us and doing accretive acquisitions, all of it that courage, comes from the fact that our investors understand the business very well. And they do show confidence on how we’re running the assets. So thank you look-forward for the next [Technical Issues].

Operator

[Operator Closing Remarks]