IRB InvIT: Does accumulation of units by promoters signal better days ahead?

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Jitendra Kumar GuptaMoneycontrol Research

Promoters of IRB Infrastructure Developers have been accumulating IRB InvIT from the open market. While investors have remained on the sidelines, promoters seem to have found value as units hit a 52-week low of Rs 75. The fund is currently offering a yield of close to 16 percent based on the guided dividend per unit of 12.3 for FY19. The effective yield could, in fact, turn out to be higher considering that only a few months are remaining before FY19 ends. The promoter of IRB Infrastructure Developers, recently bought 75 lakh units of IRB InvIT at a price of Rs 75.6 a unit.

Sitting on lucrative assetsIn May 2017, IRB Infra offloaded part of its road assets through an infrastructure investment trust (InvIT) at Rs 102 a share, which is estimated to provide a yield of close to 12 percent. Despite the high yield, investor interest was waning and units hit a low.

IRB Infra is not alone, IndiGrid InvIT, sponsored by Sterlite Power Grid Ventures, is trading at Rs 92.2 as against its issue price of Rs 100 a unit. Based on its guided payout of Rs 12 per unit for FY19, IndiGrid’s yield works out to 13 percent.

IndiGrid has been performed relatively better in terms of unit price because transmission and distribution assets are being perceived as less risky and volatile in terms of cash flows. Factors like Goods & Service Tax (GST) and demonetisation had hit the cash flows of road developers in the past.

IRB InvIT is holding 7 operational road assets, most of which are well placed in terms of commanding a locational advantage. Most of these assets have seen strong traction in traffic after the initial hiccups led by GST and other issues. Moreover, they have raised applicable tolls in line with inflation. During Q1 FY19, these projects generated a revenue of Rs 302 crore and net distributable cash flows of Rs 193 crore, which works out to about Rs 772 crore on an annualised basis, or 17 percent of its market capitalisation. During Q1 FY18, it paid out Rs 3.05 per unit as dividend. Even if we deduct the same from the dividend that it is planning to pay in the current fiscal, the yield works out to over 12 percent for the remainder of the fiscal.

The wild card

While estimating current year’s dividend of Rs 12.3 per unit, the management has factored in a traffic growth of 5.5 percent and wholesale inflation at 4.5 percent, which in our view could be on the conservative side. Positive changes such as higher traffic growth and inflation would mean higher growth in distributable cash and a better yield, which the market may not be anticipating at current prices.

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For more research articles, visit our Moneycontrol Research page