Indus Infra Trust (INDUSINVIT) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Indus Infra Trust Q2 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Amit Kumar Singh, the Chief Executive Officer of the Investment Manager. Thank you, and over to you, Mr. Singh.

Thanks, Swapnali, and a very good afternoon, everyone. We would like to thank all of you for joining us today for the Q2 FY '27 Earnings Call of Indus Infra Trust. We really sincerely appreciate your continued interest in the Trust and the confidence you have placed in us. The quarter under review has been a steady quarter for the Trust. We have continued to focus on the 3 important aspects of our business. First was maintaining stable operating performance across our existing portfolio. Second was strengthening our asset management capabilities. And third, pursue disciplined growth through acquisitions. Before I take you through the performance of the Trust, let me briefly touch upon the broader developments in the sector. As per the MoRTH, as on July '26, around 1,191 national highway projects covering approximately 25,917 kilometers with an estimated project cost of INR 7.15 lakh crores were under construction across the country. This also includes approximately 3,100 kilometers of development works in border areas. I believe this gives a fair indication of the scale of the infrastructure development currently underway and the significant pipeline that is being created for the sector. We are also seeing a greater emphasis on improving connectivity to the economic centers, logistic hubs, industrial clusters and areas which have historically remained relatively underserved. Certain examples are cabinet approving 160.18 kilometers of Rameshwaram-Paradip Coastal Highway in Odisha with an estimated capital cost of approximately INR 8,301 crores. Then other example is proposed four-laning of Khagaria-Purnea section of NH-31 and NH-231 in Bihar at a project cost of around INR 3,936 crores. Then Guwahati-Tezpur corridor in Assam covering approximately 135.87 kilometers at a capital cost of around INR 8,970 crores. And the Muzaffarpur-Sitamarhi-Sonbarsa section of NH-22 in Bihar, covering approximately 82.58 kilometers at a capital cost of INR 3,591 crores. Another important development, which I would like to highlight is the increasing emphasis by NHAI on construction quality and road safety. In September '26, NHAI announced special quality inspection of 17 under-construction highway projects, where the quoted bid values were more than 50% below the estimated project cost. These inspections were intended to identify construction-related issues at an early stage and facilitate timely corrective action. I think this is an important development for the sector, and we really welcome this move by NHAI. While competitive bidding is an integral part of the infrastructure development, the quality of construction and the long-term sustainability of the assets cannot be compromised. For an operational asset owner such as an InvIT, this becomes really relevant because the quality of the underlying road directly influences future maintenance requirements, our cash flow visibility and the overall investment performance. Now coming to the Trust's business performance and portfolio development. During the quarter, our focus has remained on maintaining the quality of the existing portfolio while continuing to evaluate acquisition opportunities. During the quarter, we completed acquisition of 3 road assets, and we continue to evaluate both ROFO and third-party opportunities. As on September 30, 2026, our portfolio comprised 17 operational HAM road assets with an aggregate length of approximately 995 kilometers and an aggregate lane length of 4,495 lane kilometers. As of 30th September 2026, the AUM of the Trust stood at INR 12,861.8 crores. We'll continue to evaluate opportunities which are consistent with our investment strategy, having potential to create long-term value for our unitholders. Now moving on to the operational performance of the portfolio. We are really pleased to inform you that during the quarter, our operational performance, our assets remained stable in line with expectations with timely receipt of annuities from NHAI. As of 30th September 2026, 114 out of total 510 annuities have been received, and balance 386 annuities are receivable from the NHAI across all project SPVs. We continue to monitor the condition of our assets through regular inspection and coordination with the respective project teams and maintenance contractors. Our approach is to identify potential maintenance requirements proactively rather than wait for them to develop into larger issues. On distribution, I would like to inform you that for the quarter ended September 30, 2026, the Board has approved a distribution of INR 3.55 per unit, comprising INR 2.50 in the form of interest and INR 1.05, which is INR 1.05 in the form of dividend to be paid to unitholders as of the record date, which is 6th of November 2026, which will be paid on or before 16th of November. Our cumulative distribution, including the distribution approved in the Board meeting held on yesterday, stands at INR 34.80 per unit, positioning us as one of the stable yield platforms. The distribution remains largely supported by the interest income and upstreaming of dividend from the SPVs acquired in Q2 FY '27, which was 2 KNR SPVs and 1 ULCCS SPV. We remain focused on maintaining a balance between regular distribution to unitholders, funding requirements for future acquisition and still maintaining an appropriate capital structure. I will now hand over the call to Harshael, who will take you through the detailed financial performance of the quarter. Over to you, Harshael.

Thanks, Amit. Coming to Q2 FY '27 performance on a stand-alone basis, the interest income on the loan extended by the trust to the SPVs was INR 306.08 crores as against INR 243.50 crores in Q1 FY '27. The increase in interest income was on account of additional debt on-lent to KNR Palani, KNR Ramagiri, and ULCCS Kasaragod Expressway, the SPVs acquired in June 2026. The increase in the interest income was partially offset by debt repayment of INR 118.3 crores made by the existing portfolio during the June quarter. Details of loans on-lent to the SPVs during the quarter and the half year are provided in the statement of related party transactions in the stand-alone financials. As SPVs have upstreamed cash flows in the form of interest and dividend during the quarter, the dividend was upstreamed by new SPVs fundamentally, as Amit mentioned earlier, primarily Bilaspur Urga, Ena Kim, KNR Palani, Ramagiri, and ULCCS Kasaragod on account of the release of the encumbered cash, which was released post refinancing of the debt. You can refer to the related party transaction note for the details of dividend upstreamed by each SPV. Further, EBITDA for the quarter was INR 414.77 crores, which includes an impairment of INR 34.89 crores. The impairment was on account of the difference in the fair value and book value of investments on account of the amount upstreamed to the Trust. The total external borrowing at the Trust level as on 30th September 2026 stands at INR 6,181.80 crores as against INR 5,622 crores during the last quarter. During the quarter, we had availed an additional borrowing of INR 639 crores to refinance the external debt of KNR Guruvayur project, which was acquired during the September quarter. Accordingly, the finance cost during the quarter increased to INR 100.07 crores from INR 72.17 crores on account of the additional borrowing of INR 1,436 crores, which we had availed during the last week of June 2026, wherein the impact was not getting factored in, in the Q1 results. Further, the impact of additional borrowing of INR 639 crores will be reflected in the next quarter as the borrowing was done on September 21, 2026. The total tax outflow at the rate 42.74% is on the other income earned by the Trust, and the profit for the quarter stood at INR 303.52 crores. During the quarter, we had completed the acquisition of KNR Guruvayur project and details of which are provided in the investor presentation. Coming to the consolidated financials. During the quarter, the total income was INR 472.09 crores, which consisted of INR 434 crores from revenue from operations and other income of INR 37.92 crores. The revenue from operations include finance income of INR 323.13 crores as against INR 220.78 crores in Q1 FY '27. The increase in the finance income was on account of the assets acquired during the last quarter. The revenue from contracts for the quarter stood at INR 111.05 crores, which included a change of scope and utility shifting cost of INR 36.5 crores as against INR 63.98 crores, which was there during the last quarter. The total expense during the quarter was INR 220.92 crores as against INR 162.31 crores in the last quarter, which has increased primarily on account of the additional debt which we had borrowed, resulting in an increase in finance cost by approximately INR 36 crores. Further, the subcontractor charges had also gone up because of the asset addition by INR 22.41 crores. As there is no external debt at the SPV level, the consolidated debt is same as what it is at the trust level of INR 6,181.80 crores. In relation to the NDCF at the SPV level, the cash flow from operations and the other income of the SPV was INR 676.59 crores. Considering the reserve creation for MM obligations and finance cost at SPV level, the total SPV level NDCF was INR 434.58 crores, which was upstreamed to the trust. Post adjusting for finance costs, Trust level expenses, DSRA creation, payment of deferred consideration for existing assets and release of surplus cash, which has been given on the Slide 10 of the presentation, NDCF for the quarter worked out to INR 233.58 crores, out of which INR 216.91 crores is proposed to be distributed. The form of distribution, as Amit mentioned earlier, is INR 2.50 per unit in the form of interest and INR 1.05 per unit in the form of dividend. The record date for the distribution will be November 6, 2026. Thank you, and we are open to questions.

[Operator Instructions] We have the first question from the line of Hitaindra from Maximal Capital.

So first question, just wanted to understand this NAV increase which has happened. So if you can throw some light on that, because this was a little bit unexpected given the interest rate movements and also because the quantum of increase is quite high in the 6 months period.

Yes. So see, the last NAV disclosed, as on 31st March, if I'm not wrong, was INR 116.81 crores, right? After that, we acquired, basically, you can say, four assets, right, which was basically your KNR Guruvayur, then your KNR Palani, KNR Ramagiri, and ULCCS, okay? So these four assets had given us a decent bump. So what you're seeing, currently what we see, NAV is around INR 124.85. This jump is on account of increase of those assets, addition of those assets. And the second thing is, your interest rate increase anyway happened on 8th of October, which we have factored, and 25 bps -- actually, the increase has, as you are aware, I think still predominantly majority of the assets, by value also, are linked to basically bank rate, which is repo plus 325 bps. So in HAM construct, and we have explained it earlier as well, that increase in repo actually benefits us, because still a larger portion of our borrowing is still linked to repo. Now, of course, last quarter, last to last quarter, we took some T-bill linked also, but still, I think the larger portion is -- or a substantial portion is linked to repo only. So actually what we are getting, a hike on the INR 100, and what we are paying, say, around INR 47, which is our leverage, right, on a net basis, around 37%, 38%. So that's why it becomes a little incremental for us. So a rate increase actually is beneficial for an InvIT like us, as of now, given the 100% of HAM assets and predominantly of that is linked to repo. That's why you can see this NAV increase.

Yes. And sir, I understand that point that you have some benefit on the numerator of the cash flows, and then there will be some denominator negative because of the interest rate on the WACC. But net-net, do you have a thumb rule, let's say, for every 100 basis point increase, what is the net impact on our DPUs and NAV because of that?

So you can see that the leverage is 47%, right? If I'm getting a 25 bps increase on my INR 100, INR 47 is what I'm paying to my lenders. So that INR 53 is a positive absorption, which will be done by NAV. Actually, that's the math. So for example, if you see, 25 bps should give me a bump of around, say, 15, 17 bps.

Okay. So roughly half because half...

Yes, 13 to 14 bps, you can say that, 13 to 14 bps.

Okay. So slightly more than half because the entire portfolio gets higher repo rate.

Out of 25, you can say around 12 I'll end up paying, 13 will be something which I'll be getting.

Okay. Understood. And secondly, one more thing is that like last 2, 3 quarters, you were going heavy on the capital repayment mode. And this quarter, there is almost like no distribution component on that. So what is causing this volatility? And how should we assume for the future?

There's no volatility per se. See, this is the capital structuring which we do. So when we acquired new assets, as you know, as per the company's rule, if your net worth becomes negative, you can't pay dividend. When we take any asset, basically loan at the asset level gets refinanced from InvIT, right? So InvIT takes loan and then basically drops that loan to SPV level at a higher cost. So eventually, after InvIT taking out the asset, maximum 1 or 2 years, there's no positive net worth. So then you have to start. Then you do your modeling and you start doing that paying in form of interest, because anyway you have to pay interest, which InvIT has on-lent to SPV. And then you see whether capital is getting paid or not, because InvIT will expect the entire percentage of the capital also to get paid, right? So that's how you do. But when you take new assets, of course, you have some positive cash lying. Your net worth is positive that time. So then you see that how much you would want to pay in the form of dividend. And also basically government now giving this thing that basically dividend, anything which is in the form of dividend, which is getting paid from InvIT to unitholders will be tax-free. That is also something it's a positive. And then we saw that yes, if we can pay dividend, then why shouldn't we. So there's no volatility per se. This is like we need to see. We need to keep modeling, this is an interest impact, this is a cash flow impact, everything we have to put together and then accordingly, this gets decided.

Okay. Sir, coming back to that acquisition, so I think when KNR had also reported the valuation multiples that they had sort of sold these assets to, and those were looking typically quite rich compared to the other transactions. And then at the same time, you are saying that despite acquiring at that multiple to book, you were able to get a decent bump up in your NAV. So I mean, if you can throw some light on that, like how did that -- I mean, were they really below the fair value for us to get that sort of NAV bump up? Or -- if you can throw some light on that?

So first thing is, it may happen that a transaction can be beneficial for both the parties, not that one party will benefit and another will be lost. I think that is first point. Second thing is what KNR has reported, we didn't see that. But I think KNR, what they would have reported would have included cash. So those cash is something which is lying in the book, right? So that cash also gets added to the overall value. That they would have taken away, maybe example. So what we would have got is then a little less of cash. So that's why when we value the cash, it doesn't make sense to take cash and then give it back, right? So when you value SPV, the underlying cash at SPV gets added to the overall value. And of course, that is what the reporting they would have done, which is also correct. And when we take, we take net of cash. Of course, until and unless what is basically mandatory, which is, say, DSRA or something which is as per the requirement of the lender. So that's something which you know -- and after that what we would have paid is money which we would have discounted. So that's why you would have seen the difference in value maybe in the reporting, but it's not that money got evaporated in between somewhere. This is what we took and what is -- basically, everything is like what we have taken, we have given a certificate. It has been certified. So maybe they would have added cash, and that's why maybe their numbers would be looking a little high. But otherwise, I think both the numbers are correct only what we have reported and what they would have reported.

Okay. And now there has been a lot of increase in the bitumen prices. So I think the center gave a relief to the EPC guys for a limited period starting April because of that. So for you, you will have these operation and maintenance activities, which will be done by the sponsor. So what is the impact of bitumen price increase on your O&M cost, including major or minor maintenance that you will have to do every year?

Yes. So I think first thing, when we entered with a GR, that was a fixed time, fixed price contract. Okay? And of course, it's not that we have taken that much cushion, but generally, as we have been maintaining, we are a little conservative. And that way, we provide for a decent major maintenance. Then I don't know how others do, but that's why we are not able to take up or lap up 15, 20 assets till date. And we could have evaluated more than 70, 80 assets, because we are a little conservative that way. So our provision amount that time what was there, it was evaluated by a third party, which was agreed between us and GR. It was not that we had played with the number. I think that number is sufficient. So two of our projects, which is GR for Mahabubnagar and GR Varanasi India, actually, major maintenance is due this year and next year. And of course, GR has started also. One of the project which is going to complete somewhere in December, Jan, and another project will start this maybe last quarter, and it will go up to the next year first quarter, 6, 7 months. But it's not that we are breaking or maybe we are surpassing the number what we have kept provision. That will happen within that number only. So there's no recourse on the cash flow because of this increased bitumen price. However, because this is a fixed price, had it like gone more ahead, maybe that would have been absorbed by GR. That is the understanding. But what I understand is that if you would have started the work before 31st March and there was a price, and I think GR can claim some amount out of that also. So that is something also we need to see how much NHAI finally agreed. But for us, there's no recourse on our cash flow because of these two major maintenance which are being undertaken this year and next year.

No, that is -- Okay, understood for GR, but two questions. One, is GR getting the, even for O&M, it is getting that bitumen price relief from NHAI? And secondly, how does it work for third-party assets like KNR, for example? And now going forward, maybe third-party assets will also become substantial?

KNR major maintenance is not due now, to be honest. This is a temporary phenomenon what we understand. So it's not that bitumen price is going to INR 70,000, INR 80,000 for the next 5 years. That is very highly unlikely. And there's no major maintenance which is due for the KNR assets now, currently. However, for two of the KNR assets, again, same agreement has been entered with GRT. And the two Kerala ones, we are still evaluating who to be done with. So we don't see basically that risk in those projects also.

So KNR will be done through GR?

Two of the KNR projects getting done through GR. And your first question, whether GR is getting rebate on those O&M bit, I think they are. That's what I have been given to understand. And I think that's how they are managing.

Okay. And these are also fixed price contracts with GR for KNR assets, or these are variable price contracts?

For two of the KNR assets, yes.

Variable or fixed?

Fixed.

We have the next question from the line of Nikhil Bagadia from Equicorp.

Just a correction, my name is Henil, not Nikhil. Sir, with respect to the repo increase, as you said that it increases -- for every 10 basis points, it has an impact of about close to 50 bps on the increase in revenues. So if you can give some more understanding on what also plays with respect to the new project acquisition on the project IRR, that is the unlevered part; and also the post-levered part on the equity IRR, how does the valuation actually change?

No. So I think generally what we look at is equity IRR, and I think we had mentioned this in the last call also, the projects what we have acquired over the last -- these 4 plus 5 projects, that is north of 13%, 13.5% of the equity IRR that is working out. And what repo increase is basically, that's a function of leverage. Today, suppose ballpark we are at 50%. So that benefit is maybe 12.5 bps, 13 bps. Tomorrow, if we go up to leverage to 60%, that benefit will be 10 bps. So that's how exactly it will work.

So going forward, do you actually see increasing the debt funding, because I think so we can go up to 70%, although for a realistic basis, a lot of companies don't prefer going up to 70%. So what's the reasonable estimate we can consider as ceiling for the debt with respect to the projects?

So generally, we have said during our fundraise round also that we generally wouldn't want to cross 65%, and we don't want to limit ourselves to 90% of 70% which is 63%. However, when the moment we cross 61%, 62%, rather cross 60%, 61%, we'll start thinking about raising the fund. That's what basically, you can say, thought process, which has been communicated to all our stakeholders or the majority of the unitholders while doing our fundraising round last time.

So with respect to -- one of the previous participants actually alluded that the bitumen prices have shot up. So if I believe, the NHAI rule mainly says about the smoothness index. So has there been any concession related to smoothness index, or is it just related to the government asking you guys to be okay with the players to actually defer it by a few quarters once the bitumen prices and also the availability normalizes? Second, since we are actually in a fixed price, fixed term contract with the EPC player, so in the next round of renewals, do you actually see an increase in the prices for contract negotiations considering the volatility that we face right now?

See, generally, how they work, I don't want to get into that, because that's the purview of EPC. Generally, what I understand is, first thing is, just to give answer to your question, of course, if the road is really bad, and you have to do it, compulsory, then you will do it, okay? Where the road situation is decent -- and, of course, in HAM concession there is no time line which is given that you have to do a major maintenance at the fifth year or sixth year or seventh year. This is like you estimate while buying the asset that, okay, this is a bitumen asset, I should do it at the end of 6th, 7th year, then 13th, 14th year, and then I'll hand over to NHAI in a good condition. Now suppose your asset is in good condition till the 6th, 7th year, and bitumen prices are high, you maybe just basically would want to delay by a couple of quarters, so that bitumen prices ease up and then you'll do your -- basically undertake your maintenance activity. And second thing is how they will manage is up to their purview. But what we understand that they will also try to delay -- try to see what is very critical thing which can be done now, what can be delayed, say, by a quarter. They'll also, as an O&M contractor, they would want to do it to manage, so that it doesn't shoot their cost, because they also wouldn't want to take a hit on this activity in terms of their own P&L. So that's how they would want to manage. My thing is my road is getting managed properly and I'm getting annuities on time. How they manage is fine so long as I'm not getting any damages from NHAI, a; of course, road condition is good, there's no, basically, untoward activity or incident which is happening on the road, so long as things -- and anyway, this is being monitored by NHAI on a very closely basis on now the fortnightly and monthly basis. As an InvIT, we are fine with that.

And with respect to the ROFO assets that will actually increase in the portfolio, what kind of time lines do you actually see for them being added in the portfolio? And is there a formula for the valuation of all these ROFO assets? You say that's about upwards of a 12%, 13% IRR on equity side and a price-to-book of around 2x?

There's no asset in the market which is available at a price-to-book of 2x. Those days are gone, by the way. Second thing is it's very difficult to get a price-to-book of 1x, even lots of assets which are available in the market. So price-to-book, 2x; first thing, just get that math correct. It is not a function of any multiple. It's a function of how much money you are leaving in SPV, because at the end of the day, as a buyer, you were just doing nothing but discounting those cash flows. So the cash flows are high. Whatever equity you are putting, you might get a multiple of that. If cash flows are not high, you have taken the money out in form of EPC contract, EPC money, maybe EPC numbers were higher. So that means you have already taken out money from the SPV. So you may not get even 1x. So there's no formula fixed per se, which is 12% or 13%. We have been maintaining that we would endeavor to acquire any asset from anyone, including GR, and it should be yield accretive. So you can see today's price, you can see what was the guidance we have given. Of course, we would want to acquire at a price where it becomes yield accretive from existing unitholders. Because at the end of the day, we will have to go and take the approval from all the unitholders like you. So until and unless it's yield accretive, you will not give me approval for that. So that's the thing, and that we have been maintaining. And till date, for all the 18 assets what we have acquired, or maybe all the 11, rather, what we have acquired post our IPO, since our listing, those all the assets have been yield accretive, and we want to maintain that.

[Operator Instructions] We have the next question from the line of Hitaindra from Maximal Capital.

So this INR 13,000-odd crores of portfolio that we have as on 30th September, so what is the kind of asset addition that we want to do in this second half and next FY '28? And if you can split it up between sponsor and third party?

See, third party we are evaluating. We are nowhere where I can give any guidance on. We are just evaluating. In this change scenario of bitumen prices and all, we need to be very cognizant about the O&M cost and major maintenance cost which we have to incur over the next 13, 14 years. So till the time these things get a little bit stabilized, I may not be able to tell you any guidance on the third-party assets. Of course, we are bidding for TOT, big annuity assets. So if those come, then, of course, that we can't say that's a bid, so that we don't know. For ROFO assets, we are targeting 5, 6 assets, not this quarter, maybe in the next quarter. Put together, ballpark EV should be around INR 4,700-odd crores. And we have already started process for that in terms of NHAI NOC and all. And once that happens, then of course, there's a process, we need to do a Board meeting, then Board approval, then we need to send for unitholders' pre-approval, and then we run those process. Most likely that is going to happen in maybe December or next quarter itself. Ballpark what I see is, the value should be around somewhere INR 4,700-odd crores. FY '28, same amount, I would say, somewhere around INR 4,500 crores to INR 5,000 crores. The size of the assets are getting a little smaller. So we may look at acquiring, say, 7, 8 assets next year, maybe 6, 7 assets, and the ballpark EV will be around same, INR 4,500 crores to INR 5,000 crores.

So roughly, we can reach like INR 22,000 crores, INR 23,000 crores by end of FY '28 basis the ROFO asset. And if we do any third party, then it will be on top of that?

That's right. That understanding is correct.

And then we want to acquire any BOT also?

Yes, yes. We have started. Now the ecosystem has changed. There's not much good HAM assets which are left. So if you want to grow, and even as a part of the changed ecosystem, you have to start looking at the BOT or TOT, basically toll assets, and we have already started evaluating those. So we'll be participating in TOTs. We'll be looking at if some good BOTs come. Even as a ROFO, GR has one Agra-Gwalior, not very early, but that will also come. So we're looking at acquiring those assets also.

And in a rising interest rate environment, like on the BOT assets, sir, how does that impact on the probable cash flows and NAV calculations, if you can throw some light on that also?

So basically, there, how you run the model is something because, see, my toll is an inflation-adjusted growth story, right? So of course, if I acquire something, basically the beauty and flip side of the toll is that it may not happen that in the first year itself, you start getting a 12%, 13%, 14% on that. But yes, you start getting something, a decent number on that. That will grow. And then most of the things are basically linked to WPI. So this is rate plus 40% of WPI. So that is the inflation what's there. And when you model, of course, you don't model very aggressively there, you model with a little conservative that, okay, you take some cushion in your model, so that even the inflation rate goes up, at least your calculation doesn't go for a toss. So that's how you try to basically take care of those, you can say, blips or maybe some variations.

Okay. But there, I think in the revenue, you get only 40% of WPI or something like that?