PGInvIT, the first Infrastructure Investment Trust from a public sector company, is seen as a low-risk security that could provide superior returns than traditional fixed income products. While giving subscribe rating to the IPO Prabhudas Lilladhar, said rating to the IPO has been given on the basis of competitive advantage of its sponsors, consistent and stable cash flow, strategic and critical nature of power transmission business and strong financial positioning.
With consistent and stable cash flows from assets along with long term visibility and low counter party risks, analysts said PGInvIT is likely to generate 9-12% yield annually over the life of assets. “Since transmission charges are fixed for a period of 35 years, there is minimal price risk arising from transmission charge resetting, which provides stability, consistent cash flows and long-term visibility,” said KR Choksey while giving subscribe rating to the IPO.
PGInvIT’s sponsor, PGCIL was conferred with ‘Navratna’ status in May’08 and later upgraded to ‘Maharatna’ in Oct’19. It is third largest CPSE in terms of gross block and largest in terms of transmission lines length (ckms) having 85%+ market share in India’s cumulative inter-regional power transfer capacity.
PGInvIT derives revenue for electricity transmission from contracted transmission charges primarily consisting of fixed transmission charges with no escalation and variable transmission charges in certain cases under long term TSAs (~35 years).
According to Dolat Capital, PGInvIT is a good option for yield investors who can expect 11-12% yield arising from stable cash flows. The valuations indicate a P/B of 3.5x, as compared to PGCIL P/B of 1.6x. However, the InvIT has superior 20%+ ROEs compared to the average ROE of 15% for PGCIL, it said.
“We would recommend investors looking for yield to subscribe to the IPO. From a Powergrid (Buy) perspective, the higher P/B of the InvIT which translates into a higher book, would mean an addition of ~Rs7 to its fair value. Stable Cash Flows and a Comfortable Yield. The management has projected an average cash flow of Rs11.5bn per annum over the next 3 years which translates into an average yield of 12% on a post issue capitalization of Rs91bn,” Dolat Capital said in its note.
Many analysts feel that a Government backed sponsor like PGCIL further instills confidence. PG InvIT is AAA rated and at the issue price of Rs. 100 per unit, offers 12.0% yield, trading at a spread of ~600 bps to the 10 year G-sec (6.0%).
“Such a spread is very attractive given the high degree of certainty of cash flows & distribution per unit going forward. Investor return in PG InvIT which is a quasi-equity instrument will be a combination of quarterly dividend (our expectation of Rs. 3 per unit per quarter) and the unit’s price appreciation (our expectation of 20-30% listing gain),” said Nirmal Bang Securities.
It expects upon listing the yields to settle between 9-10% in line with that of the existing listed InvIv, which translates to the Unit price settling in the range of Rs. 120-130. PGInVIT’s revenue/EBITDA/Adj.PAT grew at a CAGR of 96.3%/95.8%/82.2% over FY18-20 on back of commissioning new assets.
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