The total road portfolio of IRB Infrastructure Developers Ltd spans approximately10,000 lane km across 22 projects in eight states, of which 14 projects are operational. In its Infrastructure Investment Trust (InvIT) IPO on May 3, the company will offer six completed road assets covering 3,000 lane km in five states. Virendra Mhaiskar, chairman and managing director of the company, spoke to Ateeq Shaikh about IRB's outlook, how much the company is looking to raise through InvIT, and why it is looking to sell these six assets to the trust (InvIT).
How much has IRB invested in the completed projects and how much more is committed for under-construction ones?
India has the third-largest road network in the world and much of it needs significant upgradation. Realising this, the government has embarked upon the task of developing it in a speedy, efficient and transparent manner by garnering various resources such as budgetary allocation, cess of fuel, NHAI bonds and user charges by way of tolls. As a private sector participant, IRB has already invested substantial capital in excess of Rs 19,000 crore in projects completed so far, and also committed another Rs 11,000 crore towards projects under execution.
How much are you looking to raise through the InvIT and how much would be for debt repayment?
The total issue size will be Rs 5,035 crore, of which Rs 3,350 crore will be utilised to repay the underlining (external) debt of the assets and the balance Rs 1,700 crore will be utilised towards repaying the sub-debt and equity of the sponsors. All the six projects under InvIT are operational and have a significant revenue compounded annual growth rate (CAGR) of 11.4%.
After the InvIT, will IRB look at raising more funds?
No.
Why is IRB selling these six assets to the trust?
We looked at various valuation reports that senior analysts from reputed banks have done as regards to IRB assets. We found that the enterprise value of these six assets was valued by them in the range of around Rs 6,300-Rs 6,400 crore as against the enterprise value of Rs 5,922 odd crore, at which we intend to sell them presently. This worked out to be a discount of around 6-7%. But then we also looked at the sum of parts valuation they ascribed to the entire company, and we realised that while these analysts value these assets at Rs 6,300 crore, they value the company at Rs 320-340 per share. If one applies a discount of 7% to this estimated share price the same will come in the range of over Rs 300 per share. Even at the discounted price, the sale will prove to be value accretive to the shareholders and help in establishing the value of these projects. It will surely re-rate the pricing for the balance assets as well in a positive manner.
How will IRB benefit from this InvIT in bagging newer projects?
With Rs 1,700 crore of cash coming into IRB, the overall net debt to equity ratio will improve from 3:1 to 1.8:1. This will help improve consolidated rating and, in turn, help reduce the interest cost on other projects in the portfolio. The cash will be useful in deploying in for the new projects.
Are you looking at engineering, procurement and construction (EPC) contracts, like other infrastructure majors?
We are purely looking at build-operate-transfer (BOT) projects. We have strategically stayed away from EPC or hybrid annuity model contracts/projects. We find BOT model more suitable for us, as we are an integrated player. So construction, operation, maintenance, tolling, everything we do is in-house. If we take a BOT order, we get work for all our verticals.
How many BOT projects are you looking at?
We see around 2,000-3,000 km of projects being bid out on BOT annually, out of the 8,000-9,000 km that are being awarded. That is good enough visibility for us by winning some 300-400 km.
Are you looking at acquiring any stressed projects?
At the moment, no. We are always open to looking at opportunities, but at the moment we don't have any plans for it.
What is your opinion on the available stressed road projects?
Many of the stressed projects have been bought by large private equity (PE) investors like Brookfield and likewise. We have certainly seen a churn, there is a significant reduction in the stressed road projects. There is no specific data available by how much percent the available stressed projects have been reduced.
Still, there is a significant number of stressed projects available?
All the projects that were bought out by the PEs were operational assets. If there is a construction outstanding for any project, it will be more tricky for the PE guy to buy that because he doesn't have the ability to complete the balance construction. There are various ways the government is trying to solve such projects. Let's see how it works out.
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