IndInfravit Trust has strategic unit holders in the form of Allianz insurance companies, Canada Pension Plan Investment Board and OMERS Infrastructure.
Of the nine roads projects transferred to the trust, seven are toll projects and two are annuity projects. The latter category includes those projects in which a developer is awarded a contract and the cost of constructing the road is paid by the government on a six-month basis after operations begin. In tolling projects, the developer takes higher risks as it is dependent on traffic growth to recover upfront investments made in building the road.
The deal is expected to fetch Rs 2,550 crore. After the deal, the company is expected to hold Rs 650 crore worth of units in the trust. Of the remaining Rs 1,900 crore, the company will utilise Rs 1,000 crore for reducing its debt and Rs 900 crore for acquiring future projects and on other working capital requirements.
In all, after the deal, the company’s debt, which presently stands at Rs 8,400 crore, is expected to come down to Rs 3,200 crore. This is because a large part of debt of the nine roads projects, which stands at Rs 4,200 crore, will shift from the company’s books to the trust, thereby strengthening the company’s balance sheet. According to brokerage Anand Rathi’s estimates, the company’s interest expense as a percentage of its revenues was 34 per cent and closer to its FY19’s estimated EBIDTA of Rs 1,158 crore.
After the March 2019 quarter, there were concerns among analysts regarding a few aspects of the company’s operations. These included muted traffic growth and insufficient cash-flows. To overcome these concerns, analysts had pointed out that the company must deleverage its balance sheet through monetisation of assets. So, the present deal should cause a revision in the earnings estimates for the next two years. After the deal, the company’s roads portfolio lightens considerably, with 12 Hybrid Annuity projects (in which the government bears 40 per cent of the costs) and three road projects.
On the valuation front, considering its FY20 estimated numbers on the Bloomberg, the company is trading at an EV/EBIDTA of 8.72, which is attractive when compared with its past three-year average EV/EBITDA of 12.3.