IRB InvITs IPO: First of its kind, should you subscribe?

Infrastructure company IRB Infra is set to opens its initial public offer (IPO) on Wednesday. It is the first Infrastructure Investment Trust (InvITs) to enter the Indian markets. 

Ahead of its IPO, the company on Tuesday raised Rs 2,100 crore from anchor investors. It has allocated nearly 20.53 crore units at Rs 102 apiece.

Anchor investors include international and domestic investors such Government of Singapore, Deutsche Global Infrastructure Fund, Birla Sunlife Mutual Fund and HDFC Standard Life Insurance Company. IRB InvIT Fund plans to raise Rs 5,033 crore from the IPO.

Why IRB Infra entering the market?

According to a Phillip Capital report, the company will be keeping 15% stake with the sponsor (10% mandatory), the InvIT will raise Rs 50.35 billion. Of this, Rs 33.5 billion will be used for repayment of external debt, and the remaining Rs 17 billion will accrue to IRB as repayment of sub-debt/equity-invested. 

This will provide the company with Rs 17 billion of cashflow, which it can utilise to fund the equity requirement of current/future projects.

It will also reduce the gross debt at the consolidated level by Rs 50 billion, reducing the leverage to 2x from the current 3x, thereby possibly improving its credit rating and borrowing cost. 

Should you subscribe?

The company is slated to be India’s first publicly listed infrastructure investment trust. Through the trust, IRB Infrastructure Developers Ltd (Sponsor) will hold operational NHAI toll road assets aggregating to 3,645 lane km of highways across five states in western and southern India, as explained in ICICI Direct report. 

These assets are operational and generate income through inflation-linked tariff hikes. They have weighted average balance concession period of ~16 years. Investors are expected to be
offered returns in the form of dividend, interest and buyback for holding units in the InvIT, the report said. 

Apart from first of its kind, the company holds another key point which is that it has experienced spondor, investment manager and project manager with consistent track records in operating and maintaining projects in the roads and highways sector in India.

According to HDFC Securities, the Sponsor is one of the largest infrastructure development and construction companies in India in terms of net worth in the roads and highways sector with a large project portfolio of 8,183 Lane Kilometres of roads and highways in operation, under construction or under development, excluding the Initial Road Assets, as of December 31, 2016. 

The Investment Manager has approximately 18 years of experience in operating a road BOT project and is also experienced in developing, operating and maintaining toll plazas. The Investment Manager is a wholly-owned subsidiary of the Sponsor.

Maintaining a "BUY" option, Vibhor Singhal, Analyst at Phillip Capital, said, "We continue to like IRB Infra as the premier player in the BOT space. We would wait for the InvIT listing to make changes to our estimates and valuation for the stock."