Can I invest in IRB Invit through Zerodha.
IRB’s InvIT (Infrastructure Investment trust) will be the first to get listed on the bourses. However, it is a novel product for the Indian equity investors – a hybrid instrument which is neither pure equity nor pure debt. While it will be listed on the equity exchanges it isn’t pure equity (the scope for capital appreciation is negligible). InvITs cannot be called debt instrument because there is no assurance of payment of interest and principal.
According to SEBI guidelines on the issuance of InvITs, the Trust needs to distribute at least 90 percent of this distributable cash to the unit holders in the form of dividend, which will be tax free. The Trust anyways is exempted from dividend distribution tax.
While the actual quantum of dividend might differ in amount, estimates suggest (based on projected cash flow on the basis of estimated growth in traffic and inflation-linked increase in toll charges), at an upper price band of IPO (Rs 102), the dividend yield to be close to 12 percent.
Listing and Trading :
A large concern for IRB’s InvIT will be to leave enough on the table for institutional as well as retail investors. With a dividend yield of close to 12 percent, there is a high likelihood of the issue getting subscribed. HNIs (high networth individuals), mutual funds and foreign investors who are looking for predictable returns over a longer term and yields that are above debt instruments would find the product extremely interesting.
However, excessive investor interest leading to price appreciation might lower the post-listing yield. Should the post listing units offer a 10 percent yield to the new investors, the unit price will have to go up to Rs 122.4 a unit, which is a listing gain of almost 20 percent.
Future Capital Appreciation?
The Trust will replace its entire debt deployed in these six road assets with the cheaper loans. Currently, the portfolio has an average interest cost of about 10.5 percent. Considering that the InvIT is accorded AAA rating by CRISIL, the Trust can raise debt at about 8.5 percent, which is almost 200 basis points cheaper, thus improving the overall IRR (internal rate of return) by at least 100 to 150 basis points.
Over a period, the Trust will acquire more projects from IRB Infra, which will be typically bought at 11-12 percent IRR, and will be funded through fresh borrowings at a cost of about 8.5 percent or the prevailing rate of interest at the time of acquisition. This additional return or cash flow that the new projects will generate will be reflected in the price of the units.
There might be scope for capital appreciation if the actual cash flows turn out to be higher than the initial estimates due to higher revenue and/or lower costs. For instance, since inception, these six road assets have grown at 11 percent CAGR, but while valuing the InvITs the bankers and the valuers have taken the growth rate at 9 percent. In case the cash flow is higher, the NAV will go up factoring the higher dividend as it is mandatory for the trust to distribute at least 90 percent of the distributable cash back to the unit holders of the InvITs.
Investment through Zerodha :
Retail investors can invest in secondary market through Zerodha. Details mentioned below for IRB InvIT Fund:
Scrip name: NSE- IRBINVIT
BSE- IRBINVIT
Category: NSE- IV
BSE- IF
Lot size: 5000 Qty
ISIN: INE183W23014
Settlement cycle: T + 2 days
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