Since Nifty’s peak in September 2024, the markets have been volatile, to say the least. While the Nifty TRI index has shed 11.3 per cent from its peak, there have been some outperformers whose low-volatility characteristics have come into play during such times.
And on that list of stocks that managed to buck the trend is IndiGrid Infrastructure Investment Trust (IG InvIT), managing to deliver 2.7 per cent (capital appreciation along with distribution) since Nifty reached peak and 16.8 per cent in the last one year against Nifty TRI’s 9.5 per cent.
Low-volatility play
IG InvIT is in the business of owning and operating capital assets, and its current portfolio includes 17 transmission assets and 19 solar assets, with five transmission assets under construction. And by tying together these long-term return yielding assets with customers via long-term contracts, well-managed InvITs in general, stand reasonably insulated against volatility.
IG InvIT, here, benefits from long-term agreements, with its transmission assets enjoying an average residual tenure of 26 years on its availability-based agreements, while the same stands at 19 years for its solar assets, compared with other InvITs such as roads, which depend on toll collections and traffic growth.
Furthermore, in case of transmission assets, the Point of Connection (PoC) mechanism applied to most of IndiGrid’s transmission assets, which involves centralised collection and distribution of transmission charges, mitigates counterparty payment risk.
Thus, with cash flows being predictable, IG InvIT enjoys strong revenue visibility. And the macro trend of sustained investments in transmission and renewable energy (RE) helps with the outlook. And especially when the benchmark interest rates are lowered, the opportunity cost of not considering InvITs (whose yield will remain unaffected) will rise further, making them more attractive.
Yet another steady show
IG InvIT came out with its Q3 results on January 23. Assets under management (AUM) continued its strong growth and stood at ₹29,400 crore currently, as against ₹26,700 crore in Q3 FY24.
Average availability (percentage amount of time for which the asset is available for power flow/ power generation) of both transmission and solar assets continued to be strong at 98.5 per cent and 98 per cent, for Q3 FY25. Capacity utilisation factor (CUF), simply put, the efficiency stood at 20.2 per cent. Both availability and CUF of the assets stand comparable with that of Power Grid Corporation, NTPC Green and Tata Power respectively, for the sake of comparison.
Distribution per unit was announced at ₹3.75 for the quarter, firmly, in line with the annual guidance.
Outlook
The ability of IG InvIT to consistently add to its portfolio of assets (AUM has grown at a strong CAGR of 33 per cent since its listing), consequently helps in increasing its distribution yield year on year while adding to its reserves, placing it in the top quartile execution-wise.
Partnering with British International Investment (BII) and Norfund to set up a $300-million infrastructure development platform focused on the greenfield transmission and BESS opportunities in India in the recent quarter, adds weight to future prospects.
And alongside the strong AAA rating, the current levels of debt (59.6 per cent of AUM) provide reasonable leeway to add more leverage to acquire new assets.
In our last call in July 2024, we had recommended investors to accumulate IndiGrid InvIT as a steady distribution yield play with potential capital appreciation.
Amidst widespread concerns pertaining to volatility, earnings slowdown and soaring valuation, not limited to power and utility stocks, strong InvITs like IndiGrid could be expected to continue their outperformance.