Bharat Highways InvIT IPO Review – Finance, GMP and More

Bharat Highways InvIT IPO Review:Bharat Highways InvIT is heading towards an IPO issue of Rs. 2500 Cr to open on February 28, 2024. The offering will close on March 1 and be listed on the exchange on March 6, 2024. This will be India’s second listed highway infrastructure investment trust.

Before reviewing Bharat Highways InvIT, let us understand what an infrastructure investment trust is. These are developer-sponsored trusts that own and operate completed and undeveloped infrastructure projects.

These trusts are similar to mutual funds in that they pool small amounts of money from a variety of individual/institutional investors and invest them in projects that can generate consistent cash flow. Each InvIT has a sponsor who forms a trust and appoints an investment manager and trustee.

The investment manager is responsible for managing the investments in accordance with the policies and objectives of the Trust. The trustee is a separate entity from the other two. The trustee acts in the interests of unitholders and ensures that all regulations are complied with.

Now that you know what InvIT is, let’s learn more about Bharat Highways and its strengths and weaknesses.

for Bharat Expressway InvIT

The Bharat Infrastructure Investment Trust IPO is sponsored by Aadharshila Infratech Pvt Ltd. The sponsor is responsible for testing services in the areas of transportation engineering, NSV surveys, FWD surveys and pavement design for roads and airports.

The sponsor has an associate company, NMHPL, which is responsible for road engineering, procurement and construction of road/highway infrastructure. The company has over 6 years of experience in executing infrastructure projects since 2017.

Sponsor and project manager Aadharshila Infra will form an InvIT to acquire 100% stake in around seven project special purpose vehicles (SPVs) from GR Infraprojects Ltd. The name of the acquired SPV and the structure of the Trust are provided. For better understanding, it is explained below.

As of January 31, 2024, the projects owned, operated and managed by the Project SPV have approximately 497.3 km of roads constructed across five Indian states. All projects were awarded through Hybrid Annuity Model (HAM) by NHAI.

This model was adopted by the government by inviting private infrastructure developers to build roads and highways. In this model, the government bears a portion of the construction costs and the remainder is borne by the developer.

The government plans to compensate for the burden of project costs by allowing the project operator to receive a pension considering inflation during the implementation period. The concession period for the SPV-owned project expires between 2035 and 2037.

Industry introduction

India has the second largest road network in the world, totaling 6.33 million km. The FY20-21 market saw the highest road construction with approximately 13,327 km of road construction completed at a rate of 36.5 km per day. Currently, 6216 km have been completed in the last nine months of FY24 at a rate of 22.6 km.

In the Union Budget for FY25, the government has allocated Rs. 2.8 Lakh Cr for Ministry of Road Transport and Highways is 1% higher than revised estimate for FY24. The development of the infrastructure sector has been a priority area for the government and has witnessed increased public investment over the years.

Bharatmala Pariyojna is a government initiative focused on optimizing the efficiency of freight and passenger movement across the country. The program will aim to address infrastructure gaps through the development of economic corridors, corridors and feeder routes.

It also aims to develop coastal and port links and greenfield highways. Under the Bharatmala Pariyojana scheme, the government had approved the first phase of the project in October 2017 with a total length of 34,800 km and an estimated cost of Rs. 5.35 Lakh Chrome

Bharat Highways InvIT IPO Review – Financials

Bharat InvIT owns seven SPV projects generating revenue of Rs. 1509 Cr, Rs. 1585 Cr and Rs. 2153 Cr each in FY23, FY22 and FY21. If you analyze the income statement, you can see that income is continuously decreasing every year.

In terms of total revenue, we also saw a decline of 4% from Rs. 1600 Cr in FY22 to Rs. 1,537 Cr in FY23. 98% of revenue comes from income earned from the operation of these seven projects.

1.5% of revenue comes from deposit interest, which grew 115% over the year. The investment trust also earned 500 billion won. 1.92 Cr from supplier loans, income tax returns and other income.

Although sales steadily decreased, net profit increased by 738% to 190 million won. 63 Cr in FY22 to Rs. 527 Cr in FY23. This is because the cost of subcontractors was drastically reduced from 5 million won to 10 million won. 1138 Cr in FY22 to Rs. 411 Cr in FY23.

Bharat Highways InvIT – Key Players

As the Indian economy prepares for a secondary offering of highway infrastructure investments, there is only IRB InvIT fund to compare. IRB InvIT was listed on the exchange in June 2017.

IRB InvIT’s performance has been quite disappointing with the InvIT losing over 32% of its value from its listing price and trading at a 30% discount to its net asset value.

Advantages of Investment Trust

1. Large portfolio with stable returns: The company has a portfolio of seven highway assets with a cumulative length of 497 km. Each SPV has entered into a long-term concession agreement with NHAI for the remaining operating period of 11.07 to 13.51 years.
2. Geographically Diverse Portfolio: InvIT consists of diversified operating HAM assets spread across five states in India. This will help stabilize revenues regardless of economic or political turmoil or riots in a particular state.
3. Right of First Offer (ROFO) Agreement: GR Infrastructure Ltd, which is bidding for assets to InvIT, is offering the trust first offer contract rights for any additional road assets to be developed by GR. It currently owns 23 additional properties.
4. Hedge against adverse interest rate movements: NHAI pays annuity along with interest rate calculated on the basis of reduced balance of completion cost. The interest rate is 3% higher than the RBI bank rate, providing inflation-adjusted returns.
5. Proactive Asset Management: A project manager is responsible for the operation and maintenance of the project. InvIT will also look to expand its project portfolio by acquiring additional road projects.

Weaknesses of Investment Trusts

1. Regulatory and compliance requirements: Because investment trusts deal with government-owned infrastructure assets, they are subject to a number of compliance requirements related to ownership due to national security implications.
2. Failure to secure new infrastructure: The age of the assets owned by the SPV is approximately 11 to 13 years. You will receive cash flow from NHAI only during this specific period. Failure to acquire new assets during this period will result in the Trust being unable to generate new cash flow.
3. Possibility of early termination of concession: NHAI has listed certain conditions on operation and maintenance standards as part of the concession agreement. Failure to comply with these conditions will result in NHAI only paying a lower termination allowance than currently envisaged.
4. Increased maintenance costs: Under the concession agreement, the SPV is required to regularly repair and maintain the assets. Increases in electricity, fuel, etc. may affect your income.
5. Restrictive Debt Financing Policy: As per SEBI’s InvIT regulations, total consolidated borrowings cannot exceed 70% of the asset value. This limits the growth that investment managers can bring to the trust.

Bharat Highways InvIT Limited – GMP

As of the date of writing this article, the gray market premium for the units of Bharat Highways InvIT is not yet published. We will update the article with our respective expectations as soon as GMP is updated.

Bharat Highways InvIT IPO Review – Key IPO Information

sponsor: Aadharshila Infratech Pvt Ltd

Investment Manager: GR Highway Investment Managers Pvt Ltd

trustee: IDBI Trustee

Book Operations Lead Manager: ICICI Securities Ltd, Axis Capital Ltd, HDFC Bank Ltd and IIFL Securities Ltd

Proposal registered by: KFin technology company

purpose of the problem

1. The net proceeds of the issue will be used to provide loans to the Project SPV for repayment or payment of outstanding loans and interest.
2. The remaining amount will be utilized for general corporate purposes.

conclusion

Investing in an investment trust is for people who want to further diversify their portfolio with stable income. Through Bharat Highways InvIT, investors gain exposure to India’s world-class highway network, which continues to grow every year.

Bharat Highways has seven projects across five states in India, providing diversified and stable cash flow. The SPV, owned by the trust, is expected to receive stable cash flows from the government as long as it continues to operate and maintain these projects.

But historical financials don’t sound very attractive. The assets owned by the InvIT generated less revenue than in FY21. Nonetheless, net profit soared 7.3 times as the company completed projects and reduced costs.

Read on and get a good understanding of the Bharat Highways InvIT IPO Review Issues. This is clearly a different matter compared to the IPOs of attractive companies with sky-high valuations, which may not bring investors the eye-catching gains that traditional IPOs get in a bull market. With this in mind, would you like to apply for this IPO? Let us know in the comments below.

Written by Nasir Hussein

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