Bharat Highways InvIT IPO Review: Bharat Highways InvIT is coming up with its IPO issue of Rs. 2500 Cr which will open on 28th February 2024. The issue will close on 1st March and be listed on the exchange on 6th March 2024. This will be India’s 2nd listed highway Infrastructure Investment Trust.

Before we get into reviewing Bharat Highways InvIT, let us understand what an Infrastructure Investment Trust is. These are developer-sponsored trusts that own and operate completed or underdeveloped infrastructure projects.

These trusts are similar to Mutual Funds, as they pool small amounts from various individuals/institutional investors and invest in projects that can generate a consistent cash flow. Each InvIT has a sponsor, who creates a trust and appoints an investment manager & a trustee.

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

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Now having learnt about what is an InvIT, let us learn more about Bharat Highways and its strengths and weaknesses.

About Bharat Highways InvIT

The Bharat Infrastructure Investment Trust IPO is sponsored by Aadharshila Infratech Pvt Ltd. The sponsor is into testing services in the field of transportation engineering, NSV survey, FWD Survey, and pavement designs of roads & airports. 

The sponsor has an associate Company NMHPL, which is into road engineering, procurement, and construction of road/highway infrastructure. The Company has over 6 years of experience in the execution of infrastructure projects since 2017.

Aadharshila Infra, the sponsor & Project Manager will be creating the InvIT to acquire 100% of the equity shares of about 7 project Special Purpose Vehicles (SPVs) from GR Infraprojects Ltd. The names of the acquired SPVs as well as the Trust’s structure are given below for a better understanding.

Bharat Highways InvIT - Hybrid Annuity Model
Source: RHP

As of January 31, 2024, the projects owned, operated, and managed by the Project SPVs are approximately 497.3 km of constructed roads across 5 states of India. All projects were awarded by the NHAI on a Hybrid Annuity Model (HAM). 

The model is adopted by the government to invite private infrastructure developers to construct roads & highways. Under this model, the government bears a part of the construction costs and the remaining is undertaken by the developer.  

The government will compensate for undertaking the project cost by allowing the developer to receive inflation-adjusted annuity payments for said concession period. The projects owned by the SPVs have a concession period expiring between 2035-2037.

About the Industry

India has the second-largest road network in the world, spanning a total of 6.33 million km. FY20-21 market the highest road construction completed with about 13,327 Km length being laid out at the pace of 36.5 Km per day. Currently, in the last 9 months of FY24, 6216 Kms have been completed at the pace of 22.6 Kms.

In the Union Budget for FY25, the Government allocated Rs. 2.8 Lakh Cr for the Ministry of Road Transport & Highways, which was 1% higher than the revised estimates of FY24. The development of the infrastructure sector has been a priority area for the Government and has witnessed enhanced public investment over the years. 

The Bharatmala Pariyojna is an initiative of the Government that focuses on optimizing the efficiency of freight and passenger movement across the country. The program will aim to bridge infrastructure gaps through the development of economic corridors, inter corridors, and feeder routes.

It also aims at developing coastal & port connectivity and greenfield expressways. Under the Bharatmala Pariyojana plan, the Government approved Phase-I of the project in October 2017 with an aggregate length of 34,800 Km with an estimated outlay of Rs. 5.35 Lakh Cr.

Bharat Highways InvIT IPO Review – Financials

Bharat InvIT owns 7 SPV projects that have earnings of Rs. 1509 Cr, Rs. 1585 Cr, and Rs. 2153 Cr in FY23, FY22, and FY21 respectively. Analyzing the income statement, we see that the income has been consistently dropping year over year.

Even in terms of total revenue earned, we see a 4% drop from Rs. 1600 Cr in FY22 to Rs. 1537 Cr in FY23. 98% of the revenue comes from income earned on the operations from these 7 projects. 

1.5% of the revenue comes from interest on deposits, which increased by 115% in a year. The Investment trust also earned Rs. 1.92 Cr as vendor advances, Income Tax returns, and other income. 

While the revenues have steadily dropped, Net Profit has increased by 738%, from Rs. 63 Cr in FY22 to Rs. 527 Cr in FY23. This is due to a significant drop in sub-contractor charges that are down from Rs. 1138 Cr in FY22 to Rs. 411 Cr in FY23.

Bharat Highways InvIT - Annual Payment
Source: RHP

Bharat Highways InvIT – Key Players 

As the Indian economy gears up for its 2nd Initial Public Offering of highway Infrastructure investment, we have only IRB InvIT Fund to compare against. The IRB InvIT was listed on the exchanges in June of 2017.

The performance of the IRB InvIT has been quite disappointing with the InvIT having lost more than 32% of its value from its listing price & trades at a 30% discount over its Net Assets Value. 

Bharat Highways InvIT - Key Players 
Source: RHP

Strengths of the Investment Trust 

  1. Sizeable portfolio of stable revenue: The Company has a portfolio of 7 highway assets of a cumulative length of 497 km. Each SPV has entered into a long-term concession agreement with NHAI for residual operation periods between 11.07 to 13.51 years.
  2. Geographically diversified portfolio: The InvIT consists of operational HAM assets that are diversified across five states of India. This should help stabilize revenue irrespective of any economic, or political turmoil or riots in any particular state.
  3. Right of First Offer (ROFO) Agreement: GR Infrastructure Ltd, which is tendering its assets to the InvIT is also providing the trust with a right of first offer agreement against all the additional road assets that GR will develop. It currently owns 23 such additional assets.
  4. Hedge against Adverse Interest Rate Movements: The NHAI will pay annuities along with the interest rate which is calculated on the reduced balance of the completion cost. The interest rate will be 3% above the RBI bank rate, providing an inflation-adjusted return.
  5. Active Asset Management: The Project Manager will be responsible for looking after the Operations & Maintenance of the respective projects. The InvIT will also look into expanding its portfolio of projects by acquiring additional road projects.

Weakness of the Investment Trust

  1. Regulatory & Compliance Requirements: As the investment trust deals with government-owned infrastructure assets, it will have to undergo multiple compliance requirements concerning ownership due to matters related to national security.
  2. Failure to acquire new Infrastructure: The assets owned by the SPV have an approximate age of 11-13 Years. Only during this particular period will they receive cash flow from NHAI. Failure to acquire new assets during this period will result in the trust being unable to generate fresh cashflows.
  3. Probability of premature termination of concession: NHAI has listed certain conditions on operational & maintenance standards, as part of its concession agreement. Failure to abide by these terms will result in NHAI only paying the termination payment which is lower than what is currently expected.
  4. Increasing Cost of Maintenance: As per the concession agreement, the SPVs are required to regularly repair & maintain the assets. An increase in electricity, fuel, or about can affect earnings.
  5. Restrictive Debt Financing policies: As per SEBI’s InvIT Regulations, the aggregate consolidated borrowing cannot exceed 70% of the value of the assets. This restricts the growth the investment manager can bring to the trust.

Bharat Highways InvIT Limited – GMP

As of the date of writing this article, the Grey Market Premium for the units of Bharat Highways InvIT has not yet been published. We will be updating the article with the respective expected as soon as its GMP gets updated.

Bharat Highways InvIT IPO Review – Key IPO Information

ParticularsDetails
IPO SizeRs. 2500 Cr
Fresh IssueRs. 2500 Cr
Offer for Sale (OFS) -
Opening date28 February 2024
Closing date1 March 2024
Face Value-
Price BandRs. 98 - 100
Lot Size150 Shares
Minimum Lot Size1 Lot (150 Shares)
Maximum Lot Size13 Lots (1950 Shares)
Min. InvestmentRs. 15,000
Listing Date6 March 2024

Sponsor: Aadharshila Infratech Pvt Ltd

Investment Manager: GR Highways Investment Manager Pvt Ltd

Trustee: IDBI Trustee

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

Registrar to the Offer: KFin Technologies Ltd

The Objective of the Issue

  1. The Net Proceeds from the issue will be used to provide loans to the Project SPVs for repayment or payment of their outstanding loans & interest
  2. The remaining amount will be utilized for General Corporate Purposes.

Conclusion

Investing in an Investment Trust is for someone looking to get a greater diversification on their portfolio, backed by stable income. Bharat Highways InvIT allows investors to gain exposure to the world-class highway network of India, which is consistently growing every year. 

Bharat Highways has 7 projects across 5 states of India providing a diversified and stable mix of cash flows. As long as the SPVs owned by the trust continue to operate & maintain these projects, they are expected to receive stable cash flows from the Government. 

However, historical financials do not sound so attractive. The assets owned by the InvITs generated lesser revenue than they did in FY21. Nevertheless, Net Profits have skyrocketed by 7.3x as the Company reached completion of its projects leading to lower costs.

We hope you get a good understanding from reading about Bharat Highways InvIT IPO Review issue. It is definitely a different issue compared to the glamorous Company IPOs at sky-high valuations and because of this, it might not fetch investors the eye-catching gains a traditional IPO does in a bull run.  Keeping this in mind, would you be applying for this IPO? Let us know in the comments below.

Written by Nasir Hussain

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