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How is the IRB InvIT fund IPO?

IRB InvIT IPO is the maiden IPO of any investment trust in INDIA. It is a bundle of IRB infrastructure Developer’s 6 operation toll-collecting road projects covering 3645km of highways in Maharashra, Gujarat, Rajasthan, Karnataka and Tamilnadu with average balance concession period of 16 years.As per regulations, it is required to distribute 90% of distributable cash to its unit holders in the form of dividends, at a frequency of 6 months which is tax free.While sole income stream of toll-collection garnered Rs 987 Cr (combined revenue of 6 operational toll-collection), it reported negative(loss) PAT(profit after tax) of Rs 76 Cr for FY16 on account of massive interest payment of Rs 435 Cr against debt. While loss after tax contracted to Rs 13 Cr for 9 months of FY17, interest burden still remains high at Rs 310 Cr.Fresh issue proceed will reduce debt worth Rs 3350 Cr(Total debt stands at Rs 4745 Cr as of 30th April 2017), while Rs 1680 Cr will flow to the sponsors of IRB infrastructure developers. With lower interest burden against debt should turnaround the operation in first year itself, enabling timely dividend payment for unit holders.This financial product is neither a debt nor a pure equity entity, its a quasi-debt mixed with some equity risk which tilts more towards debt instrument.At Rs 102 per unit, the enterprise value of this investment trust is pegged at Rs 5922 Cr. Estimated yield on the product is about 10–12% pa post tax, which is however not guaranteed. Scope of capital appreciation is negligible unless issue is grossly over-subscribed.CARE’s AAA credit rating has not being assigned to units being offered but has been assigned for underlying asset with presumption that total debt of the trust would not exceed Rs 1000 Cr post completion of this IPO.Given the ongoing trend of IPO , IRB InvIT is suited well as a diversificaiton option. Since its quasi-debt instrument mixed with some equity risk,it scores over pure debt instrument and can be subscribed.

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