What is Power Infrastructure Investment Trust?
Like the motto of this website I want to make things simpler for investors and traders so without complicating the things lets understand the concept from buyers and seller point of view. Power Infrastructure investment trust can be thought of like Mutual Funds. You can invest them just like you invest in stocks.
You can buy and sell similar to stocks. So if a stock is trading at 100 and you want to buy 10 pieces same way you can do for power infrastructure investment trusts. Theoretically In this case you are not buying ownership in the Company but you are buying the units in it. You can get benefited by price appreciation just like you get benefit from stock price performance and get dividend if it declares one.
Infrastructure Investment trust which invests in Power sector are termed as power infrastructure investment trust. From here on I will use the term InvIT to refer the same.
InvIT investment benefits
InvIT are recent phenomenon in Indian stock market. In Power sector there are not many listed players. Investing in a power project takes huge capital. So it is not feasible for individual investors to invest in it directly. So as an investor if you feel India has long runaway for power projects and there will be benefit investing in it then there are two ways to do so. One is the traditional route of investing in power sector stocks the other one is using power InvIT.
The second option helps you invest in the power projects itself. It works same way as buying and selling stocks from your point of view.So as investors it does not make difference to you. However in second way trust has to share 90% approx of profit as dividend. The dividend is paid twice a year and in some cases four times a year (that is per Quarter) making it a passive income opportunity for investors.
Couple of important way to analyze these entities are
- Promoter promoting the entities
- Projects maintained by the trusts
The profit generating potential of the projects or assets are very key things in making the investment decision. Since that profit is distributed with the unit holders. So your passive income will depend on the profit generation potential of the assets. So you should look at underlying assets and duration by which they will be profitable to predict future income potential. Also like every investment instrument promoters are key decision factors which is applicable in this case as well.
Listed Power InvIT
As I mentioned above it is new thing in India. There are not many players listed in this space as of now. Below I have listed all the players in this space along with brief details about them so that you get some idea about them.
India Grid Trust
It has privilege of being the 1st listed player in this space. It is sponsored by KKR and Sterlite power. It was established in year 2016 and maintains and operates renewable energy assets and power transmission projects. Below are some details about the assets managed by this company
- Assets under management – 21,386 crore
- Transmission lines number and length – 42 lines covering 7800 ckms
- Number of sub stations is 12 and capacity is 14,550 MVA
- Number of Solar projects 2 and capacity is 100 MW
- Rating is AAA
Below is the details of dividend paid
- In year 2022 – 22.64 INR
- In year 2021 – 25.16 INR
- In year 2020 – 24 INR
The current price is 136 so the above dividend distribution translates to figures shown below. It is better than most of the stocks listed as well as debt or other fixed deposits.
- In year 2022 – 16.64%
- In year 2021 – 18.5%
- In year 2020 – 17.64%
Powergrid Infrastructure Investment Trust
It has luxury of being the first InvIT sponsored by Government of India Enterprise. As the name suggests it is sponsored by Powergrid Corporation which is Maharatna company and is part of Nifty 50 as well. It owns, constructs, operates, maintains, and invests in power transmission assets in India. It came with IPO in year 2021. So it is recent listing on stock exchanges. Below are some details of the assets managed by it
- Number of projects – 5 ISTS projects
- Number of Substation is 3
- Total MVA is 6,630
Below are details of dividend paid by the company.
- In year 2022 – INR 21
- In year 2021 – INR 9
Note for both the companies by year 2022 and year 2021 I mean from month of January to December not the financial year which is April to March. Since the financial year is not yet complete so I chose the January to December time frame for dividend calculation. It gives fair idea about money shared by the companies.
The current price is 128 so at current price the dividend yield comes out to be
- In year 2022 – 16.4%
- In year 2021 – 7%
Conclusion
This is yet another investment option newly introduced in Indian market which investors can explore and if it fits their purpose they can put money in it. The dividend yield is lucrative things in these instruments. So if you can clearly gauge the profit generation potential and longevity of asset to generate the same then it can be good investment option for passive income opportunity. It the dividend increases with time then that will be icing on the cake.
Note the price appreciation is slow in these entities based on the past price performance. So on the price front you should not expect as you see in same of stocks. These are low volatile entities with slow movement in either direction. So as a investor you need to keep that in mind as well.
Like other investment instrument you need to weigh in the pros and cons along with your return expectations while making investment. This can also be explored along with other options that you may have considered for your portfolio creation.