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Edelweiss
India Grid Trust (Buy)
CMP: ₹93.8
Target: ₹113
Recent equity raise of ₹2,500 crore by IndiGrid (first after IPO) and other developments are a watershed moment in many ways: 1) enhance growth prospects significantly with ₹6,500 crore AUM of framework arrangement over the next two years; 2) bolsters equity issuance potential — KKR and GIC bring deep expertise and money pool; and 3) enhance the comfort on corporate governance issue as KKR would now own 74 per cent stake in investment manger (SIML) as against Sterlite Power’s 100 per cnet stake — a conflict of interest.
Our conviction on India Grid Trust’s (IndiGrid) bright prospects is underpinned by: 1) significant spurt in IRR (270bps) & DPU(3 per cent) led by recent acquisition & framework arrangement of assets; 2) fresh equity issuance & KKR coming on board as additional sponsor instil confidence & enhances visibility on future acquisitions (beyond ROFO); 3) lifting of related-party transaction cloud with KKR now controlling 74 per cent in investment manager arm improves corporate governance (CG); and 4) 600 bps spread between 10 year G-Secs (6.7 per cent) and IndiGrid ex-terminal value (13.1 per cent; AAA rated) is extreme and warrants rerating.
Maintain BUY with a revised target price of ₹113 (earlier ₹105) led by change in risk-free rate and new assets.
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