irb invit fund Management discussions

1. Industry Review

India infrastructure opportunity

Infrastructure sector is a key driver for the Indian economy. Growing urbanisation, demand for energy and financing needs for sustainable living pose a challenge for the infrastructural setup in the country. Infrastructure, and the lack of it, is envisaged as the primary growth constraint, while good infrastructure is widely recognized as an enabler of growth. In the coming era of supply chain disruptions, new technologies and reversal of financial deleveraging, infrastructure growth must keep pace with the need created for it. The sector is accountable for propelling India overall development and garners intense focus from the government for introducing policies that would ensure time-bound formation of world-class infrastructure in the country. The opportunities in the sector have seen an incremental curve over previous years and are growing to establish the sector as a key driver in India development story at a high rate. The Government of India has given a significant push for capital expenditures for key infrastructure sectors, especially highways. The total allocation for the highways sector has increased to Rs 1.99 lakh crore from Rs1.18 lakh crore in the Union Budget for financial year 2022-23. (Source: Government of India, Ministry of Finance, Union Budget 2022-2023)

Road and Highway sector

India has the second-largest road network in the world, spanning a total of 6.3 million kilometers (kms). This road network transports 64.5% of all goods in the country and 90% of India total passenger traffic uses road network to commute. Road transportation has gradually increased over the years with improvement in connectivity between cities, towns and villages in the country.

According to the MoRTH, Financial Year 2022-23 was the year of consolidation of the gains that accrued from major policy decisions taken in the previous eight years, a time for monitoring of ongoing projects, tackling road blocks and adding to the already impressive pace of work achieved during the past years. During the year, the MoRTH and its associated organizations have expanded the national highways network in the country, taking various steps to make these highways safe for the commuters and making best efforts to minimize adverse impact on the environment. As a result, over the last eight years, length of National Highways has gone up by 48.12% from 97,830 km (FY 2014-15) to 1,44,955 km (as on March 31, 2023) out of the set target of 2,00,000 kms for 2024-25. (Source: MoRTH press release titled “Year End Review 2022: Ministry of Road Transport and

Highways” dated January 04, 2023 and MoRTH Annual Report 2022-23)

The MoRTH has envisaged an ambitious highway development programme Bharatmala Pariyojana which includes development of about 65,000 km NHs. Under Phase-I of Bharatmala Pariyojana, the MoRTH has approved implementation of 34,800 km of NHs in 5 years (2017-18 to 2021-22) with an outlay of Rs5,35,000 crores.

Details of National Highway length constructed per day during last five financial years are as follows:

Year	Length in kms	Pace (Km per day)
2016-17	8,231	22.55
2017-18	9,829	26.93
2018-19	10,855	29.74
2019-20	10,237	27.97
2020-21	13,327	36.51
2021-22	10,457	28.64

(Source: Year End Review- 2022: MoRTH)

Growth Drivers

To accelerate the pace of construction, several initiatives

have been taken to revive the stalled projects and

expedite completion of new projects:

• Identification of Model National Highway in the state for development by the Government.

• Streamlining of land acquisition and acquisition of major portion of land prior to invitation of bids.

• Award of projects after adequate project preparation in terms of land acquisition, clearances etc.

• Disposal of cases in respect of Change of Scope (CoS) and Extension of Time (EoT) in a time bound manner

• Procedure for approval of General Arrangement Drawing for ROBs simplified and made online.

• Close co-ordination with other Ministries and State Governments.

• One-time fund infusion

• Regular review at various levels and identification/ removal of bottlenecks in project execution.

• Proposed exit for Equity Investors.

• Securitization of road sector loans.

• Disputes Resolution mechanism revamped to avoid delays in completion of projects.

• As an integral part of Atmanirbhar Bharat, the various relief measures have been taken by the MoRTH for providing relief to Contractors/ Developers/Concessionaires of Road Sector from the impact of COVID, subsequent lockdown and other measures taken to prevent spread of COVID.

• The several steps undertaken by the Government under Atmanirbhar Bharat includes granting time extensions for 3 to 9 months, relaxation in contract provisions for ensuring cash flow, direct payment to sub-contractors and release of retention/security money to augment cash flow, waiver of penalty in case of delay in submission of Performance Security (for new Contracts), to expedite the construction work to achieve the target.

• Mandatory Electronic toll collection through FASTag with effect from February 15, 2021.

• For faster settlement of claims through conciliation and reduce liabilities, NHAI has rigorously started the process of conciliation by constituting three Conciliation Committees of Independent Experts (CCIE) of three members each.

In addition, there are a few more initiatives that will drive growth for the infrastructure sector in India:

Massive infrastructure push: The Union Budget has given much-needed impetus to infrastructure development which could reduce trade and transaction costs and improve factor productivity. Moreover, the focus on roads and railways will create a unified market in India for seamless movement of goods and human resources. The Government of India has given a massive push to the infrastructure sector. The total budgetary outlay increased by 68.59 %, from Rs1,18,101 crore in financial year 2022 to Rs1,99,107 crore for the financial year 2023.

NH expansion: PM Gati Shakti Master Plan for Expressways will be formulated in 2022-23 to facilitate faster movement of people and goods. The National Highways network will be expanded by 25,000 km in 2022-23. Length of national highways to reach 200,000 km.

Growing demand: With the increase in consumer demand and nuclear families, need for two-wheelers and compact cars has been on the rise and is expected to grow even further. The market for roads and highways in India is projected to exhibit a CAGR of 36.16% during 2016-2025, on account of growing government initiatives to improve transportation infrastructure in the country. Almost 40% (824) of the 1,824 PPP projects awarded in India until December 2019 were related to roads.

Government initiatives:

The government has tried to improve the rate of awarding over the years. HAM has seen a significant share of awarding recently, which is expected to increase going forward.

The major initiatives undertaken by the Government such as National Infrastructure Pipeline (NIP) and the PM Gati Shakti National Master Plan will raise productivity, accelerate economic growth and sustainable development. The approach is driven by seven engines, namely Roads, Railways, Airports, Ports, Mass Transport, Waterways, and Logistics Infrastructure. All seven engines will pull forward the economy in unison. The projects pertaining to these 7 engines in the NIP will be aligned with PM Gati Shakti framework. The major initiatives undertaken by MoRTH are described under:

1. Ministry of Road Transport and Highways (MORTH), through its implementing agencies NHAI / NHLML and NHIDCL has kept pace with the work of implementing of 35 Multi-Modal Logistics Parks (MMLPs) Projects identified for development under Bharatmala Pariyojana - Phase I.

2. MoRTH developed a comprehensive Port Connectivity Masterplan to ensure adequate last-mile connectivity to all the operational/UI ports in the country. As part of the Masterplan, connectivity requirements of all the operational and under implementation ports were assessed and connectivity projects were identified. The 59 projects (1,249 km) will be taken up under PM Gati Shakti National Master Plan for improving last mile connectivity to ports in the country.

3. In order to improve the comfort and convenience of the highway users, the Ministry has planned development of state-of-the-art Way Side Amenities (WSA) at approximately every 40 kms along the National Highways.

4. Launch of Surety Bond Insurance, MoRTH launched India first-ever Surety Bond Insurance product from Bajaj Allianz on December 19, 2022. With this new instrument of Surety Bonds, the availability of both liquidity and capacity will be boosted, and the infrastructure sector will be strengthened.

5. Relief for Contractors/Developers of the Road Sector in view of the COVID-19 Pandemic. The MoRTH has extended reliefs/extension to relief granted to the Contractors / Developers of the Road Sector in view of the COVID-19 pandemic.

6. In order to ensure seamless movement of traffic through fee plazas and increase transparency in collection of user fee using FASTag, the National Electronic Toll Collection (NETC) programme, the flagship initiative of MoRTH, has been implemented on pan-India basis. FASTag implementation has also reduced the wait time at National Highway fee plazas significantly, resulting in enhanced user experience. In order to ensure that the payment of fees at Toll Plazas is through Electronic means only and vehicles pass seamlessly through the Fee Plazas, the FASTag drive has been very well supported by the highway users as it has achieved over 95% penetration with more than three crore users in the country.

7. MoRTH brought out changes in the Model Concession Agreement (MCA) & Request for Proposal (RFP) of the Road Construction Models such as HAM and BOT (Toll).

i) Much needed changes have been made in the relevant clauses of the model RFP and MCA of the HAM project to allow the Lowest Quoted Bid Project Cost (BPC) as the basis for awarding the HAM Project and O&M cost to be fixed as being done in EPC projects. It will now bring out the winner immediately after the opening of financial bids in a transparent manner as in EPC mode of bidding.

ii) Changes have been made in the relevant clauses of the Model Concession Agreement of the BOT (Toll) project permitting the change of ownership from existing 2 years to 1 year after the Commercial Operation Date (COD). This move will free the equity/funds of construction companies for taking up other projects.

8. In November 2020, the MoRTH in modified the change in ownership clause in the Hybrid Annuity Mode (“HAM”) projects and permitted the bidders/ consortium members to dilute their equity after a period of six months from the commercial operations date (“COD”). Prior to the relaxation, the concessionaire/bidders/consortium members had to retain their equity for a period of two years from COD. Further, MoRTH in May 2022 approved changes in the model concession agreements of Build-Operate-Transfer projects and permitted the change of ownership from the existing two years to one year after COD/issuance of completion certificate and completion of punch list items.

Increasing investments: With the Government

permitting 100% Foreign Direct Investment (FDI) in the road sector, several foreign companies has formed

partnerships with Indian players to capitalise on the sector growth.

Opportunities

Here are some trends that are ensuring seamless travel, better infrastructure and connectivity:

Electronic toll collection: National Electronic Toll Collection (FASTag) programme, the flagship initiative of MoRTH and NHAI has been implemented on pan India basis in order to remove bottlenecks and ensure seamless movement of traffic and collection of user fee as per the notified rates, using passive Radio Frequency Identification (RFID) technology which is made compulsory with effect from February 15, 2021.

Different models: The type of Public-Private Partnership (PPP) models used in road projects are Build Operate Transfer (BOT) toll, Toll-Operate-Transfer (TOT) and HAM (Hybrid Annuity Model). The government has already started developing new, flexible policies to create investor-friendly highway development initiatives by monetising highway assets under TOT mode. The next fiscal year is likely to witness an increase in private participation by award of contracts under the BOT, TOT and HAM model.

FDI in roads: 100% Foreign Direct Investment (FDI) is allowed under the automatic route in the road and highways sector. The Government aims to boost corporate investment in roads and shipping sector, along with introducing business-friendly strategies, which will balance profitability with effective project execution. According to the data released by Department for Promotion of Industry and Internal Trade Policy (DPIIT), Cumulative FDI inflows in construction development stood at US$ 26.3 billion between April 2000-December 2022. In financial year 2022 (until November 2021), the private sector invested Rs15,164 crore (US$ 1.98 billion) in roads.

Asset Monetization: The National Highways Authority of India (NHAI) has drawn up an ambitious plan to monetize 46 operational highway stretches of total length of 2,612 kms in the financial year 2023-24 through TOT/ InvIT mode to beef up resources for its road building program.

Other favourable policies: These include 100% exit policy for stressed BOT players, providing secured status for PPP projects while lending, and proposal to scrap slow-moving highway projects, among others.

Outlook

India infrastructure sector is rapidly evolving and the key trends demonstrate positively and optimism. The market for roads and highways in India is projected to exhibit a Compound Annual Growth Rate (CAGR) of 36.16% during 2016-2025, on account of growing

Government initiatives to improve transportation infrastructure in the country. For the period of 2016-17 to 2021-22, the CAGR stands at 20%.

The highways sector in India has been at the forefront of performance and innovation. The government is committed towards expanding the National Highway network to 2 lakh kilometres by 2025 emphasizing the construction of the World Class Road infrastructure in time bound & target oriented way. India has a well- developed framework for Public-Private-Partnerships (PPP) in the highway sector. The Asian Development Bank ranked India at the first spot in PPP operational maturity and also designated India as a developed market for PPPs. The Hybrid Annuity Model (HAM) has balanced risk appropriated between private and public partners and boosted PPP activity in the sector. In the recent past, the BOT projects have witnessed renewed interest from private players, therefore it is envisaged that the NHAI may come out with more tenders on BOT mode in the coming year. Asset recycling, through the TOT model has also been taken up by the NHAI and other State Government agencies.

The second phase of the Government of India Bharatmala programme has been announced for launch. 5,000 km worth of projects are expected to be constructed under the aegis of this programme and Detailed Project Reports (DPRs) are being prepared prior to the approval of the projects so as to speed up the implementation process. In order to facilitate seamless travel between important economic centres, Bharatmala Phase-2 seeks to improve connectivity to a number of infrastructure projects, including multi-modal logistics parks (MMLPs) and under-construction expressways. The new phase would also take up the construction of highways that decongest existing roads, ring roads around major industrial centres and bypasses. The simultaneous implementation of phase-II projects will help in operationalising the remaining projects under phase-I, which is now scheduled to be completed by 2027.

2. Trust Overview

IRB InvIT Fund is the Trust settled by its Sponsor, IRB Infrastructure Developers Limited and is registered under the SEBI (Infrastructure Investment Trusts) Regulations, 2014. It comprises of Six operational road projects having length of 2,421 km includes 5 BOTassets and 1 HAM asset with aggregate enterprise value of approx. Rs8,250 crores. It has presence across six states in India with average residual concession period of ~16 years.

The Sponsor of the Trust i.e. IRB Infrastructure Developers Limited, is one of the largest infrastructure development and construction companies in India in terms of net worth in roads and highways sector. The Sponsor has been listed on the Stock Exchange(s) viz. National Stock Exchange of India Limited (NSE) and BSE Limited (BSE) since 2008. As of March 31, 2023, the Sponsor has 24 projects, under various stages of development and operations.

Consequent to the formation transactions, on May 9, 2017, the Trust acquired an initial portfolio comprising the six Project special purpose vehicles (SPVs), all of which were wholly owned by the Sponsor and its subsidiaries. On September 28, 2017, the Trust further acquired its seventh project RsPathankot AmritsarRson NH 15 in Punjab from the Sponsor and its subsidiary. Further, concession period for two of the project SPVs ended in the month of March and May 2022 and were successfully handed over to National Highways Authority of India (NHAI). In October 2022, the Trust acquired Vadodara Kim HAM project in the state of Gujarat from the Sponsor.

Distribution

The InvIT Regulations provide that not less than 90% of net distributable cash flows of each project SPV are required to be distributed to the Trust in proportion to its holding in each of the project SPVs, subject to applicable provisions of the Companies Act, 2013. Further, not less than 90% of net distributable cash flows of the Trust shall be distributed to the unitholders.

Such distributions shall be declared and made not less than once in every six months in every financial year and shall be made not later than fifteen days from the date of such declaration.

For financial year 2022-23, the Net Distributable Cash Flow (NDCF) of the Trust was Rs493.67 crores, out of which the Trust has distributed 94.66%. The Total payout from the NDCF for financial year 2022-23 was Rs8.05 per unit to the unitholders.

Statement of Net distributable cash flows (NDCFs) of IRB InvIT Fund

(Amount in lakh)

Sr. No. Particulars	Year ended March 31, 2023	Year ended March 31, 2022
1 Cash flows received from Project SPVs in the form of Interest	47,983.32	41,284.74
2 Cash flows received from Project SPVs in the form of Dividend	-	-
3 Any other income accruing at the Trust level and not captured above, including but not limited to interest/return on surplus cash invested by the Trust	795.63	312.22
4 Cash flows received from the project SPVs towards the repayment of the debt issued to the Project SPVs by the Trust	18,893.37	31,022.75
5 Total cash inflow at the Trust level (A)	67,672.32	72,619.71
Less:
6 Any payment of fees, interest and expense incurred at the Trust level, including but not limited to the fees of the Investment Manager	(12,880.49)	(12,547.93)
7 Income tax (if applicable) at the Standalone Trust Level	-	-
8 Repayment of external debt	(5,425.00)	(5,425.00)
9 Total cash outflows / retention at the Trust level (B)	(18,305.49)	(17,972.93)
10 Net Distributable Cash Flows (C) = (A+B)	49,366.83	54,646.78

Factors affecting Operations

The business of Project SPVs Rsprospects and results of operations and financial condition are affected by a number of factors including the following key factors:

Terms of the Concession Agreements for tariff revision

Toll fees are pre-determined by the relevant government entities and cannot be modified to reflect the prevailing circumstances other than the annual adjustments to account for inflation as specified in the Concession Agreements.

For the current five BOT projects, the tariff revision structure and details of the last revision are as follows:

Name of the Company	Tariff rate revision	Revision date	Financial Year 2022-23 (%)
M.V.R. Infrastructure & Tollways Limited (MVR)	Linked to WPI	September 1, every year	14.87 %
IRB Jaipur Deoli Tollway Limited (IRBJD)	3% + 40% of WPI	April 1, every year	10.16 %
IRB Tumkur Chitradurga Tollway Limited (IRBTC)	3% + 40% of WPI	April 1, every year	10.16 %
IRB Talegaon Amravati Tollway Limited (IRBTA)	3% + 40% of WPI	April 1, every year	10.16 %
IRB Pathankot Amritsar Toll Road Limited (IRBPA)	3% + 40% of WPI	April 1, every year	10.16 %

* WPI - Wholesale price index Growth in Traffic Volumes

The Trust target portfolio revenue of CAGR of 9.5-10% can be achieved with tariff revision of 4.5-5% combined with traffic growth of 5-5.5%. Going by historical performance, the intrinsic potential as well as current performance of the projects owned by the Trust, it is envisaged that the Trust will achieve its targets.

Operating and Maintenance cost

The Concession Agreement spells out significant costs during the concession period including operating and maintenance expenses, such as periodic maintenance required to be performed. Periodic maintenance involves repair of wear and tear of roads, including overlaying the surface of the roads, if required.

The O&M of Project SPVs is managed by the IRB Infrastructure Developers Limited, (Sponsor and Project

Manager), as per the fixed price agreements/contracts executed by respective Project SPVs. The O&M cost covers routine and periodic maintenance, details for financial year 2022-23 and financial year 2021-22 are as follows:

(Amount in lakh)

Project Name	FY 2022-23	FY 2021-22
IRBJD	1,028	5,460
IRBTA	3,685	3,581
IRBTC	305	351
MVR	470	451
IRBPA	1,820	4,258
VK1	1,201	-
IRBSD	406	2,356
IDAA	-	10,682

Regulatory Commitments

As per the Concession Agreements, some of the Project SPVs are required to pay revenue share/premium to the NHAI.

Tumkur - Chitradurga is obligated to pay fixed amount of premium to NHAI. As per the deferred premium agreement, in the case of Tumkur - Chitradurga project, part of the premium obligation is shown as premium deferment and balance amount is paid to NHAI during the year.

In case of Omalur - Salem project, revenue share is paid to the NHAI at a fixed rate per annum which is ~ 22.50% of gross toll revenues.

Interest Rates Scenario:

Interest rates impact both growth and inflation. Higher the interest rate, higher is the cost of capital. This reflects on the slowdown of investments in the economy. Interest rate is a significant factor affecting any new acquisition of asset. Banks and financial institutions provide the debt under floating or fixed rate depending on the asset class, Cash flow generation and the credit rating of the borrower.

In the recently acquired HAM project, our income from operation and maintenance is linked with the movements of inflation indices in a relevant period and income from interest on the balance completion cost is linked with RBI Bank Rate. Under the rising interest rate scenario, the higher interest on annuity due to higher RBI bank rate will mitigate the risk of higher interest rate on external debt.

General economic conditions in India - level of investment and activity in infrastructure development sector

The Central and State Government have renewed their focus on infrastructure that is evident from the fact that the budgetary allocations for construction and augmentation of roads and highways in India have increased significantly. This increased budgetary allocation, when complemented by the private sector participation would generally result in large infrastructure projects in India.

Innovative bidding structures like HAM and TOT provide scopes for increase in portfolios of highway developers. This would provide huge scope for future acquisitions for the Trust and thereby enhance stakeholdeRsvalue.

Financial Review

Internal accruals are robust even after considering all expenses, taxes and repayment of debt.

The total consolidated income for financial year 202223 has increased to Rs1,462 crores from Rs1,400 crores in financial year 2021-22.

The consolidated toll revenues for financial year 2022-23 stood at Rs903 crores from Rs1,209 crores for financial year 2021-22. The concession period for two BOT assets i.e. IDAA Infrastructure Limited i.e. Bharuch Surat and IRB Surat Dahisar Tollway Limited i.e. Surat Dahisar project ended on March 31, 2022 and May 25, 2022 respectively and the projects were handed over to NHAI. The previous year toll numbers were impacted due to various waves of Covid-19 pandemic which led to partial/ full lockdown imposed in various states. Moreover, due to the farmeRsprotest in the state of Punjab, tolling for the Amritsar Pathankot project was halted since the beginning of October 2020 and the toll operations resumed on December 16, 2021.

EBITDA for financial year 2022-23 stood at Rs828 crores from Rs1,159 crores in financial year 2021-22.

Interest costs (including interest on premium deferment) for financial year 2022-23 stood at Rs193 crores as against Rs 142 crores for financial year 2021-22 on account of addition of Vadodara Kim HAM project.

Depreciation (including amortization) for financial year 2022-23 stood at Rs 261 crores from Rs 681 crores in financial year 2021-22.

Profit before tax for the year ended March, 2023 increased to Rs 374 crores from Rs336 crores in March, 2022.

Profit after tax for the year ended March, 2023 increased to Rs 370 crores from Rs303 crores in March, 2022.

Critical Accounting Policies:

The preparation of financial statements in conformity with applicable accounting standards and the Companies Act, 2013 requires the Trust management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations at the end of the reporting period. By their nature, these judgements are subject to a degree of uncertainty. Although these estimates are based upon the best knowledge of the Trust management of current events and actions, the actual results could differ from these estimates.

While all aspects of the financial statements should be read and understood in assessing their current and expected financial condition and results, the Trust believes that the following critical accounting policies warrant particular attention:

Intangible assets Toll Collection Rights:

• Toll collection rights are stated at cost net of accumulated amortisation and impairment losses.

• Toll collection rights awarded by the grantor against construction service rendered by the Project SPV on Design, Build, Finance, Operate, Transfer (DBFOT) basis, which consists of direct and indirect expenses on construction of roads, bridges, culverts, infrastructure and other assets at the toll plazas.

• Toll collection rights are amortised over the period of concession, using revenue-based amortisation as per exemption provided in Indian Accounting Standard (Ind AS) 101. Under this method, the carrying value of the rights is amortised in the proportion of actual toll revenue for the year to projected revenue for the balance toll period, to reflect the pattern in which the economic benefits of the assets will be used. At each balance sheet date, the projected revenue for the balance toll period is reviewed by the management. If there is any change in the projected revenue from previous estimates, the amortisation of toll collection rights is changed prospectively to reflect any variations in the estimates.

• Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit or loss when the asset is derecognised.

• Intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired.

Premium Obligation

As per the service concession agreement, one of the SPVs is obligated to pay the annual fixed amount of premium to NHAI. This premium obligation has been capitalised as an intangible asset since it is paid towards getting the right to earn revenue by constructing and operating the roads during the concession period. Hence, total premium payable as per the service concession agreement is upfront, capitalised at fair value of the obligation at the date of transition.

Besides, gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset of the Trust and are recognised in the statement of profit or loss when the asset is derecognised.

Intangible assets are assessed for impairment whenever there is an indication that the intangible asset may be impaired.

Amortisation

Toll collection rights are amortised over the period of concession, using revenue-based amortisation as per exemption provided in Ind AS 101. Under this method, the carrying value of the rights is amortised in the proportion of actual toll revenue for the year to projected revenue for the balance toll period, to reflect the pattern in which the assets economic benefits will be consumed. At each balance sheet date, the projected revenue for the balance toll period is reviewed by the Trust. If there is any change in the projected revenue from previous estimates, the amortisation of toll collection rights is changed prospectively to reflect any changes in the estimates.

Premium deferment

The balance sheet of the Trust reflects premium deferral (i.e. premium payable less paid after adjusting premium deferment) as aggregated under premium deferred obligation. Interest payable on the above is aggregated under premium deferral obligation.

Interest on premium deferral is capitalised during the construction period and thereafter charged to the statement of profit and loss.

Provisions

Generally, provisions are recognised when the Fund has a present obligation (legal or constructive) as a result of a past event. It is probable that an outflow of resources of economic benefits will be required to settle the obligation and a reliable estimate can be made of the obligation amount. When the Fund expects some or the entire provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the Statement of Profit and Loss, net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Principal Components in the consolidated profit and loss Income items

The Project SPVs income consists of revenue from operations and other income. Revenue from operations primarily consists of income from toll collection. Further, during the construction period of a project, the NHAI may ask the Project SPVs to carry out utility shifting work (which is incidental to the construction of the toll road and typically involves the shifting of utilities that are located at the construction site) or may award the Project

SPVs additional scope of work that is separately paid by the NHAI. Revenue from such utility shifting or change in scope contract and the sale of materials, among others, also forms part of the Project SPVs operating revenue. However, this is not significant as compared to toll revenue. Other operating income also includes compensation income on account of suspension of toll operations in one of the projects due to farmeRsprotest.

The term, Other income includes interest income on bank deposits, interest on an income tax refund, interest unwinding on loan given, dividend income, gains on sale of property, plant and equipment, gain on sale of investments and certain miscellaneous income. Other income also includes any gain on sale of investments and fixed assets.

Expense items

Expenses are made up of: (i) road work and site expenses, (ii) employee benefits expense and (iii) depreciation and amortisation expenses, (iv) finance cost, and (v) other expenses.

Road work and site expenses

This expenditure includes contract expenses relating to utility shifting or change in scope contracts, operation and maintenance expenses, road works expenses, cost of material sold, independent engineer fees, subcontracting and security expenses, and site and other direct expenses.

Employee benefits expenses

This nomenclature includes salaries, wages and bonus paid to the Trust employees, contribution towards provident fund and other funds, gratuity expenses and staff welfare expenses.

Depreciation and amortization

Depreciation and amortisation account shows depreciation on property, plant and equipment and amortisation of intangible assets of the Trust.

Finance costs

Finance costs of the Trust include interest on loans from banks/financial institutions, interest on premium deferment and other borrowing costs.

Other expenses

The day to day working of the Trust involves a number of administrative expenses which are listed as Other expenses. These include various administrative costs such as power and fuel costs, rent, rates and taxes, water charges, repairs and maintenance, travel and conveyance expenses, vehicle expenses, printing and stationery expenses, director sitting fees, advertisement expenses, legal and professional expenses, Auditor remuneration, bank charges, insurance and other miscellaneous expenses.

Human Resource

At Investment Manager, the focus on human resource development is a continuous process and is demonstrated through various employee engagement initiatives and regular talent management reviews. The key highlights for last year were preparation and implementation of detailed career path for high potential employees, filling vacancies through internal talent resourcing, skip level meetings across organisation for creating a transparent working environment. We have also undertaken an initiative to optimise the manpower cost for better productivity and improved accountability thereby creating a performance orientated career model amongst all its members.

Risk Management

The opportunity in the business of toll collection is the upbeat traffic movement which would help in improving the toll collection and thereby increase the return to the unit holders. Having said that, the biggest risk that the projects face is the slowdown in traffic and diversion of traffic. To overcome such risk, we have enough safeguards in the concession agreement with NHAI wherein our losses would be either cash reimbursed, or we would be provided an extension of time in our concession period.

Internal control and systems

IRB InvIT Fund and the Investment Manager has a strong internal control system to manage its operations, financial reporting and compliance requirements. The investment manager has clearly defined roles and responsibilities for all managerial positions. All the business parameters are regularly monitored, and effective steps are taken to control them. Regular internal audits are undertaken to ensure that responsibilities are executed effectively. The audit committee of the Board of Directors of Investment Manager periodically reviews the adequacy and effectiveness of internal control systems and suggests improvements to further strengthen them.

Cautionary Statement

The terms IRB InvIT, and the Trustare interchangeably used and mean IRB InvIT and its Project SPVsas may be applicable.

This annual report contains certain forward-looking statements and may contain certain projections. These forward-looking statements generally can be identified by words or phrases such as aim, anticipate, believe, expect, estimate, intend, objective, plan, project, will, will continue, will pursue, eek to or other words or phrases of similar import. Similarly, statements that describe strategies, objectives, plans or goals are also forward-looking statements.

All forward-looking statements and projections are subject to risks, uncertainties and assumptions. Actual

results may differ materially from those suggested by forward-looking statements or projections due to risks or uncertainties associated without expectations with respect to, but not limited to, regulatory changes pertaining to the infrastructure sector in India and the Trust ability to respond to them, the Trust ability to successfully implement its strategy and objectives, the Trust growth and expansion plans, technological changes, the Trust exposure to market risks, general economic and political conditions in India that have an impact on the Trust business activities or investments, the monetary and fiscal policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in India and globally, changes in domestic laws, regulations and taxes and changes in competition in the infrastructure sector. Certain important factors that could cause the Trust actual results to differ materially from expectations include, but are not limited to, the following:

• the business and investment strategy of the Trust;

• expiry or termination of the Project SPVs respective concession agreements;

• future earnings, cash flow and liquidity;

• potential growth opportunities;

• financing plans;

• the competitive position and the effects of competition on the Trust investments;

• the general transportation industry environment and traffic growth; and

• regulatory changes and future Government policy relating to the transportation industry in India.

By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual gains or losses could materially differ from those that have been estimated. Forward-looking statements and projections reflect current views as of the date hereof and are not a guarantee of future performance or returns to investors. These statements and projections are based on certain beliefs and assumptions that in turn are based on currently available information.

Although the investment manager believes that the assumptions upon which these forward-looking statements and projections are based are reasonable, any of these assumptions could prove to be inaccurate, and the forward-looking statements and projections based on these assumptions could be incorrect. None of the Trust, the trustee, the investment manager and their respective affiliates/advisors have any obligation to update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition.

There can be no assurance that the expectations reflected in the forward-looking statements and projections will prove to be correct. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements and projections and not to regard such statements to be a guarantee or assurance of the Trust future performance or returns to investors.