Cube Highway Trust InvIT (May Subscribe)

Highlights

Cube Highway Trust InvIT (Cube) is an Indian infrastructure investment trust sponsored by Cube Highways and Infrastructure V Pte. Ltd. and established with the objective of acquiring and operating road and other infrastructure assets in India.

Through their portfolio assets, Cube operate 27 road assets aggregating to 8,754 lane kilometers and 2,005 kilometers in distance across 12 states and one union territory in India with a weighted average residual concession period of 18.0 years and operating history of 9.2 years, and they maintained Enterprise Value/AUM of Rs. 368,418 mn, exhibiting an AUM CAGR of 19.47 pct since FY24.

Key Highlights

• The Indian Road network is the 2^nd largest road network in the world. There has been 6.6x increase in Ministry of Road Transport & Highways (MORTH) allocation on road infrastructure between the FY16-27. In the Union Budget for FY27, the MoRTH has been allocated Rs. 3,099 bn, representing 7.9 pct increase over the revised estimate for FY26 (Rs. 2,871 bn).
• Cube’s debt facilities have been rated AAA/Stable for term loan and bank guarantee and AAA/Stable for non-convertible debentures and A1+ for commercial paper; which makes Cube’s weighted average cost of borrowing to 7.53 pct.
• The trust benefit from ROFO Agreement with Sponsor, under which three identified assets are currently available for potential acquisition. The potential addition of 4 committed assets can further reduce leverage, enhance yield and strengthen diversification across geographies, concession structures, and revenue profiles. These benefits include improvements in average distribution yield, enhancements in NAV, and an expansion of available debt capacity, all while contributing to the Trust’s revenue from operations.

• Their concession arrangements provide a stable contractual framework with provisions that support long-term cash flow visibility, including annual WPI-linked adjustments to toll rates for toll projects and potential extensions of concession periods in certain projects upon meeting prescribed target traffic thresholds.
• Cube’s assets have demonstrated resilient traffic growth, with a weighted average historical traffic CAGR of approximately 6.3 pct across toll projects, reflecting the strength of the corridors in which their assets operate. Further, traffic across toll assets is expected to grow ~4.7 pct between the FY26-52.
• Cube’s investment decisions are guided by a rigorous evaluation framework that considers expected internal rates of return, corridor and traffic growth potential, concession life, capital efficiency, and portfolio synergies. Each prospective acquisition is also subject to diligence covering technical, legal, financial and ESG parameters. Cube’s disciplined bidding strategy prioritises quality over quantity and aligns with their long-term return objectives.
• Cube has consistent track record of quarterly distributions since their private listing. They have distributed, at least quarterly, a minimum of 90 pct of the net distributable cash flows (NDCF). Since Private listing until FY26, Cube delivered an average annual DPU yield of 9.8 pct with a total XIRR of 23.63 pct.

Key Risk

• A significant portion of their sales is dependent on annuity payments from the NHAI, which may be delayed, disputed or reduced, which could adversely affect their cash flows.
• Toll collections and traffic volumes are subject to uncertainties, including competing roads, exemptions, toll leakage, changes in vehicle mix, and government directives, which could adversely affect business and cash flows.
• Cube’s concession agreements contain mandatory capacity augmentation and major maintenance obligations, which could increase their costs and reduce traffic during works, thereby adversely affecting their business and cash flows.

Financial Performance

 Source: – RHP.

Valuation

Cube Highways Trust is an Indian infrastructure Investment Trust (InvIT) operating in the roads and highways sector. It is engaged in implementing the public-private partnership model in India’s highways sector, to operate and manage highways in association with the central and state governments. It operates a portfolio of 27 road assets spanning an aggregate length of 2,005 kilometers (8,754 lane kilometers) across 12 states and one union territory in India. At the upper end of the price of Rs. 152, the issue quotes at P/NAV of 1.04x on FY26 Net Asset Value (NAV) of Rs. 145.77. Only High-risk long-term investors can subscribe this issue.

Disclaimer: The views shared in blogs are based on personal opinions and do not reflect the company’s views. Investment involves risk, and it is advisable to consult a financial advisor before making any investment through the app. The decision to invest is solely that of the investor, and the company or its communication cannot be held responsible for it.