The investment made by India Infrastructure Trust (InvIT) in Non Convertible Debentures (InvIT NCD) are classified as a Financial Asset according to the Ind AS 32 and 109. The InvIT NCDs are held with an intention to collect contractual cash flows over the tenure of the instrument and not held with an intention to sell. However, the cash flows flowing to InvIT are not solely in the nature of payment of principle and interest due to various variable cash flows attached to the instrument including additional interest after servicing the interest on external debt. Hence InvIT NCDs are classified at Fair Value through Profit & Loss (FVTPL).

Income from Interest on Investment in InvIT NCD amounting to Rs. 608.61 Crore (Previous year Rs. 635.92 Crore) is included under "Revenue from operations". Other Fair value Loss on this NCD amounting to Rs. 517.25 Crore (Previous year Rs. 37.48 Crore) is included under "Fair value Loss on Non convertible debentures measured at FVTPL".

The discounted cash flow method has been applied for deriving the fair valuation of the debentures which requires determining the present value of all cash flows.

The payment of interest and principal component of the InvIT NCDs is provided in the Debenture Trust Deed wherein interest component at the Annual Interest Rate ("AIR") will be computed on the outstanding principal of Total NCDs (i.e. InvIT NCDs NCDs issued to External lenders ). For first five years upto March 31, 2024, the AIR is fixed at 9.7%. For the balance period the AIR is computed in the block of every 5 years as Benchmark Rate 100 bps (Benchmark Rate = the average of the previous 7 trading days as per Fixed Money Market and Derivatives Association of India ("FIMMDA") Corporate AAA 5 year yield. The AIR shall be subject to a minimum to 9.5% and a maximum of 10.5%. Accordingly, the coupon rate for balance period after the first 5 year block is considered at 9.54% based on forward rates.

The significant assumptions considered in the valuation are:

1. Discount rate considered for valuation: The discount rate is computed as Zero Coupon FIMMDA 10 Year spread as on the Valuation Date for AAA rated bond for maturity corresponding to the cash flows and a spread of 1% for additional risk perceived at the time of issue of InvIT NCDs primarily since InvIT NCDs shall be paid after the Listed NCDs. If the discount rate for each year increases by 0.5% then fair value of the NCD investment will reduce by Rs. 132.53 Crore, if the discount rate reduces by 0.5% then fair value of the NCD investment will increase by Rs. 138.54 Crore.

2. The rate at which Pipeline Infrastructure Limited ("PIL") will be able to re-finance the external debt: The interest rate at which the Company will be able to refinance new NCDs is considered based on expected future interest rate for a AAA rated bond using a spread of 1.21% for additional risk. If this rate increases by 0.5% then Fair value of the debentures will decrease by Rs. 174.94 Crore and if this rate reduces by 0.5% then Fair value of the debentures will increase by Rs. 174.67 Crore.

The interest rates are blocked for a period of first 5 years at 9.7% i.e. upto March 22, 2024 and hence instrument is not exposed to interest rate risk in next year.

The fair value of call option and put option written on the shares of SPV is measured using Black Scholes Model. Key inputs used in the measurement are:

(i) Stock Price: It is estimated based on the stock price as of the date of the transaction (March 22, 2019) of Rs. 50 crores, as increased for the interim period between March 22, 2019 and March 31, 2023 by the Cost of Equity as this would be expected return on the investment for the acquirer.

(ii) Exercise Price: Rs. 50 crores

(iii) Option Expiry: 20 years from March 22, 2019 i.e., March 22, 2039.

(iv) Risk free rate as on date of valuation 7.3% and cost of equity 17.9%.

The significant assumption considered in the valuation is volatility of comparable company as per Black Scholes Model. The valuation of Call and Put Option is computed using the volatility of comparable company as 36.4%.

Call Option: If the volatility of comparable company increases by 5% then fair value of the Call option will increase by Rs. 1.17 crores, if the volatility of comparable company reduces by 5% then fair value of the Call option will decrease by Rs. 1.01 crores.

Put Option: If the volatility of comparable company increases by 5% then fair value of the Put option will increase by Rs. 1.17 crores, if the volatility of comparable company reduces by 5% then fair value of the Put option will decrease by Rs. 1.01 crores.

NOTE 23: FINANCIAL INSTRUMENTS - RISK MANAGEMENT Liquidity Risk

Liquidity risk arises from the Trust's inability to meet its cash flow commitments on time. Trust's objective is to, at all times, maintain optimum levels of liquidity to meet its cash and collateral requirements. The Trust closely monitors its liquidity position and deploys a disciplined cash management system. Trust's liquidity is managed centrally with operating units forecasting their cash and liquidity requirements.

NOTE 26. DETAILS OF DUES TO MICRO AND SMALL ENTERPRISES AS PER MSMED ACT, 2006

The Trust does not have any over dues outstanding to the micro, small & medium enterprises as defined in Micro, Small and Medium Enterprises Development Act, 2006. The identification of micro and small enterprises is based on information available with the management. Hence, additional disclosure requirements under MSME are not applicable for the year under review.

NOTE 27.

Contingent liabilities and commitments (to the extent not provided for) are Nil as at March 31, 2023 (Previous year Nil) NOTE 28. LONG TERM CONTRACT

The Trust has a process whereby periodically all long term contracts are assessed for material foreseeable losses. At the year end, the Trust has reviewed and ensured that adequate provision as required under any law / accounting standard has been made in the books of accounts.

NOTE 29. SEGMENT REPORTING

The Trust's activities comprise of owning and investing in Infrastructure SPVs to generate cash flows for distribution to unitholders. Based on the guiding principles given in Ind AS - 108 "Operating Segments", this activity falls within a single operating segment and accordingly the disclosures of Ind AS -108 have not separately been given.

NOTE 30. CAPITAL MANAGEMENT

The Trust adheres to a disciplined Capital Management framework which is underpinned by the following guiding principles:

a) Maintain financial strength to esnure AAA or equivalent ratings at individual Trust and subsidiary level.

b) Ensure financial flexibility and diversify sources of financing and their maturities to minimize liquidity risk while meeting investment requirements.

c) Leverage optimally in order to maximize unit holder returns while maintaining strength and flexibility of the Balance sheet.

31.2 Reason for variance

i) Current liability is less as compared to last year as we have paid off the payables.

ii) Fair valuation of NCD has led to lower profit, therefore return on equity is reduced.

iii) Reduction in the Interest income has led to reduction in net capital turnover ratio.

iv) Reduction is due to reason mentioned in 31.2 (i).

v) Increase is due to higher return from the MF investments in the market.

NOTE 32. SUBSEQUENT EVENTS

On a review of the business operations of the Trust, review of minutes of meetings, review of the trial balances of the periods subsequent to March 31, 2023, no subsequent events requiring reporting in the financials of Financial year 2022-23 have been identified.

NOTE 33

The previous year figures have been regrouped wherever necessary to make them comparable with those of current year.

NOTE 34. APPROVAL OF FINANCIAL STATEMENTS

The financial statements have been approved by the Board of Directors of Investment Manager to the Trust, at their meeting held on May 19, 2023.