2 Dividend Powerhouses Riding the Investing Theme of the Decade

In my last editorial, I wrote to you about how AI has taken over our day-to-day lives - and whether it poses a threat to my job.

The responses I received were both thoughtful and engaging. It's clear that the debate around AI and its impact on my profession is just getting started.

Whether or not it will make me irrelevant, one thing is certain: AI is the theme of the decade.

But there's something interesting happening in parallel. While AI hogs the spotlight, it's fuelling another equally important theme: energy. It's powerful undercurrent is quietly driving the AI wave.

Think about it. Training large language models and operating engines like ChatGPT or Gemini is energy guzzling. The infrastructure needed for AI, from chips to data centers, needs energy. Elon Musk, in his characteristically blunt style has said...

• "...the next shortage will be electricity. They won't be able to find enough electricity to run all the chips. I think next year, you'll see they just can't find enough electricity to run all the chips.
  
  "The simultaneous growth of electric cars and AI, both of which need electricity, both of which need voltage transformers - I think, is creating a tremendous demand for electrical equipment and for electrical power generation."

This surge in demand needs huge investment in generation, transmission, and storage infrastructure. There's a visible shift toward green energy. Energy, power, and electrification - all closely tied to AI - are emerging as some of the most promising long-term investments.

As I explored ways to play this theme in the market, I came across two interesting and under-the-radar candidates: Indigrid Infrastructure Trust and Powergrid Infrastructure Investment Trust.

These entities are part of a structure known as InvITs, or Infrastructure Investment Trusts. Both are focused on owning, maintaining, constructing, investing in, and operating, power transmission and related assets in India.

So why do InvITs exist in the first place?

Well, infrastructure projects are capital-heavy and take years to complete. This long gestation period means they require patient, long-term capital.

Banks do fund such projects, but there's a limit to how much they can support without running into their own asset-liability mismatches.

To protect themselves, banks often shorten loan durations, which creates pressure on the project to repay quickly - reducing its ability to service debt and leaving little surplus.

InvITs provide a solution to this problem. They are designed to channel long-term capital into the infrastructure sector.

An InvIT pools together multiple infrastructure assets under a single trust. These assets are typically housed under Special Purpose Vehicles (SPVs), and the InvIT acquires them - either through capital raised from investors or through debt.

This structure allows the original asset developer to effectively monetize the asset and redeploy funds into new projects. InvITs are, therefore, important facilitators for the continued development of infrastructure in the country.

But what makes them particularly interesting for investors?

For starters, SEBI regulations mandate the following: InvITs must distribute at least 90% of their net distributable cash flows to investors. This makes them an attractive proposition for those seeking regular income.

There are other layers of investor protection as well. To ensure discipline, InvITs have a leverage cap. They can take on debt up to 49% of their net asset value, though this can be increased to 70% if certain conditions are met.

Publicly listed InvITs are also restricted in terms of how much they can invest in under-construction infrastructure projects. This cap - set at 10% - helps limit execution risk.

Moreover, if an InvIT's net debt or payment obligations exceed 25% of the value of its assets, it must obtain a credit rating. These measures are designed to ensure a balance between growth and stability.

Investors must also assess the underlying asset portfolio for its ability to generate steady cash flows and meet debt obligations. A diverse asset portfolio across geographies and asset classes reduces risk.

One must also look at the counterparty credibility, stability of cash flows, the growth potential embedded in existing contractual terms, the duration and cost of debt, and the trust's overall ability to manage costs effectively. All these are critical when comparing one InvIT to another.

This brings us back to Indigrid and Powergrid InvITs. Both focus on transmission infrastructure assets, offering a mix of predictable cash flows and potential for growth.

As investors, this combination is appealing - especially when backed by the long-term tailwinds of rising power demand, electrification, and the energy needs of an AI economy.

InvITs in the Power Sector

	Indigrid Infrastructure Trust	Powergrid Infrastructure Investment trust
Assets	20 States and 2 Union territories, over 9,000 ckms; 22,550 MVA, 1.1 GWp (Solar), 900 MWh BESS projects, 5.3 Lac MT steel and aluminum	3,699 circuit kilometers, and 3 substations with a combined transformation capacity of 6,630 MVA
Average Residual Contract (Visibility)	26 years for transmission, 19 years for solar	>27 years
Operational Performance	98.4% transmission availability, 98.2% utilisation for solar	Over 98%
Asset Under Management (Rs bn)	296	102
Net debt to AUM	59%	5.52%
Cost of debt	7.67% (90% fixed rate borrowings)	7.92%
Ratings	AAA	AAA
Distribution for FY25 (Rs per unit)	15.35	12
Yield	9.9%	13.3%
Distribution per Unit Guidance (DPU) for FY26,Rs	16	12
NAV per unit (Rs)	144.1 ( Up 8.2% YoY)	94.1( Up 10.4% YoY)
Current Price (Rs)	155	90.5

Source: Respective InVITs
Note: Current Price on 10 July 2025

Do note that InvITs are not risk free. A potential rate hike could increase the cost of debt, limiting future acquisitions and growth. A weak pipeline of new assets could also limit expansion. Then there's the risk of regulatory or tax changes, which could impact returns.

Finally, the credibility and track record of the sponsors backing these InvITs are crucial - strong sponsors mean better governance and more reliable execution.

Do not take this as an investment recommendation. But given their participation in India's growth story while offering stable income, power InvITs do deserve a closer look.

Do you agree?

Let me know your thoughts.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)