Answered by Manish Satnaliwala | Founder and Managing Director, TruNorth | NorthAxis Advisory
Net Distributable Cash Flow (NDCF) is the core metric defined under SEBI regulations that governs the cash available for distribution to InvIT unitholders. Under SEBI regulations, at least 90% of the NDCF generated by underlying project SPVs must be upstreamed to the InvIT, and at least 90% of the NDCF of the InvIT must be distributed to unitholders.
NDCF is calculated through a structured statutory formula starting with profit after tax (or cash from operations) and adding back non-cash expenses like depreciation, amortization, and deferred taxes, while deducting debt principal repayments, mandatory capital expenditure, major maintenance reserves, and working capital needs.
It is not an accounting profit figure; it represents actual distributable liquidity that unitholders receive as dividend, interest, or return of capital.
NDCF is the direct determinant of unitholder yield. If an InvIT has high accounting EBITDA but its cash is trapped by lender restrictions, working capital delays, or high debt principal amortization, its NDCF will fall, directly reducing distributions.
Reviewing whether cash moves from SPVs to the Trust via interest on inter-corporate loans, dividend declarations, or capital reductions without tax friction.
Establishing clear, documented policies for major maintenance and debt service reserves to avoid unpredictable distribution cuts.
Identifying any SPV-level lender conditions that could freeze cash upstreaming during temporary covenant breaches.
Structuring the distribution composition (dividend vs. interest vs. return of capital) for optimal tax impact on domestic and foreign investors.
Do not confuse accounting profit with NDCF. You can show an impressive net profit on the income statement while generating zero NDCF if your debt principal repayments eat all operating cash. Unitholders only get paid what clears the NDCF waterfall.