Srei Infra Will be Benefitted by RBI’s Award

Srei Infra Will be Benefitted by RBI’s Award


Net profit drops substantially

Srei Infrastructure Finance’s net profit has dropped substantially during the quarter ended 30.09.11 as compared to the quarter ended 30.06.11 though revenue has increased. The shares of Srei Infrastructure are traded in the Indian stock markets at Rs.26.40 now (BSE 23.12.11). The shares are available in both BSE and NSE. The company is engaged in financial activities.

Rural expansion

Srei Infrastructure is eyeing on rural expansion and is planning to seek a bank licence. Hemant Kanoria is the Chairman & Managing Director of Srei Infrastructure. The company is already working in rural areas and so knows the rural pulse better than other finance companies. RBI has permitted business houses with a successful track record and with a minimum capital of Rs.500 crore to set up banks in India. Srei Sahaj, part of the company is already active in rural areas by putting up common service centres in villages. The service centres are providing financial services, rural e-governance services and even selling insurance in remote villages.

RBI’s emphasis

Reserve Bank of India has emphasized that the new banks should have at least 25% of their branches in rural areas where banking services are inadequate. Srei Infrastructure fits in this prescription very much as it is willing to open rural branches. It is not clear how many companies will get the final nod from RBI to start banks. In 2001, RBI permitted two banks to start business. But RBI allowed ten banks to start business in the year 1993. At present India has 7 new private sector banks, 26 public sector banks, 31 foreign banks, 15 old private sector banks, 4 local area banks, 86 regional rural banks, 31 state cooperative banks, 1721 urban cooperative banks and 371 district cooperative banks.

Largest infrastructure equipment finance company in India

Srei Infrastructure is engaged in infrastructure equipment finance. Infrastructure is fast growing in India. Srei Infrastructure has the largest market share in infrastructure equipment finance in India. Fee-based business also adds to the company’s revenue and profit. The company started its operations in 1989 with the name Sri Radhakrishna Export and Import. This name has been abbreviated as Srei now. It is the only national infrastructure finance company from the eastern region of India. It is operating from Kolkata. The company has assets worth nearly Rs.8000 crore as on 31.03.11.

Net worth increased through merger without equity dilution

If you compare Srei Infrastructure with giants like IL&FS and IDFC, it is still a small company. But IDFC has government shareholding and focuses on only infrastructure finance without equity participation. IL&FS on the other hand participates in the equity of infrastructure companies. Srei Infrastructure does both. The merger of its subsidiary Quippo with itself doubled its employee strength to 2200 but it increased its net worth to Rs.2600 crore from Rs.800 crore. According to RBI rules, with a net worth of Rs.800 crore, a NBFC can lend upto Rs.6000 crore, but with a net worth of Rs.2600 crore, it can lend upto Rs.20000 crore. Without the merger of the subsidiary, Srei Infrastructure would have been compelled to dilute its equity to increase its net worth for achieving higher lending.

Subsidiaries galore

Srei Infrastructure has lot of subsidiaries. Srei Infrastructure has specialised in project finance and has zero NPAs in it. But project finance forms a small part of the total business of the company. The core business remains infrastructure equipment finance. The company’s competitors in infrastructure equipment finance are L&T Finance, HDFC Finance, Kotak Mahindra, Tata Capital, Sriram and Magma. But Srei Infrastructure has outwitted all of them and remains as the leader in this segment. Infrastructure equipment finance has its own risks. In a downturn when no work is being done, the truck owner will not be able to service his debt.

Association with BNP Paribas

BNP Paribas Leasing Solutions bought 50% stake in Srei Infrastructure in 2007 but left the management control in the hands of Srei Infrastructure. BNP Paribas is Europe’s largest leasing company. With the expertise offered by BNP Paribas, Srei Infrastructure is looking forward to start to lease healthcare, diagnostic equipments and IT solutions. It has already tied up with SAP and Oracle. Srei Infrastructure also forayed to a limited extent into telecom tower financing. The company invested in the telecom tower company Viom. But now Srei Infrastructure as well as Tata Tele are planning to reduce their stake in Viom and are negotiating with Sumitomo of Japan and the private equity firm TPG Partners. Tata Tele has 54% stake in Viom which it wants to reduce to 26%. Srei Infrastructure has 11% stake in Viom. Tata Tele and Srei Infrastructure are not happy with the way Viom is managed. Viom is one of India’s largest telecom tower companies and has more than 38000 telecom towers. Sumitomo is interested in acquiring the stake in Viom because of NTT DoCoMo’s investment in Tata Tele in 2009. Viom was formed by merging the telecom tower businesses of Tata Tele and Quippo in 2009. Quippo was a subsidiary of Srei Infrastructure at that time and later on merged with the parent company.

Fear of NPAs prevents finance companies from entering into equipment finance

Srei Infrastructure attributes slowdown in the infrastructure sector due to policy issues. The company says that inspite of this slowdown its equipment finance has grown at a healthy rate. This is because major financial institutions and banks are shying away from lending to infrastructure sector because of the economic slowdown and because of fear of increase of NPAs in their balance sheets.


Uncertainty over SEZ

Srei Infrastructure is planning to convert its 500-acre SEZ to an industrial park in West Bengal. Uncertainty is said to be the reason for the company’s decision. Confusion over the Direct Tax Code is responsible for a number of developers opting to shelve their plans for creating SEZs. The government of India should clarify the position in this matter as otherwise export performance may be affected and India may lose valuable foreign exchange. Dishergarh Power Supply Company (DPSC) was planning for setting up a 2 × 270 MW thermal power project at Raghunathpur in Asonsol industrial region in West Bengal at an investment cost of Rs.3000 crore. DPSC is controlled by Srei Infra & India Power Corporation jointly. This project should go on stream in 2012.

ECB may be cheap on interest rate, but costly on exchange rate

Srei Infrastructure was awarded the ‘infrastructure financing’ status by the RBI. With this award, Srei Infrastructure now enjoys borrowing status similar to other infrastructure finance companies like Power Finance Corporation, IDFC and REC. It will be allowed by the RBI to raise 80CCF tax-exempt bonds from the public at lower cost. The company can also raise funds through external commercial borrowings (ECB) through automatic route without permission from RBI. These facilities will reduce the cost of borrowing for Srei Infrastructure. At present, bank funding accounts nearly 60% of the borrowings of Srei Infrastructure. As interest rates are at a peak, Srei Infrastructure will no doubt explore other options to reduce its interest burden. But at the same time it should think twice before going for the ECB route as lower interest cost may be offset by the rupee depreciation against the dollar.

Acquire the shares for medium and long term

Construction and equipment financing company Srei BNP Paribas is looking at used construction equipment segment. It is largely catered to by the unorganised sector. The shares of Srei Infrastructure can be acquired by investors at the current market price for medium and long term holding for decent returns.

Srei Infra - Latest Results

(in Cr.)
Sep-11
Jun-11
FY10-11
Revenue
264.65
225.42
745.7
Net Profit
7.96
33.29
134.3
EPS
0.16
0.66
5.8
Cash EPS
0.33
0.83
3.03
OPM %
90.98
91.36
89.21
NPM %
3.01
14.77
18.01
 
 
 
 
Srei Infra - Latest Results

Srei Infra - Share Price Movement

 
 
 
Weekly H/L
27
24.2
Monthly H/L
29.25
21.9
52 Weeks H/L
65
21.9
 
( 3 Jan 11 )
( 30 Nov 11 )
52 Weeks H/L (Unadj)
116.9
21.9
 
( 03 Jan 11 )
( 30 Nov 11 )
Delivery / Var+ELM %
35.68
18.03
Srei Infra - Share Price Movement

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Srei Infra Will be Benefitted by RBI’s Award

Srei Infra Will be Benefitted by RBI’s Award
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