SREI Infrastructure Finance Ltd – Management Meet Note

SREI Infrastructure Finance Ltd – Management Meet Note

Following are the key takeaways from the meeting

Asset quality remains comfortable: In the equipment finance business, Net NPA rose marginally from 1.78% to 1.96% during this year. SREI follows very conservative provisioning policy. The provisions are more than the statutory requirement of the RBI, and in continence with the international norms and their own assessment to be conservative. For now the asset quality remains comfortable and the company is not facing stress either on the project finance or on the equipment financing business. Impact of economic slowdown is somewhat visible on the demand side but a nominal growth of ~30% in business is achievable

SREI BNP Paribas to grow moderately: The JV would be looking at an equity infusion of ~ Rs 250 crores which would be contributed by both the partners. The management believes that last year was fairly a good year for the JV. Going forward, the sector should grow in spite of the various challenges, though the growth may see slight moderation in near term. Management has guided for a growth of 25% to 30%, both in terms of new disbursements and in profit for the current year. While cautious is maintained for the project finance arm given the near term challenges still no stress has been visible on the profitability of the arm. The business growth may improve in second half if economic conditions improve. The overall sales of construction and mining equipments in India are growing at almost 40%, which is likely to remain around current levels, but much would depend on the economic environment.

Telecom tower business continues with its leadership: The Company is leading in the telecom tower business with over 40000 towers as on date. The business boasts of a tenancy ratio of over 2.39X. The tenancy ratio is strong given the company has not double counted GSM and CDMA while calculating the figure, where in the average industry tenancy ratio is ~ 1.6x . While dependency on Uninor is ~20%, the management feels that for now there is no immediate threat of the company pulling out of business. They still believe that Telenor would continue, the scenario is likely to improve in the next couple of months, when they expect some clarity to come in on the policy front and then they can plan the future accordingly. The management believes that on the telecom tower side other operators would start coming in and they expect that to get balanced in case that kind of the scenario so arise. While current challenges would have impacted the valuations the management plans to continue to remain invested over a longer term, hence there is no immediate impairment visible in this particular investment.

Equipment Rental Business: the equipment rental business performed well in the last quarter. In terms of the various other Quipo rental businesses, Quipo Construction has improved and grown its EBITDA. The EBITDA has grown because of the high depreciation, the interest expenses have come down, resulting in a cash profit. However because of depreciation, the reported PAT is negative. Going ahead the business is expected to remain strong. Especially in the oil and gas segment where two rigs were not on hire, but the management is very sanguine that in this current financial year, it will be able to deploy all its oil rigs. Profits would begin to come in from the current fiscal as the company has got the contracts and the rigs would be taken up for hire. The energy rental business is still positive and PAT positive.