Srei Infrastructure on an investment rejig spree

Kolkata-based non-banking finance company Srei Infrastructure follows a simple business model - sow, plough and harvest, says Hemant Kanoria, chairman and managing director. Over the last quarter Srei has taken some bold and abrupt business decisions that proved to be astute and timely. Two major decisions point towards its strategy to focus on core activities while streamlining its investment portfolio.

In October 2015, Srei Infrastructure Finance announced selling its 18.26 per cent stake (jointly held by Srei and the Kanoria block) in Viom Networks to American Tower Corporation for Rs 2,952 crore. Srei's own consideration, including the non-compete fee, in the sale will be Rs 1,790 crore. Notably, Srei's investment in Viom was Rs 1,598 crore.

In December 2015, Srei announced that BNP Paribas Lease Group, a 100 per cent subsidiary of the BNP Paribas Group, had decided to sell its 50 per cent stake in Srei Equipment Finance Limited (SEFL) to Srei Infrastructure Finance. In exchange, BNP Paribas acquired 5 per cent in Srei Infrastructure Finance, which will now be the parent company of SEFL.

"Viom was a good deal for Srei as it could recover its investments. Similarly, in SEFL, Srei will not have to share profit with BNP Paribas. At the same time, BNP Paribas will be able to play a larger role in infrastructure finance,'' said an analyst covering Srei Infrastructure.

In the second quarter of 2015-16, Srei BNP Paribas had recorded a profit after tax of Rs 28 crore, down from Rs 40 crore in the second quarter of 2014-15. According to Kanoria, Srei's next stake dilution could be in Sahaj e-Village Limited, which has rural e-kiosks providing services such as micro-insurance, education and utility bill payments. According to the data on Srei's website, the company's investment in rural infotech has been close to Rs 11 crore. "At Sahaj, we might dilute some stake, depending on the valuation. It has three verticals: e-governance, e-commerce and e-learning. We will focus on e-commerce and e-governance in Srei Sahaj," said Kanoria.

Srei is looking to rejig its strategic investment portfolio and focus on its core business of project and equipment finance.

''We have made sizeable investments in roads, SEZs, power and Sahaj. One by one, we will look at all these sectors, and wherever viable we will dilute our stake, bring in new partners, or make new strategic investors. Our vision has been to stabilise and grow our business,'' explained Kanoria "Our real business is lending, equipment and project finance, in which we will be concentrating. After the Viom deal, our investment portfolio will be substantially reduced,'' added Kanoria.

Srei had assets under management of close to Rs 36,233 crore in the first half of 2015-16. In September 2015, the company's strategic investment pool was about Rs 1,969 crore, which included investments in telecom, communication, transportation, rural infotech and energy. After the Viom deal is closed, the portfolio will be substantially reduced, which will help Srei to improve its debt-equity and capital-adequacy ratios.

Earlier Kanoria had told Business Standard that the money raised from the Viom deal would be used for fresh investments in road and power projects and increasing stakes in India Power Corporation Limited, in which the Kanoria family holds around 68 per cent.

Srei manages its road projects through Bharat Road Network Limited (BRNL). So far, BRNL has executed 14 road projects worth Rs 12,753 crore. Out of eight road projects in which Srei has significant economic interest, five are operational with a cumulative annual gross revenue (TTM) of more than Rs 259 crore in 2014-15.