Value unlocking a key catalyst for Srei Infrastructure

Company looks to monetise stake in e-commerce and roads

Srei Infrastructure Finance (Srei) has been in the news recently, and for good reasons. Apart from its plan to raise Rs 1,000 crore via non-convertible debentures, which will boost growth, Srei is also planning to monetise some stake in its e-commerce unit, Sahaj e-Village Limited.

Media reports suggest the company is looking to sell 20-25 per cent stake in this unit to raise Rs 500 crore, valuing the unit at Rs 2,000 crore to Rs 2,500 crore. Srei is also expected to dilute a similar stake in its other investment, Bharat Road Network Limited (BRNL), to raise Rs 750 crore to Rs 1,200 crore. These assume significance, given the company's market capitalisation of Rs 3,960 crore.

Srei's strategy of unlocking value in its investment companies could rub off favourably on the stock. Notably, the prospects of road sector are also improving and, hence, Srei is well-placed to sell its stake in the roads entity, say analysts.

"The market is not factoring any value for Sahaj e-Village as it is in an investment phase," say analysts at Maybank Kim Eng. The brokerage expects Srei to monetise its investments in road assets, special economic zones, and Sahaj over time to unlock value. It has a buy rating on the stock, with a target price of Rs 95, meaning a potential of 20 per cent from current level.

Further, with economic recovery kicking in gradually, the company's core business of equipment financing could get a boost. The company delivered a strong numbers for the June quarter, with net profit doubling over the year-ago quarter to Rs 52 crore. This was largely on account of consolidation of 100 per cent shareholding in its Srei Equipment Finance. Srei's assets under management (AUM) stood at Rs 35,478 crore in the quarter, while disbursements grew at a healthy pace of 38 per cent, fuelled by equipment finance business (55 per cent of total AUMs; infrastructure project finance accounts for the rest). The equipment finance business's gross non-performing assets ratio, too, came down in the quarter to 2.74 per cent from 4.63 per cent a year ago.

On the whole, value unlocking and continued traction in equipment finance could rub off on Srei Infrastructure Finance stock.