Viom deal to ease Srei Infra debt

Transaction cash to retire some of the Rs 20,000-cr debt

The sale of stake in telecom tower company Viom Networks will help Srei Infrastructure Finance to improve its financial metrics, down in recent years. The company will get Rs 3,000 crore for its stake (including Rs 339 crore as a non-compete fee) .

Sunil Kanoria, vice-chairman of Srei, said it would use the proceeds to retire some of its debt, Rs 20,325 crore as on March this year.  “We would need fresh capital to grow our business, as we expect our infrastructure financing business to grow by seven-eight per cent this financial year,” he said. The infrastructure sector is showing some signs of a pick-up and by next financial year, should pick up pace, boosting demand for their infrastructure financing business, he said.

However, company investors were not impressed and the stock fell eight per cent on Friday, to Rs 51 a share. Analysts said they were worried about the high non-performing assets (NPAs), apart from high finance cost, of Rs 2,274 crore in 2014-15.

Once it retires debt, profits are likely to increase. Srei’s debt to equity ratio was 5.7 at end-March, a deterioration from 5.5 in 2013-14. This is expected to improve with the Viom sale proceeds, analysts said.

“The deal is expected to help both Srei Infra and Tata Teleservices in cutting their debt, which might lead to improvement in their profitability,” said D R Dogra, managing director of CARE Ratings.

The big worry for the company, analysts said, remains its NPAs. The gross NPA and net NPA ratio deteriorated to 6.62 per cent and 5.61 per cent, respectively, as on end-March, as compared to 3.53 and 3.09 per cent, respectively, as on end-March 2014. Standard restructured assets on March 31, 2015, rose to Rs 248 crore from Rs 22.5 crore on March 31, 2014.  

CARE had downgraded the company’s debt on September 22, for deterioration in asset quality. It had also pointed to a slowing economy, especially in the infrastructure sector. The revision also takes takes into account Srei's continued high exposure in group companies and strategic investments, the majority of which are in infrastructure and are yet to be divested or diluted to yield commensurate returns, with high client concentration and low profitability. CARE had said it would revise the ratings if Srei managed to successfully sell Viom.

An infrastructure boom is expected next year, with government orders (including railways and roads) worth Rs 500,000 crore.