Apr 03, 2012, 10.37 AM IST | Source: CNBC-TV18

Cautious on loan growth ahead: SREI Infra Finance

SREI Infrastructure Finance obtained a stay order from the Kolkata High Court against a rating downgrade by credit rating agency Fitch. The case being sub judice, Sunil Kanoria, Vice Chairman, SREI Infrastructure Finance Limited refused to comment on the issue. Going ahead, the company is taking a cautious approach.

Sunil Kanoria, VC, SREI Infra

SREI Infrastructure Finance obtained a stay order from the Kolkata High Court against a rating downgrade by credit rating agency Fitch.

The case being sub judice, Sunil Kanoria, vice chairman of SREI Infrastructure Finance Limited refused to comment on the issue. But he mentioned that the company had differences with Fitch since last year hence it wanted to exit its arrangement with them.

Going ahead, the company is taking a cautious approach. We would like to wait and watch what happens. There have not been very positive signals. There have been a lot of challenges in the infrastructure space. It has not yet impacted till in the recent financial year. With the momentum, with India growing even at 6%, we should be able to at least have a growth of 25-30%.

Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying video.

Q: The Kolkata High Court ordered Fitch ratings not to take a rating action on SREI Infrastructure. Give us a background on that and whether the litigation now ends or would they actually appeal?

A: Basically, the case is sub judice so we cannot say much on it. But since last year, we had our differences with Fitch and we wanted to exit our arrangement with them. Therefore, when it was not feasible, we had to go under our agreements to the court. The court has given us a stay. Beyond that, at this stage, we cannot say anything. The hearings will go on and lets see what happens ahead.

Q: There were reports that it might be an out of court settlement?

A: I cannot comment on it, I dont know about it.

Q: Give us an idea of how the cost of money will move in the current quarter? We are getting two contradictory signals one, that bond yields themselves have risen against the sovereign. If you are borrowing from the market there could be an impact on companies like yours. On the other hand, we are seeing banks cutting rates. How does the cost of money work out for you for the April-June quarter or even in the first 6 months compared to what it was in the first quarter of the calendar year?

A: I dont see interest rates moving up. But I will not be so optimistic on it coming down so fast either. It may have a very slow process of coming down at least for the next two quarters. I feel the resources required for us to do our business would be available. We should be able to get our resources to the extent required for the next 1-2 quarters. 

Banks will reduce interest rates in April. At least the liquidity should be a little easier and that could help in getting pricing slightly better than what it was happening in April. In April, there was heavy pressure so pricing and cost really went up substantially. Although we did not bode that much, the overall market rates were high. But in the next 1-2 quarters, we may not see much downfall but it could be steady.

Q: Can you give me some numbers? What was your average cost of borrowing? You also had your infrastructure bonds last quarter. What was your average cost of borrowing in the last quarter?

A: We have two businesses- the equipment financing business and project financing business. Both have slightly different costs of fund. So if in the equipment finance, we were borrowing at around 10.5%, the project financing would be between 11%-11.5%.

Q: What we can expect in FY13 from you in terms of loan growth, in sustaining margins, etc?

A: I think the current year also has ended fairly good in terms of loan growth; over 40% both in equipment and projects. We are taking a cautious approach for next year. We would like to wait and watch what happens. There have not been very positive signals. There have been a lot of challenges in the infrastructure space. It has not yet impacted till in the recent financial year. Going forward, we would like to take a cautious approach. But I still feel with the momentum, with India growing even at 6%, we should be able to at least have a growth of 25-30%.

Q: What were the margins? 

A: The fourth quarter has just ended. So we will get our numbers; it should be around 10-20 bps. But the biggest challenge in the last two quarters has been the foreign exchange marked-to-market markings. So we saw a slight revival in this quarter but nothing much.

Q: What would be the impact on P&L considering damages or how much you have spent on litigation costs etc?

A: It's very nominal and insignificant.

Q: How about bad debts? I think you wrote off Rs 15 crore last quarter compared to Rs 8 crore year ago. Will you have some problem with NPLs on account of the slow down in the economy because of the problems faced by the infrastructure space?

A: The way we have been handling it, we write off both provision and bad debts as a bad debt. We have fairly stringent policies on provisioning. But this bad debt does not mean that this is completely written off and does not come back. Since we are in the equipment business, financials keep moving in and as we repose or dispose the assets and get the money back. But it is more for tax purposes that we show write off in the books. When we get the money, we show it as income. That is the way we have been accounting for some time now. I would take a cautious approach in the next year for some time to see how the economy fares.

Q: I didnt get what you meant by marked-to-market losses. Do you expect that you will once again have to report the same kind of losses but they would be entirely notional?

A: Yes, it would be notional. But as I said in the December and September quarter, it was substantial, the dollar had gone upto 54.5. We had thought that in this current quarter, it may come down to 48-49, it touched 48-49 but it closed year end by little over 50, closer to 51. So we will not have more marked-to-market losses in this quarter. But we would gain back some of the notional losses, which we had booked in December quarter.

SREI Infra stock price

On April 17, 2014, SREI Infrastructure Finance closed at Rs 32.85, up Rs 0.35, or 1.08 percent. The 52-week high of the share was Rs 34.20 and the 52-week low was Rs 17.45.


The company's trailing 12-month (TTM) EPS was at Rs 1.35 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 24.33. The latest book value of the company is Rs 52.62 per share. At current value, the price-to-book value of the company is 0.62.

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