Focus on growing equipment finance biz at over 25-30%:SREI Infra

Financing firm Srei Infrastructure Finance has completed the share-swap deal with BNP Paribas, thus making Srei Equipment a wholly-owned subsidiary of itself.

Sunil Kanoria, Vice Chairman, SREI Infra is very optimistic of the growth outlook for the equipment finance business and expects a substantial growth in the coming years. The equipment finance business is seeing a strong growth, says Kanoria, adding that it grew 25-30 percent in the last few months. Since we have been leaders in this space, the focus and endeavour would be to to grow further.

Moreover, now with the book value and networth of the company going up, all the other ratios like return on equity (RoE), RoCE, debt-leverage ratio would have a positive impact in the next couple of quarters because we would be able to add 100 percent of the profits of SREI Equipment at the consolidated level.

Kanoria says, SREI Infra will ensure that the equipment finance business will be well supported with respect to the capital.Below is the verbatim transcript of Sunil Kanoria's interview with Reema Tendulkar and Nigel D'Souza on CNBC-TV18.Nigel: Could you give us some details? We have this BSE announcement on Friday itself when we got news about the consolidation of SREI Equipment Finance. Could you tell us what does this increase your networth to and also your book value -- reports indicated -- goes up from around Rs 50-55 to around Rs 90-95? Can you confirm this?A: I think that is right. What we have done as we had announced in December whereby SREI equipment now becomes a 100 percent subsidiary of SREI Infra and BNP has now acquired 5 percent at the SREI Infra level. The advantage with this is bestially we will be able to consolidated 100 percent of SREI Equipment business.My networth from consolidation of about close to Rs 2,800 crore goes up to Rs 4,800 crore as a result, the book value of the company substantially jumps up from about 54-55 to about 95-96. This is a positive development for the company and also what we will be able to do is with the focus on the equipment financing business and that sector has started to grow very well now, past few months we are seeing a strong growth of 25-30 percent in that space, which we expect to continue and grow further. So the endeavour and the focus would be to ensure that we have been the leaders in that space and we continuously take advantage of that opportunity and grow.Reema: With your ratios strengthened, your book value going up to 95-96, your networth also improving to Rs 4,800 crore, how would the other ratios look like, your return on capital employed, your ROE , the debt leverage ratios, could you give us a sense how those will change if at all?A: Yes, those will have a positive impact over the next couple of quarters as we move forward, as the growth comes in because we will be able to add on 100 percent of the profit of SREI Equipment at the consolidated level at the SREI. So as a result of that we should start to see gradual improvement in most of the numbers.Reema: Any indications of how the numbers might improve by the end of FY17, that is nearly four quarters from now?A: I would not like to give any numbers as such but I can say that we expect a positive development towards that.Nigel: Is there any potential capital infusion that we could see in SREI Equipment Finance? Also we are expecting a lot of growth in this business, could you tell us some guidelines going ahead?A: If you look at the construction and mining equipment space, this market had substantially come down from post 2011-2012 problem. So if you look at March 2012, that year the total sales for construction, mining equipment in the country was in the tune of about Rs 34,000-35,000 crore.March 2016, in four years time, it came down to Rs 21,000-22,000 crore. So there has been a massive slip for four years continuous, which we saw in our last 27 years of our experience in this space. However, if we look at from the month of February-March, we have started to see a monthly growth in this sector of over 20-25 percent. I think this is where we expect in the next few years to again go back to not only Rs 35,000 crore but to even cross that substantially and I won't be surprised if in the next four-five years, we see this space growing to even Rs 50,000-60,000 crore. The projects start getting released, lot of sectors are improving, especially roads, irrigation, mining, now railways also started to come in investments, driven by government expenditure is basically where it will happen, the advantage also for us in that is our construction companies who we finance these equipments -- most of the jobs will be EPC jobs, paid jobs. So therefore, the cash flows will be better. We do not expect too much in the BOTs much but we will see more of paid jobs and that is a good sign because then the cash flow keeps coming in.Reema: How is the consolidate AUM and disbursement growth looking like so far in the quarter that we are in, any improvement from Q4, from the growth rates that we enjoyed in Q4?A: We will see some improvement. As I said that last few months things have started to improve. However, now that we are a 100 percent consolidation, it gives us a lot of flexibility and on the question of even on the capital, we will ensure that my equipment finance business that is our core business for the last 27 years -- if it needs capital, we will support it with capital going forward and I think we will see more better growth in the next coming quarters now.