Likely to see pick up in demand from Q4: SREI Infra

The company has been trying to close the Viom deal by the end of the fiscal year and may go for overseas listing.

Below is the transcript of Hemant Kanoria’s interview with CNBC-TV18’s Sonia Shenoy and Senthil Chengalvarayan.

Sonia: Just take us through what the quarterly performance has been and how what is the sense you are getting about the second half of the year?

A: Yes, our profit for the first half year of this particular financial year has been Rs 92 crore compared to Rs 88.46 crore which was there last fiscal in the same period and the consolidated income has been Rs 1,770 crore against Rs 1,604 crore and the disbursement for this particular half year been Rs 6,595 crore against Rs 5,900 crore which was there the last year.

The total asset under management is almost the same. It remains at Rs 34,400, last year in the same period it was Rs 34,350. So more or less it remains the same and for the quarter the disbursement has been Rs 3,300 crore against Rs 2,400 crore which was there in the previous quarter.

The overall performance if you look at it, we were expecting that the profits would be better but in spite the fact the new government has been announcing a lot of growth potential seems to be there in the infrastructure sector and the government is also taking a lot of steps to suggest what they need to be doing there whether it be power, roads and all but on the ground we have still not seen things happening. It will take some time. So, therefore we had given an indication right in the first quarter also that it will be about in the last quarter of this financial year or the next financial year that things will start picking up in the infrastructure sector.

Sonia: What was the gross Non Performing Assets (NPAs) this time? Last quarter you did see some improvement in your asset quality, it has come back to sub three percent but what was it this quarter?

A: Basically what happened was we have two companies, SREI Infrastructure Finance and SREI Equipment Finance. In SREI Infrastructure Finance this quarter was better but there was a slide in the SREI Equipment Finance because many of the construction companies and contractors primarily were expecting release of funds from the government which has not happened which has also stressed their cash flows. Therefore there has been some lag in the payments coming from there.

Because it is estimated almost about Rs 3 lakh crore of the contractors and construction companies is stuck up in various bills with the government which needs to be released and once that happens then the stress with the construction companies will reduce and that will enable them to pay back their loans along with interest to a certain extent to the banks and institutions. So, that is where the stress point is there at this juncture.

Senthil: Cleary the sense we are getting talking to you and talking to others is that while sentiments have picked up beautifully it really hasn’t translated much on the ground. So why do you think that hasn’t happened as yet, when do you see it happening and what more can the government do?A: Basically there are certain things which is not bringing in new policies. It is that the implementation and wherever the hurdles are there needs to be removed. Therefore let us suppose that if you talk about the land acquisition act which has been there. So that needs to be revised to be made more practical. So, wherever projects are stuck up because they do not have the land, that needs to be facilitated. Environment clearances have started but that it needs to pick up more.Power sector, we all know that there is a lot of problem in the power sector because the coal issues have still not got resolved. The government would be coming out with auction of mines but whether that is going to solve all the problems or not it has to be seen. I don’t think so that just allocating coal mines will be the panacea to all the problems that the power sector is facing. There are other problems also which needs to be sorted out and it should be done ASAP.Similarly in the roads also Build–operate–transfer (BOT) projects and Engineering, procurement and construction (EPC) projects need to be announced, the government has all the right attention and they are taking all the right actions but still it takes time for that to translate on the ground level.Taxation issue still remains to be a big fear for all resident business people and overseas also because everyone has the apprehension that if they are investing what is going to happen with retrospective taxes etc because the tax laws is so complicated.

Q: But the government has given assurances, so what more would industry want?

A: You see that it is not assurances, people want to see that it is they are also in words because if those guidelines do not come; I am just expressing to you that it is not the international investors are not interested, everyone is interested in coming into India, but they still want to see that these particular guidelines. Yes, they want clarity because putting in a lot of money and then again they find that they are in problem. So no one wants to again go through the same experience, even resident business people, the industrialists etc they are going a little slow because everyone are either stressed or they want to see clarity coming in many of the sectors.

So I am not saying that I am not sanguine about it, I am quite sanguine about it and I expect that in the last quarter of this financial year.

Q: So you want more action on the ground?

A: Yes, so things on the ground must happen and practical approach needs to be taken instead of just having new policies, new acts. So we have had too many acts but less of actions. So we need to reverse that now.

Q: You said in the first half of the year you did about Rs 6,500 crore worth of disbursements. What is the target like for the second half?

A: We should be in a position to maintain that if not increase it because it again depends upon, if you see that new road construction projects are getting announced in this particular quarter because the government has said last week also. So then we will see pick up of equipments in the last quarter of this particular financial year and if you see more BOT projects getting announced then again we can see further disbursements happening in the last quarter but I don’t see that this particular quarter, the third quarter would be more of a plateau and whatever pickup happens would start happening from the last quarter only.

Q: Any update on when the Viom sale will take place, how much you plan to raise via that sale and basically what kind of ballpark timeline that you are looking at?

A: It is very difficult to express timeline because in the infrastructure sector as I mentioned that people are excited about India now and Mr Modi has gone all over the world and reassured people that India is one of the best destinations in the world to invest in and there is a huge growth potential, but things in the ground needs to start happening and people must get that confidence. So therefore investors are still waiting to see that when that starts happening and then actual money will start flowing in.

So today if you see the stock market is doing very well but at the same time if we look at it the Foreign Direct Investments (FDI) has not increased substantially. So, there would be still a wait for about a couple of quarters before we exactly know what is going to happen. There are people who are excited about it but everyone is on a wait and watch mode.

Q: So when you say couple of quarters are we looking at closing this deal or this sale in the first half of calendar year 2015?

A: No, we are trying to see that if we can close it within this financial year only because we still have the ensuing quarter plus the next quarter.

Q: Are you looking at an India listing or Viom anytime soon?

A: India listing seems to be a little difficult at this particular juncture. We would look at the overseas opportunities only.

Q: So you are ruling on any listing, overseas or Indian it is only a sale then?

A: No, it would be a dilution. So it would basically a dilution, it could be with partial sale and would not be fully.

Q: Could it be an overseas listing as well?

A: Maybe, because basically it is all work in progress at this juncture.

Q: As we speak, your stock is down almost about three odd percent. There have been some weak trends that we have seen this time around in the numbers but the last time when we spoke with you, you said that, or rather you believe that the asset quality is at its worst and things will only pick up from here on. Is that the sense you are getting now as well or do you think you could go through a couple of quarters of weak performance before it troughs out?

A: There are two parts of it. The asset quality diminution is not taking place. What is happening is that because we have financing to construction companies and contractors and we are adequately secured by way of equipments and collaterals but they have a pressure on their cash flow because the government funding is not getting released to them and that is why there are delays and because of the NPA provisioning on etc whatever provisioning they are doing will not result in write offs but because of the lags in the quarters, because of payments not coming on time, that is why the NPA increases, but we don’t see that there would be any kind of depreciation in the quality of portfolio.