chairman and managing director’s message harvesting rs. 2,931 crore and we have also been able to...
TRANSCRIPT
Finally, we have again started to
see a distinct improvement in the
economy and more specifically in the
infrastructure sector after a lull for the
past few years. Infrastructure being
the key area for development of any
economy will always be at the centre-
stage in the country’s growth.
We are still witnessing that banks
and financial institutions or the
infrastructure players who have
not been able to comprehend the
complexities of the sector and risks
within it, still grappling with unresolved
issues; whereas Srei, fortunately
and strategically, focused on the
infrastructure sector for more than two
decades, has been able to steer clear
of any major problem.
We have crossed many major
milestones in our journey so far and we
are ready to accelerate faster, now that
we have both the expertise and the
experience.
The year under review has been
eventful for us as we have successfully
concluded the share sale transaction of
Viom, harvesting Rs. 2,931 crore and
we have also been able to complete
the purchase of the entire shareholding
of Srei Equipment Finance Limited
from BNP Paribas Lease Group
(BPLG). Furthermore, BPLG has also
now become a shareholder of the
parent company Srei.
Economy outlookWhile global growth improved
marginally during the year under
review, the Indian economy managed
to clock a 7.6 per cent GDP growth
making it the world’s fastest growing
major economy. The growth in India is
primarily consumption driven with the
increase in per capita income and to
some extent by the capital expenditure
undertaken by the government.
Taking advantage of the drop in
international oil price during the year
under review, the government excelled
in fiscal management by adhering
to its targets, rationalising subsidies
selectively, expanding investment
in infrastructure and widening the
scope of social security net. However,
muted global demand has resulted in
17 consecutive months of declining
exports from India and a consequent
excess capacity in the manufacturing
sector. Industrial growth has remained
subdued leading to almost no new
investment towards capacity creation.
The Reserve Bank of India (RBI)
has maintained an accommodative
monetary policy and since January
2015 RBI has reduced Repo rate by
150 basis points, but unfortunately
fresh capital investments by the private
sector is yet to pick up. International
oil price is once again moving up, and
although this trend has been predicted
to be temporary by experts, it may
marginally affect the fiscal situation. In
addition, its impact on inflation will also
influence RBI’s decision on any further
interest rate cut.
On the global economy front, policy
tools towards fuelling domestic
demand have taken divergent paths.
USA signaled an end to its quantitative
easing (QE) programme through
an interest rate hike, but to ensure
the sustainability of the domestic
recovery, the Federal Reserve has
assured an accommodative monetary
policy. Meanwhile, European Central
Bank and Bank of Japan have
continued with QE and have also
introduced negative deposit rate to fuel
domestic demand. China, in its bid
to switch from an investment driven
to a consumption driven economic
model, has to deal with risks in the
financial markets (bad debts and
bond defaults), asset bubbles in its
property market and excess capacity
in the industry. On the commodity
front, while crude prices have started
moving up, non-energy commodity
prices remain stable with a hint on the
upside. Steel prices, meanwhile have
firmed appreciably. Gold prices remain
elevated on safe haven demand.
Of late, portfolio flows seem to be
returning to debt and equity markets of
emerging market economies.
Like previous years, the management
of your Company has been actively
tracking all these developments. Being
a company with international footprint
and having multiple foreign funding
channels, it is imperative to track
international capital flows so that we
can manage our forex risk judiciously.
Business outlookThe policy stalemate that had gripped
the nation a few years ago is certainly
over now. The present government
has brought a sense of purpose and
urgency to its functioning. A series
Srei Infrastructure Finance Limited Annual Report 2015-16
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of reforms and practical guidelines
spanning multiple sectors has
once again got the global investor
community interested in the India
Growth Story. It is no coincidence that
the inbound foreign direct investment
(FDI) to India has reached a record
high during the year under review.
Though gross domestic product (GDP)
growth has been mostly consumption
driven, in recent times key economic
indicators like volume of cargo traffic
at ports, sale of two-wheelers, three-
wheelers and commercial vehicles,
cement production, steel consumption,
among others, point towards a nascent
recovery on the investment side too.
On the infrastructure front, the
government has announced a number
of sectoral schemes, stepped up
public investment, re-started many
stalled projects and ushered in a
sense of competitive federalism.
The government has even roped in
governments of other nations to jointly
implement key flagship infrastructure
projects. In addition, the government
has conceptualized new investment
vehicles which can channelise funds
from India and abroad into India’s
infrastructure projects. These are
poised to open up huge opportunities
in the infrastructure sector which
augur well for your Company.
Nevertheless, the banking sector,
which has been the main source
of debt for Indian infrastructure
projects, is saddled with a large
stressed assets portfolio and thus has
limited lending ability in the sector
at present. Resolving the banks’
problems can propel the economy
into an even higher growth trajectory.
During the year under review, one
of the key reforms undertaken to
address this problem has been the
introduction of the Insolvency and
Bankruptcy Code. This will enable
both genuine borrowers and lenders
to resolve problems expeditiously,
thereby preventing the asset or
portfolio from being a drag which
would have eventually resulted in a
stalemate. However, the Code calls
for some pre-requisites in the form
of new institutions and a new cadre
of insolvency professionals which
may take some time to fructify. Thus,
realistically speaking, the stressed
asset problem is likely to linger on
for some time. But once the Code
comes into force, it will open up many
new opportunities for your Company.
The Code will enable change in
management of many stressed
infrastructure assets and Infrastructure
Finance Companies (IFCs) like Srei,
which have specialized skill sets in
managing infrastructure assets, will
be well equipped to take charge of
such assets and then attempt a revival.
The management of your Company is
actively tracking the developments on
this front.
The government’s efforts to push land
and labour reforms by encouraging
state governments to frame their own
policies is a strategic masterstroke and
can do wonders for industrialization
and infrastructure. The government
also deserves credit for its attempts to
enhance the ‘ease of doing business’
through better centre-state co-
ordination. The government has done
well in improving the tax administration
and its immediate aim should be the
roll-out of the Goods & Services Tax
(GST) within 2016-17. A predictable
tax regime can do wonders in reviving
the investment climate and providing a
spurt to entrepreneurship.
To sum up, the business scenario is
much better today than what it was
during the last 3-4 years. A strong
foundation for long-term growth is
being laid. Things can only get better
from here onwards. Corrective action is
being taken on several fronts sector-
wise and this is paving the way for a
more mature and robust public-private
partnership (PPP).
Company outlookDuring the year under review, your
Company posted an income of Rs.
3,262 crore and registered net profit
of Rs. 72.52 crore. Your Company’s
consolidated disbursements stood at
Rs. 14,533 crore, a growth of 15.84
per cent over Rs. 12,546 crore in
2014-15. The total consolidated
assets under management were at
Rs. 36,702 crore. Taking cognizance
of the macroeconomic scenario,
the management consciously
adopted a cautious approach and
exercised extreme prudence in
its disbursements. The quality of
loan portfolio has been consistently
improving and stressed clients are
being closely monitored towards
prudent recovery.
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One of the high points of your
Company during the year under
review has been the stake sale in Viom
Networks Limited to American Tower
Corporation. The overall transaction
worth Rs. 7,600 crore resulted in a
total FDI inflow of Rs. 5,856 crore into
the telecom sector, out of which Srei
has received a total amount of Rs.
2,931 crore. However, the deal got
consummated in April 2016 and the
realisation will get reflected in Srei’s
Q1FY17 results. This cash inflow
is happening when the investment
scenario in the economy has started
looking up. Your Company will reduce
its debt and interest burden and at
the same time take exposure in new
infrastructure projects.
Your Company has been making
strategic investments from time to time
and has always followed a strategy
of harvesting such stakes at the
opportune moment. The management
is vigilant of such opportunities and will
opt for strategic divestments whenever
the right opportunity beckons.
The other major development during
the year under review has been the
consummation of the purchase of
100 per cent shareholding of Srei
Equipment Finance Ltd. BNP Paribas
Lease Group decided to sell its 50 per
cent shares in Srei Equipment to the
parent company, Srei Infrastructure
Finance Ltd., in lieu of a 5 per cent
stake in the parent company. This
will once again put your Company
in full charge of the asset financing
business. Meanwhile, BPLG, through
its stake in the parent, will get an
opportunity to have a share of the
entire infrastructure pie in the country.
While expanding its presence in
the infrastructure project financing
business, your Company also stands
to gain from skill sets and global best
practices that BPLG brings to the table
among other benefits. The formalities
of the process have been completed.
I strongly believe that tomorrow’s
innovations will be a result of how
effectively human intellect can leverage
modern technology. Technology will be
the key differentiator in every sphere of
life and work. Therefore, to stay ahead
of competition, the management of
your Company is investing in creating
a state-of-the-art- technology platform
and at the same time devoting time
and energy in training our people
to stay abreast with technology. A
core group within the Company is
overseeing the progress on this front.
The members of the group are also in
touch with experts in this field.
Now that RBI has issued draft
guidelines for on-tap license for
universal banks, your Company is
keenly following the developments on
that front. A detailed evaluation on the
pros and cons will be carried out after
the final guidelines are announced
before any further step is initiated.
The investment in technology and
manpower is made with an eye on the
possibility of expanding the financial
sector bandwidth.
Let me conclude by reiterating that
good times are ahead for our Country.
Many systemic problems are being
taken care of with imaginative and
practical solutions, which will pave
the way for robust growth and it will
be fuelled by a healthy mix of both
consumption and investment. PPP will
emerge stronger in the infrastructure
creation process and your Company
will be ready to tap the opportunities
that will unfold.
We look forward to your continued
support in our future endeavours.
Thank you.
HEMANT KANORIA
Chairman & Managing Director
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Srei Infrastructure Finance Limited Annual Report 2015-16