Kotak Securties Limited - Srei Infrastructure Finance Limited

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Subsidiaries Source: Company INITIATING COVERAGE April 15, 2008 SREI Venture Capital 100% SREI Insurance Services 100% SREI Venture Capital SREI Infra Finance SREI Capital Mkts 100% Quipo Oil & Gas SREI Quipo Infrastructure 17% Quipo Tele Infra's ZAO SREI Leasing Russia NAC Infrastructure Equip Srei Venture Capital is a 100% subsidiary of Srei Infra. The company is currently operating four schemes that focus on the growth sector of the economy. The venture capital business currently has asset under management of around Rs.8.42 bn. We have valued the company at 6% of the AUM for Srei's 100% stake. SREI Capital Markets The capital market subsidiary of the NBFC offers services from infrastructure advisory, investment banking, infrastructure project conceptualization, development, implementation and management to financial structuring, resource mobilization and capital market issues. It also offers financial advisory services as well as services in the domain of privatization, to Government enterprises and departments. We have valued the company at 20x its FY10 EPS. Quipo - a unique matrix in infrastructure equipment renting Quipo is an equipment bank, which the company has set up in assistance with domestic and international equipment manufacturers. Quipo is an equipment renting company, wherein Srei Infrastructure holds around 17% stake. Along with Srei, other investors in the business are IDFC Private Equity, SwedFund, GIC, and Ingersoll-Rand. The company provides equipment on a rental basis to various infrastructure companies in the construction, mining, oil & gas, telecom and energy. The company's subsidiaries - Quipo Construction, Quipo Oil & Gas, Quipo Energy, Quipo Mining, and Quipo Telecom cater to the requirement of customers in their respective segments. The company has plans to invest around Rs.8-9 bn in its telecom business. Quippo Telecom Srei holds around 12% in the company. Quipo Telecom contributes the largest part of the Quipo infrastructures revenue. Recently, Quipo Telecom also bought Spice Telecom's tower business, which has around 875 telecom towers for Rs.6 bn. Currently, the company has close to 3,200 towers, operating in 10 circles with approximately 1.4 tenants per tower. The company plans to have a network in place of around 5,000 towers by FY08, and 12,000 by FY10E. The company is looking forward to have a tower infrastructure in place of 25,000 by FY12E. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 12
INITIATING COVERAGE April 15, 2008 Project financing business Rodad project Credible Valuations We expect Srei’s EPS to record a CAGR of ~37% over FY07-10E to Rs.16.1. Meanwhile, we expect an EPS of Rs.9.7 in FY08E and Rs.11.3 in FY09. We have also factored in the potential equity dilution following the issue of 25 mn shares on conversion of 9608 warrants issue to the promoters at Rs.100 per share. This lead to an equity dilution of 23% in FY09. We have valued the company on a sum of the part (SoTP) basis, and valued the core business of the parent company Srei Infrastructure Finance (consolidated) on a dividend discount model. We have assumed cost of equity of 15% and terminal growth rate of 5%, RoE 18% for high growth period and 15% for stable growth period. We have valued the road projects with the NBFC at Rs.23.2, after assigning a book value multiple (at various IRRs) to each project. In case of the port project we have considered a discount of 20%. This is because the project is at quite a nascent stage and has not yet achieved financial closure, while valuing it at P/BV multiple. The SEZ development business is esteemed at per acre value of land. Going forward, with the maturity of these projects, the growth in revenues would be significantly higher and would also lead to a re-rating of the stock. Capex required Equity SREI's stale IRR P/BV Per share value (Rs mn) (Rs mn) (%) (%) (x) for SREI Trissur-Angamalli 5509 1470 49 17 1.3 7.0 Bharatpur-Mahua 2905 596 26 18.5 1.45 1.7 Madhurai-Tuticorin 8970 1404 39 16 1.2 4.9 Karur-Dindigul 3640 728 26 18.5 1.45 2.0 Nagpur Seoni 4723 1181 49 12 0.8 3.4 Nagpur-Kondhali 1760 330 26 17 1.3 0.8 Jaora-Nayagaon 4144 1243 28 17 1.3 3.4 Value of SREI Infrastructure Finance (Rs) 23.2 Port Projets Machilipatnam- Andhra Pradesh 12546 8856 38 17 1.04 3.2 Subaranrekha Port - Orissa 17425 5125 70 17 1.04 3.4 Value of SREI Infrastructure Finance (Rs) 6.6 SEZ Projects Capex required Equity SREI's stale Total land Per acre Per share value (Rs mn) (Rs mn) (%) (in acres) (Rs Lakh) for SREI Raigadh 4428 1476 58.5 450 20 4.82 Guptamani, Kharagpur 28280 810 89 500 20 8.14 Value of SREI Infrastructure Finance (Rs) 12.96 Total Value from projects for SREI Infrastructure (Rs) 42.8 Assumed terminal growth rate (%) 4 Source: Company; Kotak Securities - Private Client Research Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 13
Page 1 and 2: INITIATING COVERAGE Sarika Lohra sa
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Page 5 and 6: Market share HDFC Bank 9% Citicorp
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Page 17: Research Team Dipen Shah IT, Media,

Kotak Securties Limited - Srei Infrastructure Finance Limited

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