Kotak Securties Limited - Srei Infrastructure Finance Limited

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Valuation INITIATING COVERAGE April 15, 2008 SREI Infrastructure 133.7 Project (Road, Port, SEZs) 42.8 Quipo 17.3 SREI Venture Capital 4.6 SREI Capital 2.9 Fair value of SREI Infrastructure 201.4 Source: Because of the recent correction in the markets, the stock had come down by around 50% from its 52-week high of Rs.280. While the fundamentals of the company remain strong, the correction in stock price has provided an attractive opportunity to BUY the stock. At the current market price of Rs.139, the stock is trading at a P/E of 8.4x its FY10 EPS of Rs.16.1 (post equity dilution-warrant conversion), and 1.4x its FY10 P/ABV of Rs.97. Based on our SoTP valuation method, we have arrived at a fair price target for the company of Rs.197. At our target price, the stock offers a potential upside of around 46%. We recommend BUY on the stock with a 12-month price target of Rs.200. Historical PBV multiple 300 250 200 150 100 50 Price 1x 1.5x 2x 2.5x 0 Mar-05 Aug-05 Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Source: Capitaline, Kotak Securities - Private Client Research Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 14
INITIATING COVERAGE April 15, 2008 ANNEXURE 1: ASSET FINANCING What is Asset financing? Asset financing is characterized as a structured line of credit secured by a specific asset or across a combination of existing assets. Usually this includes: accounts receivables, finished goods inventory, real estate, and/or equipment. With asset financing, a company uses its assets as collateral to obtain capital. The financing institution does not own the companies’ assets, but the assets can be seized if the business does not make its required payments on the loan. Besides working capital, asset financing can be used for many other purposes. Usually asset backed loans are suitable for: Financing a business expansion Business acquisitions and mergers Management buy outs Turnaround finance Refinancing of existing business loans Types of Asset Finance There are three major types of leasing: finance leasing, operating leasing and contract hire. However, hire purchase is not a type of leasing but is type of asset financing. Finance Leasing: A lessee effectively acquires all financial benefits and risks without actually acquiring the legal title of the assets. The asset is owned by a lessor. The leasing rate (lease rental) is computed to collect the full value of the asset (plus finance charges or interest) during the contract period. At the end of lease period asset is returned back to the lessor. If the asset is sold to a third party, then the lessee can receive a share of the sale proceeds (if the lease is not being extended). Generally, the title of ownership of the asset is not transferred to the lessee at any time - unless a private arrangement is made with the third party. However, a lessee usually has the option to extend your lease and as he has paid for almost the full value during his initial lease period; the rental payments for subsequent periods will be minimal. Operating Lease: Operating lease is often structured for a shorter time frame than financial leasing (always significantly shorter than the working life of the asset), operating leasing is more like a regular rental. The lessor expects to be able to either sell the asset in the second-hand market or to lease it again and will therefore not need to recover the total asset value through lease payments. There may be an option to extend the leasing period at the end (this negotiation can only take place at the end of the initial rental period). As with finance leases, lessee would not be owner of the asset at any time but, contrary to financial leases, you will not share in the sale proceeds. Contract Hire: A form of operating lease (often used with cars and other vehicles) that includes a number of additional services such as maintenance, management or replacement if asset is in repair. Hire Purchase. This is an agreement for the hiring of an asset with an option to purchase. The legal title will pass to buyer when all payments have been made. The term of a hire purchase must be significantly shorter than the working life of the asset. A purchaser of the asset can claim capital allowances as if he had purchased the asset outright, gaining immediate use of it. Hire Purchase agreements are typically written for domestic users, not so much for business users. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 15
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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