Kotak Securties Limited - Srei Infrastructure Finance Limited

INITIATING COVERAGE April 15, 2008
BNP Paribas JV to lead to significant business transformation
Srei has sold its equipment financing business to a 50:50 JV company with the
world's leading leasing finance company BNP Paribas Lease Group, which is a subsidiary
of BNP Paribas Bank. The new JV is called Srei Infrastructure Development
Finance. Srei Infrastructure Finance (the holding company) would continue to hold
50% stake in the JV.
BNP Paribas would pay a total consideration of Rs.7.8 bn for the asset financing
business. The subsidiary company Srei Infrastructure Development Finance would
largely concentrate on infrastructure equipment financing projects valued at less
than Rs.150 mn and also on the insurance broking business under its umbrella.
Benefits from 50:50 JV with BNP Paribas
The 50:50 JV with BNP Paribas would give Srei (the holding company) access to
the business know-how and expertise of the BNP Paribas management on the
board. This would facilitate rapid business growth for the infrastructure financing
business.
With the receipt of Rs.7.8 bn from the sale of 50% of the equipment financing
business to BNP Paribas, this has also provided Srei (the holding company) with
capital, which enables the NBFC in expanding its business.
The new JV with BNP Paribas would support speedier growth in the asset financing
business. This would lead to higher earnings visibility and superior returns
for investors.
Robust business growth following positive macroeconomic environment,
additional funds from BNP Paribas
The strong growth in infrastructure would continue to boost demand for infrastructure
financing. The total investment requirement for the infrastructure development
sector has been pegged at $500 bn during the Eleventh Five Year Plan.
These investments are mainly focused on power, transportation and road development.
Infrastructure equipment cost would account for around 20% of the such
project cost.
Over FY04-07, the NBFC's disbursements to infrastructure equipment finance has
seen a sharp surge of 53% to Rs.36.23 bn, Financial leasing would comprise
Rs.31.65 bn. The innovative product offering in the operating lease business would
lead to multifold growth in the NBFC's operating lease assets.
There would be substantial infrastructure spending of $500 bn in the Eleventh Five
Year Plan (FY07-12), of which over 65% would be in the construction sector alone.
This, we believe, offers a huge potential to the construction contractors and
project developers. In light of this, the overall financing assets of the NBFC are expected
to grow at a CAGR of 46% during FY07-10 to Rs.111 bn.
Business growth (Rs mn)
120,000
100,000
80,000
60,000
40,000
20,000
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2007 2008E 2009E 2010E
Source: Company, Kotak Securities - Private Client Research
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