Stock Analysis: SREI Infrastructure Finance Ltd

Company name:  SREI Infrastructure Finance Ltd
CMP: 38
Stock P/E : 5.27


(1) Company Overview

• SREI Infrastructure Finance Ltd, a Kanoria foundation entity, is one of India’s largest holistic infrastructure institutions delivering innovative solutions in the Infrastructure space.
• It has been engaged in leasing and hire purchase / hypothecation financing of construction equipment and financing of infrastructure related projects. 
• The company has been in this business for nearly three decades, and with a customer base of 77,000 and over USD 7 bn of consolidated AUM. It is one of the largest player in the infrastructure segment.

(2) Key Businesses And Strategy

(3) This was the main reason for my recommendation.  In the 2018 annual report, we can see that a company has made fixed asset investment which is more than its market cap which was the main thing which caught my eye. Imagine a company with a market cap of 2,300 cr making an investment of 2700 cr.

We will now look into below what is company plans

Asset Finance Business

• Leading financier in the Construction, Mining and allied Equipment (“CME”) sector in India offering loans and leases for new as well as used equipment • Promoted and 100% owned by Srei Infrastructure Finance Limited which has over 27 years experience in CE finance 

• Over 32.7% market share1 and customer base of 64,000+ current customers2 

• Distribution network of 89 branches across 21 states, 77 additional satellite locations and an employee base of 2,005 employees2 

• Strategic pan-India penetration through 120 SEPs2,4 and 191 OEMs partnerships2 

• Present across Tipper, IT, Farm & Medical Equipment Financing segments 

• Gross Earning Assets of INR 254,171 Mn2 with a 2.5 year CAGR of 15% 

CME Financing Industry: Poised for Growth

 Better geographic reach 

 Offer faster TAT1 

 Tailor made schemes 

 Higher LTV2 than banks 

 Simple documentation 

 Flexible terms

 Key Business and Strategy

Well positioned to access customers in the growing Indian infrastructure financing sector

 Since FY11, CME financing industry was dominated by NBFCs and select Banks 

 Currently, SEFL is the only end to end solution provider across the entire CME value chain 

 Disbursements of SEFL are the highest among the top five CME finance companies 

Equipment Centric Model Pushed by Long Standing OEM Tie-ups

• Financing of new and pre-owned Equipment 

• Equipment maintenance assistance through spare parts financing 

• Deploying financed equipment to projects 

• Branded refurbished equipment financing solutions 

• 77 stockyards across the country offer exit services efficiently 

Srei Entrepreneur Partners (SEPs)

 Exclusive distribution partners, SEPs, help in sourcing customers and ensuring regular repayment  Local risk insight and ground presence facilitates: • Customer acquisition • Screening • Broadening of market coverage 

 120 SEPs across the country

(4) Key Investment Highlights

A- Strong Growth Outlook  

• Increased outlay for Infrastructure & affordable housing to boost demand for CME 
• CME Finance expected to grow at a CAGR of ~ 19% up to FY20 
• Srei being the market leader is best positioned to ride this growth

B- Diversifying within Core Business

• Expanding Segment CME - Material Handling Equipment, Tipper , Used Equipment and Spare Parts 

• Expanding the Asset finance portfolio beyond the traditional CME segment i.e, Healthcare, IT, Rural 

• Provide Asset life cycle solution 

• Moving towards complete digitized platform to enhance customer experience

C- Improving Underwriting

• Leverage experience of being into infra sector for the last 28 years

• Improved credit underwriting through better insight & data analytics through digitization 

• Strategy beyond Asset writing - Down selling of portfolio to increase income through velocity

D- Cost Improvement

Maximize return through 

• Focus on PSL portfolio – Increase Securitization 

• Optimise borrowings and explore alternate avenues of funding to reduce cost. 

• Operating Leverage – Larger scale will optimize cost 

(7) Company price

Company price has corrected from a high of 120 in Nov 17 to almost 50's while the company has continued to report good profit on continuous basis QoQ. This fall is more due to small cap crash rather than company fundamentals. This makes the company price extremely attractive.

When compared with Peers, its not only one of the cheapest P/E share available right now but also one which has been declaring consistent dividend and showing consistent profit growth

As we can see below, the company has continued to show a strong profit and sales growth despite a decline in stock price 

Given the strong investment made by the company and the recent correction in share price while company constantly displaying strong financials makes this company an extremely attractive in current market condition.

Please note : The above case study was more for educational purpose. I am not a SEBI registered research analyst and my views might be biased. I have no investment in above stock.