SREI INFRASTRUCTURE FINANCE
PRICE: RS.75 RECOMMENDATION: BUY
TARGET PRICE: RS.105 FY11E P/EX: 7.5X; P/ABV:0.7X
n Revising our earnings estimates following improved outlook for infrastructure development
business; advances growth to improve
n Increasing our valuation for Quippo Telecom for SREI Infrastructure to Rs. 16.5
per share for our SToP.
n Q2FY10 performance broadly in line with our expectation- margins improved sequentially,
asset quality expect to improve going forward.
n The stock is currently trading at compelling valuation of less than 1x its P/ABV.
Factoring in higher earnings growth, revising our estimates for its investments in
Quippo telecom and various projects, we have revised our price target for the
stock to Rs 105 (Rs. 95 earlier).
Revising our earnings estimates following improved outlook for
infrastructure development business; advances growth to improve
n In the backdrop higher government focus on infrastructure development in India
during the eleventh five year plan, we expect improved traction in SREI’s advances
growth.
n In the back drop of improved outlook we expect a (consolidated) 21% CAGR in
SREI’s advances book over FY2009-11. We expect a loan book of Rs. 23.7bn (on
a low base of Rs. 12.1bn) for FY10E and Rs 28.9bn for FY11E for the parent
company.
n Since SREI is operating in a niche segment, it has dexterously pricing the asset
risk at premium, concurrent with easing cost of funds, will help SREI in improving
net margins going forward.
n Following steady net margins and improve advances growth; we expect a net
profit growth of 25% yoy to Rs.1.0bn during FY10 and 20% yoy to Rs.1.2bn in
FY11.
n SREI holds investment amount to ~ Rs. 3bn in various projects, which includes
roads, ports and SEZs. SREI is looking forward to a suitable opportunity and
would monetize these investments going forward. We opine that this would be
materially ROE accretive going forward.
n SREI’s return ratios are expected to remain in the range of 11-12% during FY10-
11 following the JV formation with BNP Paribas. We opine that a steady increase
in the balance sheet gearing will support SREI return ratio in the long-term. We
have factored in a RoE of 15% in working to arrive at our price target of Rs. 105
n Given, challenging operating conditions prevailing during FY09, asset quality was
impacted. Further, during
Increasing our valuation for Quippo telecom for SREI Infra
n SREI infrastructure holds close to 17% in Quippo Infrastructure- which is an
equipment rental arm. Quippo telecom (a telecom infrastructure rental company)
is a 26% subsidiary of Quippo infrastructure. Post merger with Tatatele’s tower
business, SREI’s economic interest stood at 2% in the company.
n During Q2FY10 SREI has invested close to Rs.1bn in WTTIL for a 1% stake in the
company. This will increase SREI’s stake in the company to close to 3%.
n We are valuing Quippo telecom at Rs.16.5 per share for SREI Infrastructure, fac
nifty jan futs high 5640/- means wat ? any idea , we will touch 5640 in jan
