Srei Infra Fin may hive off road biz

BANGALORE: Following moves by some of its peers, Srei Infrastructure Finance may hive off its road projects business into a separate company and induct a financial investor at a later stage. “Srei is in the process of setting up a separate vertical for road projects, which are being developed on a build, operate and transfer (BOT) basis. This is part of the company’s strategy to fuel growth,” people close to the development said.

The company’s MD Hemant Kanoria, while denying that they are planning a separate unit, said the firm wants to capitalise on the spurt in road sector projects. It is part of 16 road projects, at various stages of execution, worth about Rs 16,000 crore. The firm is targeting consolidated disbursals of Rs 12,000 crore this fiscal year against Rs 9,000 crore last year.

But right now, it works with consortium partners such as Madhucon, Sadbhav Engineers and KMC to bid for road projects wherein it holds between 10% and 49% stake.

The hive-off move is expected to help the company raise more money and exit faster from such projects. It will also open up opportunity to list the entity on the bourses. “Setting up a separate company helps faster rotation and redeployment of cash flow,” said Jai Mavani, head of infrastructure and government consulting at KPMG.

“There can be a lot of volatility for construction and finance companies. Setting up of a separate vertical helps in creating assured assets,” said Kuljit Singh, partner and head of Transactions Advisory, Ernst & Young India.
Recently, IVRCL Infrastructures and Projects transferred most of its BOT assets to IVR Prime Urban Developers, which was originally in the real estate business.

Again, the hive-off is seen to raise the valuation of IVR Prime, which has been waiting for a property market revival. The GMR Group too has set up a separate vertical for road projects.

Srei is also applying for a change in the company’s status from being a NBFC to an infrastructure finance company (IFC), Mr Kanoria said. This will help it increase core sector lending from 15% of its net worth to 25%.

It reported a 90% jump in net profit to Rs 156 crore in the fiscal year 2009-10 as against Rs 82 crore in the previous fiscal. Total disbursements grew 36% year-on-year to Rs 9,000 crore. The company declared a dividend of 12%. On Friday, Srei’s scrip closed 3.89% higher at Rs 85.55.