Chairman andmanaging director’s message

10

Finally, we have again started to

see a distinct improvement in the

economy and more specifically in the

infrastructure sector after a lull for the

past few years. Infrastructure being

the key area for development of any

economy will always be at the centre-

stage in the country’s growth.

We are still witnessing that banks

and financial institutions or the

infrastructure players who have

not been able to comprehend the

complexities of the sector and risks

within it, still grappling with unresolved

issues; whereas Srei, fortunately

and strategically, focused on the

infrastructure sector for more than two

decades, has been able to steer clear

of any major problem.

We have crossed many major

milestones in our journey so far and we

are ready to accelerate faster, now that

we have both the expertise and the

experience.

The year under review has been

eventful for us as we have successfully

concluded the share sale transaction of

Viom, harvesting Rs. 2,931 crore and

we have also been able to complete

the purchase of the entire shareholding

of Srei Equipment Finance Limited

from BNP Paribas Lease Group

(BPLG). Furthermore, BPLG has also

now become a shareholder of the

parent company Srei.

Economy outlookWhile global growth improved

marginally during the year under

review, the Indian economy managed

to clock a 7.6 per cent GDP growth

making it the world’s fastest growing

major economy. The growth in India is

primarily consumption driven with the

increase in per capita income and to

some extent by the capital expenditure

undertaken by the government.

Taking advantage of the drop in

international oil price during the year

under review, the government excelled

in fiscal management by adhering

to its targets, rationalising subsidies

selectively, expanding investment

in infrastructure and widening the

scope of social security net. However,

muted global demand has resulted in

17 consecutive months of declining

exports from India and a consequent

excess capacity in the manufacturing

sector. Industrial growth has remained

subdued leading to almost no new

investment towards capacity creation.

The Reserve Bank of India (RBI)

has maintained an accommodative

monetary policy and since January

2015 RBI has reduced Repo rate by

150 basis points, but unfortunately

fresh capital investments by the private

sector is yet to pick up. International

oil price is once again moving up, and

although this trend has been predicted

to be temporary by experts, it may

marginally affect the fiscal situation. In

addition, its impact on inflation will also

influence RBI’s decision on any further

interest rate cut.

On the global economy front, policy

tools towards fuelling domestic

demand have taken divergent paths.

USA signaled an end to its quantitative

easing (QE) programme through

an interest rate hike, but to ensure

the sustainability of the domestic

recovery, the Federal Reserve has

assured an accommodative monetary

policy. Meanwhile, European Central

Bank and Bank of Japan have

continued with QE and have also

introduced negative deposit rate to fuel

domestic demand. China, in its bid

to switch from an investment driven

to a consumption driven economic

model, has to deal with risks in the

financial markets (bad debts and

bond defaults), asset bubbles in its

property market and excess capacity

in the industry. On the commodity

front, while crude prices have started

moving up, non-energy commodity

prices remain stable with a hint on the

upside. Steel prices, meanwhile have

firmed appreciably. Gold prices remain

elevated on safe haven demand.

Of late, portfolio flows seem to be

returning to debt and equity markets of

emerging market economies.

Like previous years, the management

of your Company has been actively

tracking all these developments. Being

a company with international footprint

and having multiple foreign funding

channels, it is imperative to track

international capital flows so that we

can manage our forex risk judiciously.

Business outlookThe policy stalemate that had gripped

the nation a few years ago is certainly

over now. The present government

has brought a sense of purpose and

urgency to its functioning. A series

Srei Infrastructure Finance Limited Annual Report 2015-16

11

of reforms and practical guidelines

spanning multiple sectors has

once again got the global investor

community interested in the India

Growth Story. It is no coincidence that

the inbound foreign direct investment

(FDI) to India has reached a record

high during the year under review.

Though gross domestic product (GDP)

growth has been mostly consumption

driven, in recent times key economic

indicators like volume of cargo traffic

at ports, sale of two-wheelers, three-

wheelers and commercial vehicles,

cement production, steel consumption,

among others, point towards a nascent

recovery on the investment side too.

On the infrastructure front, the

government has announced a number

of sectoral schemes, stepped up

public investment, re-started many

stalled projects and ushered in a

sense of competitive federalism.

The government has even roped in

governments of other nations to jointly

implement key flagship infrastructure

projects. In addition, the government

has conceptualized new investment

vehicles which can channelise funds

from India and abroad into India’s

infrastructure projects. These are

poised to open up huge opportunities

in the infrastructure sector which

augur well for your Company.

Nevertheless, the banking sector,

which has been the main source

of debt for Indian infrastructure

projects, is saddled with a large

stressed assets portfolio and thus has

limited lending ability in the sector

at present. Resolving the banks’

problems can propel the economy

into an even higher growth trajectory.

During the year under review, one

of the key reforms undertaken to

address this problem has been the

introduction of the Insolvency and

Bankruptcy Code. This will enable

both genuine borrowers and lenders

to resolve problems expeditiously,

thereby preventing the asset or

portfolio from being a drag which

would have eventually resulted in a

stalemate. However, the Code calls

for some pre-requisites in the form

of new institutions and a new cadre

of insolvency professionals which

may take some time to fructify. Thus,

realistically speaking, the stressed

asset problem is likely to linger on

for some time. But once the Code

comes into force, it will open up many

new opportunities for your Company.

The Code will enable change in

management of many stressed

infrastructure assets and Infrastructure

Finance Companies (IFCs) like Srei,

which have specialized skill sets in

managing infrastructure assets, will

be well equipped to take charge of

such assets and then attempt a revival.

The management of your Company is

actively tracking the developments on

this front.

The government’s efforts to push land

and labour reforms by encouraging

state governments to frame their own

policies is a strategic masterstroke and

can do wonders for industrialization

and infrastructure. The government

also deserves credit for its attempts to

enhance the ‘ease of doing business’

through better centre-state co-

ordination. The government has done

well in improving the tax administration

and its immediate aim should be the

roll-out of the Goods & Services Tax

(GST) within 2016-17. A predictable

tax regime can do wonders in reviving

the investment climate and providing a

spurt to entrepreneurship.

To sum up, the business scenario is

much better today than what it was

during the last 3-4 years. A strong

foundation for long-term growth is

being laid. Things can only get better

from here onwards. Corrective action is

being taken on several fronts sector-

wise and this is paving the way for a

more mature and robust public-private

partnership (PPP).

Company outlookDuring the year under review, your

Company posted an income of Rs.

3,262 crore and registered net profit

of Rs. 72.52 crore. Your Company’s

consolidated disbursements stood at

Rs. 14,533 crore, a growth of 15.84

per cent over Rs. 12,546 crore in

2014-15. The total consolidated

assets under management were at

Rs. 36,702 crore. Taking cognizance

of the macroeconomic scenario,

the management consciously

adopted a cautious approach and

exercised extreme prudence in

its disbursements. The quality of

loan portfolio has been consistently

improving and stressed clients are

being closely monitored towards

prudent recovery.

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One of the high points of your

Company during the year under

review has been the stake sale in Viom

Networks Limited to American Tower

Corporation. The overall transaction

worth Rs. 7,600 crore resulted in a

total FDI inflow of Rs. 5,856 crore into

the telecom sector, out of which Srei

has received a total amount of Rs.

2,931 crore. However, the deal got

consummated in April 2016 and the

realisation will get reflected in Srei’s

Q1FY17 results. This cash inflow

is happening when the investment

scenario in the economy has started

looking up. Your Company will reduce

its debt and interest burden and at

the same time take exposure in new

infrastructure projects.

Your Company has been making

strategic investments from time to time

and has always followed a strategy

of harvesting such stakes at the

opportune moment. The management

is vigilant of such opportunities and will

opt for strategic divestments whenever

the right opportunity beckons.

The other major development during

the year under review has been the

consummation of the purchase of

100 per cent shareholding of Srei

Equipment Finance Ltd. BNP Paribas

Lease Group decided to sell its 50 per

cent shares in Srei Equipment to the

parent company, Srei Infrastructure

Finance Ltd., in lieu of a 5 per cent

stake in the parent company. This

will once again put your Company

in full charge of the asset financing

business. Meanwhile, BPLG, through

its stake in the parent, will get an

opportunity to have a share of the

entire infrastructure pie in the country.

While expanding its presence in

the infrastructure project financing

business, your Company also stands

to gain from skill sets and global best

practices that BPLG brings to the table

among other benefits. The formalities

of the process have been completed.

I strongly believe that tomorrow’s

innovations will be a result of how

effectively human intellect can leverage

modern technology. Technology will be

the key differentiator in every sphere of

life and work. Therefore, to stay ahead

of competition, the management of

your Company is investing in creating

a state-of-the-art- technology platform

and at the same time devoting time

and energy in training our people

to stay abreast with technology. A

core group within the Company is

overseeing the progress on this front.

The members of the group are also in

touch with experts in this field.

Now that RBI has issued draft

guidelines for on-tap license for

universal banks, your Company is

keenly following the developments on

that front. A detailed evaluation on the

pros and cons will be carried out after

the final guidelines are announced

before any further step is initiated.

The investment in technology and

manpower is made with an eye on the

possibility of expanding the financial

sector bandwidth.

Let me conclude by reiterating that

good times are ahead for our Country.

Many systemic problems are being

taken care of with imaginative and

practical solutions, which will pave

the way for robust growth and it will

be fuelled by a healthy mix of both

consumption and investment. PPP will

emerge stronger in the infrastructure

creation process and your Company

will be ready to tap the opportunities

that will unfold.

We look forward to your continued

support in our future endeavours.

Thank you.

HEMANT KANORIA

Chairman & Managing Director

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Srei Infrastructure Finance Limited Annual Report 2015-16