Profitability to improve in Q3; rise in NPA unlikely: SREI | srei
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Profitability to improve in Q3; rise in NPA unlikely: SREI

In an interview to CNBC-TV18, Hemant Kanoria, CMD,SREI Infrastructure Finance says, although profitability was more or less flat for the first two quarters, there would be an improvement from third quarter onwards because a lot of provisioning has already taken place in first two quarters.

For the first half of the financial year, infrastructure sector saw strain and slowdown, so the company was careful with fresh disbursements, he adds. The consolidated disbursement for the project finance and equipment finance stood at Rs 5922 crore, so they were basically flat for H1, he adds.

According to him NPAs will not rise in the next couple of quarters. They were up in the last two quarters on account of their conservative provisioning norm, says Kanoria.

Below is the verbatim transcript of his interview on CNBC-TV18

Q: Can you run us through the quarterly performance this time around? The net profits look like a big disappointment at Rs 41 crore versus Rs 130 crore on a Year-on-Year basis. Can you just run us through the key parameters?

A: As you know that the infrastructure sector is having its own strain and we have also being quite careful in our fresh disbursements this year and especially in the last two quarters because of the slowdown.

We felt that it was better to just look at the quality of the portfolio and see what support can be given to the clients who are already there in the sector both for SREI Equipment Finance and in the SREI Infrastructure Finance as a parent company.

In the SREI Equipment Finance if you look at it the performance has improved. The profitability has also gone up. The profitability against last year's comparison is about Rs 138 crore for the first six months and for the quarter also there is an improvement, about Rs 71 crore is the Profit After Tax (PAT) and the Profit Before Tax (PBT) there is an increase of about 10 percent compared to the last year.

As I mentioned, the disbursement have been flat because of the current market situation.

Q: What is the exact disbursement level? Last quarter you did about Rs 3,520 crore - What has it been in Q2?

A: This particular quarter it has been approximately about the same amount. It has been about Rs 2,800 crore. So, the total consolidated disbursement both for the project finance and equipment finance business for the first half year has been Rs 5,922 crore. Basically, if you look at the performance parameters the PAT has been lower than what we have had expected just because of the interest rate which has not yet come down. We were expecting that the interest rates would be moving down, but unfortunately that has not happened.

We have also taken a hit on the foreign exchange because the way rupee depreciated in the last 2-3 quarters. So that has had a large impact on the profitability, because we do a mark-to-market (MTM) in each quarter. This meant our MTM profits also came down.

The NPA definitely has gone up. Though it is not something which is really alarming, but because of our very conservative provisioning norm, NPA has also increased. We are sure for the next couple of quarters they will plateau and we do not see NPAs rising much.

Q: If you could give us some more details on NPAs and the kind of provisioning that you have made this quarter.

A: We have had a gross NPA of about 2.89 percent and net NPA is 2.35 percent, therefore there has been a rise in the NPAs. As I said it is more because of the over-provisioning, which we usually do and we are being very conservative on that, so that had its impact.

The profitability is more or less flat. It is plus-minus 5-10 percent here and there which we saw in the first two quarters,

However, from the third quarter onwards we are going to see an improvement in the profitability because a lot of provisioning also has taken place in the first two quarters.

Moreover, infrastructure sector has definitely slowed down in the country and our company being primarily in that sector, we have seen these kind of plateauing of the disbursements.

Q: What are the Assets Under Management (AUM) in this quarter that you have clocked in? Because the situation has gotten worse because of the cost of money becoming more expensive - do you think you may have to see a couple of more quarters of pain although maybe not as bad as the Rs 40 crore that you reported this quarter?

A: I do not see that, because we have had substantial provisioning in the first two quarters of this particular year which has also seen the PAT coming down, but going forward we do not see any move or provisioning or NPAs coming up which will reduce the profitability in the next couple of quarters.

The AUM is about Rs 34,700 crore for the company on a consolidated basis and the total income is Rs 1,600 crore. Compared to the last year of the first six months the total income is higher, the AUM is also higher. From Rs 32,000 crore it has gone up to Rs 34,000 crore and disbursement as I mentioned is about Rs 5,900 crore.

Overall I think that the pains which were there in the first two quarters we have taken the hit on because of the problems which have been there in the economy, but going forward I do not see that there are any surprises which are going to come for us.

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